blog




  • Essay / Fiscal Policy: Sustainability of Fiscal Policy

    Sustainability of fiscal policy defined as government measures to guide and control spending and taxation is essential. This importance arises from the role of fiscal policy in promoting strong and sustainable economic growth, as well as sustainable poverty reduction, by mobilizing and allocating resources, and enabling most low-income countries income to achieve the millennium development goals. To analyze the viability of these policies, one must look at the fiscal position of a particular government. The diversity of problems, objectives and economic structures means that no single measure will suit all circumstances. A good understanding of how policy should be sustainable must take into account the practices of each country reflects this diversity. In our case, a country exporting raw materials is taken into account. In particular, I assume that the country in question is an oil exporter. A fiscal policy assessment should comprehensively analyze stocks, flows and debt indicators, particularly the non-oil primary balance for that assumed country. Among the relevant flow indicators, the following should be analyzed: • The overall budget balance which is the difference between total revenue (including grants) and total expenditure plus loans minus repayments and reflects the links with net financing needs of the government and with the external current account. . However, it may not be a good indicator of the impact of fiscal policy on domestic demand or the government's adjustment effort, as it may mask vulnerabilities underlying. For example, with increasing oil revenues, a fiscal expansion through increased spending may be masked by an improvement in the overall balance.• The analysis of fiscal policy over the business cycle has become more critical.... .. middle of document ... ... of GDP, keeping non-oil revenues and the ratios of total expenditures to non-oil GDP unchanged. This approach helps isolate the specific impact of oil price changes, but has some obvious drawbacks because it assumes local linearity between oil prices and oil tax revenues. The evolution of the debt/GDP ratio is also important. The need to ensure fiscal sustainability should anchor the medium-term fiscal trajectory. In these cases, the overarching objective is to improve the primary balance so that it is compatible with debt sustainability. The slower the improvement, the bigger it will have to be, because the debt-to-GDP ratio will continue to rise. It is important to understand the evolution of the ratio. Finally, understanding how the deficit is financed can be key to assessing sustainability. Overreliance on oil revenues can expose the budget to volatility that would require