The latest IMF fiscal monitor underscores three key fiscal trends. First, deficits in the developed world keep narrowing, thanks to past fiscal tightening and present economic growth Second, public debt ratios remain high and are unlikely to fall back below 100% of GDP this decade. Third, emerging markets fiscal numbers are deteriorating.
IMF Fiscal Monitor, “Chapter 1: Recent Fiscal Developments and Outlook” http://www.imf.org/external/pubs/ft/fm/2015/01/pdf/fmc1.pdf
The below is a summary the IMF outlook with some quotes. Cursive text is a summary of key numbers.
Basic numbers to memorize
The IMF estimates that the general government deficit in the developed world will shrink to 3.3% of GDP in 2015, from 3.9% in 2014, and a peak of 8.9% back in 2009.
Relatively high deficit ratios are still displayed by Japan (7.7% in 2014), the United Kingdom (5.7%), and the United States (5.3%). The euro area average deficit ratio is comparably modest at 2.9% of GDP, thanks mainly to a small surplus in Germany, while Spain (5.8%), Portugal (4.5%), and France (4.2%) still have to post high estimated deficit ratios for 2014.
The developed world’s cyclically-adjusted primary government deficit (which excludes business cycle effects and net interest payments) is projected to decrease to just 1.5% of GDP in 2015, from 1.8% in 2014, and a peak of 5.1% in 2010. This would imply fiscal tightening of 3.6% of GDP between 2010 and 2015.
The IMF projects that the general government debt stock in the developed world will inch up to 105.4% of GDP in 2015, from 105.3% in 2014, remaining well above the 77.3% debt ratio recorded back in 2007.
Countries with particularly high debt ratios include Japan (246% in 2014), Greece (172%), and Italy (132%). The general government debt of the U.S. stood at 104.8% of GDP at the end of last year, more than 10%-points above the euro area’s (94%).
The average general government deficit in the emerging markets country group is projected to widen to 3.7% of GDP in 2015, from 2.4% in 2014, and 1.5% in 2013. This would take the EM group above the 3.6% post-crisis peak and compares to a surplus of 1.1% of GDP back in 2007. Countries with high deficits include Venezuela (14.8% of GDP in 2014), India (7.1%), and Brazil (6.2%).
The IMF expects the average gross debt ratio of EM countries to increase to almost 44% in 2015, from 41.7% in 2014. Countries with high gross debt include Hungary (77% of GDP in 2014), Brazil (65%), and India (65%).
IMF comments on public debt
“High public and private debt levels continue to pose headwinds to growth and debt sustainability in some advanced economies. In addition, inflation is below target by a large margin in many countries, making the task of reducing high public debt levels more difficult…The average ratio of debt to GDP [in the developed world] remains above 100 percent and is expected to decline only slowly, as very low inflation and slow growth complicate debt reduction efforts. .”
IMF comments on fiscal consolidation
“In general…the pace of fiscal consolidation in advanced economies has slowed… from 1% of GDP a year during 2011–13 to ½% of GDP in 2014, and an expected ¼ % of GDP in 2015. After increasing strongly over 2010–14, in part due to tax hikes, overall revenue ratios are now broadly back to pre-crisis levels and expected to stabilize or decline slightly in the coming years. The fiscal stance for the euro area as a whole was neutral in 2014 and is expected to remain broadly neutral through 2016. At the same time, output gaps are still sizable in many countries, and fiscal space is lacking where demand support is needed the most.”
IMF countries on rising EM countries deficit
“The average deficit for the group of emerging market and middle-income economies as a whole increased in 2014 for the second year in a row and is projected to increase further in 2015, to about 3¾%of GDP. The trend is driven largely by oil exporters, although deficits also increased in many oil importers, albeit at a slower pace.”