1
Fiscal Analysis and Forecasting Workshop
Bangkok, Thailand
June 16 – 27, 2014
L1
–
Macroeconomic and Financial
Implications of Fiscal Policy
Mangal Goswami
STISTI
IMF-TAOLAM training activities are supported by funding of the Government of Japan
Introduction: what is fiscal policy?
Fiscal policy is the use of government spending
and taxation to affect the economy (allocation of
resources, production, distribution of income)
Macroeconomic
stability & growth
ObjectivesObjectives
Income
f
2
stability
&
growth
• Revenues
• Expenditures
• Financing
Income
redistribution and
social safety nets
Prov
i
s
i
on o
f
public goods
This training material is the property of the International Monetary Fund and is intended for the use in Institute for Capacity Development (ICD)
and Fiscal Affairs Department (FAD) courses. Any reuse requires the permission of ICD and FAD.
2
Introduction: macro stability & growth
Internal balance: adjust aggregate demand to supply:
Fiscal contraction (spending cuts, tax increases) to slow inflation,
reduce current account deficit
Fiscal expansion (tax cuts, spending increases) to address recession,
help restore demand and achieve potential GDP
External balance: promote sustainable saving / investment
balance and borrow externally on a sustainable way
Economic growth: provide infrastructure, health, education,
implement structural reforms
3
Achieving policy objectives requires coordinating FP with
monetary, exchange rate, and structural policies
Outline
1. Economic effects of fiscal policy
2. Fiscal effects of macroeconomic conditions
3. Optimal fiscal policy for output stabilization
4. Fiscal accounts and fiscal targets
4
3
Part 1
Part
1
Economic Effects
of Fiscal Policy
5
Fiscal policy and GDP
GDP = C + I + G + X - M
Fiscal policy affects GDP:
• Directly through G
• Indirectly through C (taxes, expectations), I (interest rates,
confidence), X and M (demand for imported goods, the
effect of fiscal policy on the exchange rate)
6
Fiscal policy affects C, I, X, and M. There are different
theories on how fiscal policy affects GDP once all the effects
on other variables are considered.
4
Effects on GDP: the Keynesian view (I)
Since Keynes, fiscal policy has been recognized as a useful tool
for affecting aggregate demand (ISLM-BP framework)
i
E
LM
BP
i
0
7
Y
0
IS
Y
Effects on GDP: the Keynesian view (II)
Under Keynesian view, fiscal policy for output
stabilization/control is:
Fixed EX rate Flexible EX rate
High K mobility Very effective Less effective
Low k mobility Less effective Very effective
8
Effectiveness of FP also depends upon:
• Is the economy at full capacity
• Type of budgetary finance – debt or money
• How coordinated are fiscal and monetary policy?
5
Effects on GDP: neo-classical view
The government faces an inter-temporal budget constraint:
11
GT
GT
rr
an increase in spending today (G) requires that the government
lower future spending (G’), or raise future taxes (T’)
Ricardian equivalence proposition:
• rational agents anticipate that a tax cut today will be paid off
in the future:
11
rr
9
• rational agents smooth their consumption and saving now to
pay off future taxes
Under what circumstances fiscal policy retains its effectiveness?
Start with definition of Gross National
Disposable Income (GNDI)
Recall that GDP = C + I + X - M
TR: net transfers (gifts)
TR:
net
transfers
(gifts)
YF: net factor income, labor and capital (receipts
minus payments)
GNDI GDP YF TR
10
Net Factor Net
Income Transfers
GNP GNI
6
Notice the following key macro relationship:
GNDI = C + I + X – M + YF + TRF
or GNDI = C + I + CAB
or CAB = GNDI - C – I
= S - I
11
Policy implications
Domestic
Domestic
I
() 0GNDI C I CAB
Policy Implications
o Domestic demand > income requires external
financing and more external debt
o
If imprudent it may be impossible to finance
I
ncome
Demand
o
If
imprudent
it
may
be
impossible
to
finance
o Reducing current account deficit may require fiscal
tightening and possible exchange rate action
12
7
Decompose GNDI, C and I into private and government
components:
GNDI Y Y
Fiscal policy and the external sector (I)
[][]
[][]
pg
pg
ppp ggg
SS
pp gg
GNDI Y Y
CAB Y C I Y C I
CAB S I S I
13
Private Sector Gap Public Sector Gap =
(Revenue - Expenditure)
Fiscal policy affects the current account through:
o Direct impact through demand
o Impact through the real exchange rate
o Impact on interest rates and country premia
Fiscal policy and the external sector (II)
Expansionary fiscal policy may lead to increase in interest rates,
capital inflows, and appreciation of currency
In general a larger fiscal deficit corresponds to a worse savings
In
general
,
a
larger
fiscal
deficit
corresponds
to
a
worse
savings
—investment balance (weaker current account)
CAB identity is an ex-post identity, behavioral relationships must
to be taken into account:
• reducing transfers that are fully saved leads to a one-to-
one decrease in private savings: the CAB does not improve
ddfdl
14
• re
d
ucing spen
d
ing on
f
oreign goo
d
s causes
l
ower output
contraction than if reducing spending on domestic goods
• a fiscal expansion may crowd out I
p
or increase savings if
the private sector is Ricardian (little evidence of this)
8
Financial consequences of fiscal policy (I)
The macroeconomic consequences of the deficit depends in part
on the way it is financed. There are four forms of financing:
• Borrowing abroad
• Borrowing from the central bank (seignorage)
• Borrowing from the domestic commercial banks
• Borrowing from the domestic nonbank sector
15
Financial consequences of fiscal policy (II)
Borrowing in foreign currency implies, for most developing and
emerging countries, borrowing in foreign currency:
• changes in the exchange rate will affect the value of
external debt in domestic currency
• can cause an initial exchange rate appreciation, reducing
the competitiveness of the tradable sector
• for some countries, concerns about the sustainability of
debt and/or lack of creditworthiness severely limit this
16
debt
and/or
lack
of
creditworthiness
severely
limit
this
source of financing
9
Financial consequences of fiscal policy (III)
Borrowing from the Central Bank entails the sale of bonds to
the Central Bank. Less frequently, the Central Bank allows the
government to hold an overdraft account
government
to
hold
an
overdraft
account
• these loans are often at low interest rates
• it is equivalent to the creation of high powered money,
fueling inflation
• the CB can try to limit credit to the government, but it will
be successful only if it is fully independent
17
be
successful
only
if
it
is
fully
independent
Financial consequences of fiscal policy (IV)
Borrowing from domestic commercial banks: the government
sells bonds of different maturities to the commercial banks at
market interest rates
market
interest
rates
• It does not create high powered money, unless the CB
accommodates the extra demand for credit from
commercial banks by supplying them with additional
reserves (indirect CB financing of deficit)
• Commercial banks may be forced to reduce credit to the
18
private sector. This crowding out effect takes place through
interest rate increases
10
Financial consequences of fiscal policy (V)
Borrowing from the domestic non bank sector: The government
sells bonds of different maturities to the private sector at market
interest rates
interest
rates
• It does not create high powered money
• But it puts upward pressure on interest rates and thus
crowds out the private sector
• It can also distort interest rates if the non-bank sector is
required to hold government bonds
19
required
to
hold
government
bonds
Fiscal policy effects on the BOP
Fiscal contractions help reduce the effects of large capital flows on
aggregate demand and the real exchange rate:
B d i t d d it ll l i t t t
•
B
y
d
ampen
i
ng aggrega
t
e
d
eman
d
,
it
a
ll
ows
l
ower
i
n
t
eres
t
ra
t
es
and helps reduce incentives for inflows
• It alleviates the appreciating pressures on the exchange rate
directly (public spending is biased toward non-traded goods)
• It may provide greater scope for a countercyclical fiscal response
to cushion economic activit
y
when the inflows sto
p
20
yp
Typically, fiscal policy in emerging markets receiving capital inflows
is pro-cyclical, because a fast-growing economy generates
revenues that feed higher spending.
11
Effects on inflation and the financial sector
Central bank borrowing: inflationary effects with implications for:
o Current account deficit
o
Depending on fiscal repressions nominal interest rates
o
Depending
on
fiscal
repressions
,
nominal
interest
rates
o Real exchange rate
Commercial bank borrowing: crowds out private borrowing,
raising interest rates (unless central bank accommodates)
Domestic non-bank borrowing: crowds out private borrowing that
could be used to finance investment, less funding available for
lldthihittt
l
oans
l
ea
d
s
t
o
hi
g
h
er
i
n
t
eres
t
ra
t
es
Foreign borrowing: raises foreign debt and may lead to BoP
problems; exch. rt. risk; debt service needs may exert
downward pressure on the exchange rate
21
Financing from monetary sector
Note:
M = NFA + NDA
NDA DC OIN
NDA
=
DC
+
OIN
DC = NCG + CRE (State Ent. & Priv.)
• Fiscal policy determines the government’s demand for bank
financing (NCG), which, in turn, affects total domestic credit
(DC), net domestic assets (NDA), and broad money (M)
i h b d fi i ill i i
• H
i
g
h
er
b
u
d
get
fi
nanc
i
ng w
ill
requ
i
re more money expans
i
on
unless credit to the private sector is less or NFA is lower
(meaning a worse BOP).
22
12
Part 2
Fiscal effects of
macroeconomic
conditions
23
The impact of the macroeconomy on the
fiscal sector
• Government budget reflects changes in the
macroeconomic environment
;
;
• Need to be aware of the current and changing
macroeconomic environment and how it might
affect fiscal outcome;
• May need to change fiscal stance, if so what
should be the appropriate policy;
24
13
Real GDP
• Revenues rise during periods of economic expansion and typically
tax/GDP ratio rises, while the opposite happens during a slowdown
• Higher revenues may trigger higher discretionary expenditures i.e.
induce pro-cyclicality and allocation of expenditures may not be
optimal
• Lower global GDP growth could hurt export growth – both volume
and prices could affect revenues
• Weaker national GDP growth could lead to declining imports and
import tax revenue
25
Real GDP and the budget
During an economic contraction revenues-to-GDP fall and
expenditure-to-GDP increases
26
From: Patrizia Tumbarello, Unit Chief, Pacific Islands Unit, Asia and Pacific Department, IMF: "Fiscal Frameworks
to Support Growth and Macro Stability“, presentation for high-level Conference on Pacific Island Countries
Lifting Potential Growth in the Pacific Islands
14
Inflation
• High commodity prices
o for an oil importer if domestic prices are not
raised, subsidies would increase and/or tax
d
revenues re
d
uce
o Domestic (or international) wheat prices up,
subsidies may increase for consumers
• Higher inflation rate could lead to higher nominal
interest rates
• Higher inflation rate would lead to appreciation of
currenc
y
in real terms and loss of com
p
etitiveness
yp
• Very high inflation could lead to uncertainty, decline
in investments, and thus GDP and revenues
27
Interest rates
• Lower interest rates mean lower interest expenditure
for government
•
Lower interest rates could spur investment and higher
Lower
interest
rates
could
spur
investment
and
higher
GDP growth; also corporate costs decline leading to
higher corporate profits and tax collections
• Low foreign interest rates – search for yield could lead
to capital inflows
• High capital inflows could lead to more liquidity
supporting higher growth as well as lower interest rates
(maybe higher inflation) and higher revenues
Beware of just the opposite! In all of the above cases!
28
15
Exchange rate and external sector
• If the Real Effective Exchange Rate (REER) appreciates,
lose competitiveness lowering GDP:
o Exports decline
o Cheaper imports hurt domestic industry
• High external debt – if exchange rate depreciates or
global interest rates rise, liability increases as do
interest payments; if not rolled over could cause capital
flight and lower growth and revenues
• Capital flows
29
Grants
Grants are an important component of government’s receipts
30
From: Patrizia Tumbarello, Unit Chief, Pacific Islands Unit, Asia and Pacific Department, IMF: "Fiscal Frameworks
to Support Growth and Macro Stability“, presentation for high-level Conference on Pacific Island Countries
Lifting Potential Growth in the Pacific Islands
16
Part 3
Optimal fiscal policy for
output stabilization
31
General questions
• How should fiscal policy respond to fluctuations of output?
• Is fiscal policy effective in smoothing output fluctuations?
• In practice, how does fiscal policy respond to output?
• What level to target for fiscal balances?/ How much fiscal
adjustment (up or down)?
• Shall fiscal rules be used?
32
17
Countercyclical fiscal policy can be an effective
tool for stabilizing the economy
y
p
In a recession the government should stimulate the economy
y
t
CyclicalCyclical
FluctuationsFluctuations
In
a
recession
,
the
government
should
stimulate
the
economy
by increasing spending and/or lowering taxes
In an expansion, the government should avoid the economy
overheating by reducing spending and/or increasing taxes
-33-
Fiscal multipliers
The fiscal multiplier is the ratio of a change in output (∆Y)
to an exogenous change in the fiscal deficit (∆G or -∆T)
o The larger the fiscal multipliers, the more effective
fi l li ld b i t bili i th
fi
sca
l
po
li
cy wou
ld
b
e
i
n s
t
a
bili
z
i
ng
th
e economy
Fiscal multipliers would be larger
, if
Few “leakages” through savings or imports;
The monetary conditions are accommodative (less
crowding-out)
Country
’
s fiscal position after the stimulus is sustainable
Country s
fiscal
position
after
the
stimulus
is
sustainable
-34-
Source: IMF SPN/09/11
18
Effectiveness of fiscal policy (I)
Can fiscal policy help to stabilize short-run fluctuations in the
economy? In theory,
– Yes if fiscal policy mainly has demand effects, i.e., shifts out
aggregate demand during recessions (when individuals or
firms are credit constrained)
– No if fiscal policy mainly has a negative wealth effect on
labor supply and a crowding out effect on private
itt
35
i
nves
t
men
t
Automatic stabilizers and discretionary measures (fiscal stimulus)
help implement counter-cyclical fiscal policies.
Effectiveness of fiscal policy (II)
Automatic stabilizers are revenue or expenditure
provisions that have counter
cyclical impact without need
Automatic stabilizers:
• Allow implementing counter-cyclical fiscal policies
• Dampen business cycles
El
provisions
that
have
counter
-
cyclical
impact
without
need
for policy intervention
36
E
xamp
l
es
• Unemployment insurance
• Price stabilization funds
19
Is the economy at full capacity (employment)?
• FP affects supply and price responses
Effectiveness of fiscal policy (III)
Fixed or flexible exchange rate system?
• Adjustments through reserves or through prices
Is capital fully mobile?
• Capital will respond to changes in interest rates
• Impact on the exchange rate
Type of budgetary finance
–
debt or money
Type
of
budgetary
finance
debt
or
money
How will the private sector respond?
• Crowding-out effect
How coordinated are fiscal and monetary policy?
37
Evidence on procyclical bias
Possible explanations:
• Higher revenues
allow hi
g
her
g
spending: difficult to
resist demands
when times are good
• Lower revenues
force lower spending
when there are
constraints on
38
From: Patrizia Tumbarello, Unit Chief, Pacific Islands Unit, Asia and Pacific Department, IMF: "Fiscal Frameworks
to Support Growth and Macro Stability“, presentation for high-level Conference on Pacific Island Countries
Lifting Potential Growth in the Pacific Islands
constraints
on
financing
20
Policy implications of fiscal policy
• Sound fiscal policy is critical for macroeconomic
management and needs to be coordinated with
dh lf
monetary an
d
exc
h
ange rate po
l
icy
f
or maximum
impact
• Fiscal stimulus is usually expansionary, but it depends
on circumstances
• Fiscal policy affects BOP, monetary policy
• Impact of fiscal policy depends on behavior of private
participants – local and/or foreign
• Note institutional features that can limit impact of fiscal
policy, including globalization
39
Part 4
Fiscal accounts
and fiscal targets
40
21
Fiscal accounts
• Revenues
• Expenditures
• Financing
• Of the
government
• during a period
of time
• Separate sources
of funds that do
not generate debt
/decrease assets
• Separate uses of
funds not directed
• Separate sources
of funds that do
not generate debt
/decrease assets
• Separate uses of
funds not directed
• Define
government
• Define
government
• Flow concept
• Cash in many
cases
• Flow concept
• Cash in many
cases
41
funds
not
directed
to repay debt
funds
not
directed
to repay debt
• Gross vs. net accounting
• Consolidation of accounts
• Gross vs. net accounting
• Consolidation of accounts
Revenues and grants (II)
Revenues are non repayable receipts (i.e. receipts which do not
give rise to an obligation of repayment):
Total Revenues and Grants
Tax revenues
Direct taxes
Taxes on income
Taxes on wealth
Indirect taxes
Taxes on goods and services (VAT, sales tax, turnover)
Taxes on imports
Other tax revenues
Nontax revenue
License, fees, etc.
Central Bank profits
Grants
42
22
Expenditures (I)
Total Expenditures and Net Lending
Current expenditures
Noninterest expenditures
Noninterest
expenditures
Wages and salaries
Goods and services
Transfers
Pensions
Subsidies
Other transfers
I
I
nterest payments
Other current expenditures
Capital expenditures
Net Lending
43
Korea 21.4
Australia 37.1
Some Asian countries: Illustrative shares of
General Government Expenditure to GDP
China 24.9
India 27.3
Indonesia 19.7
Malaysia 29.8
Pakistan 21.5
Philippines 18.8
Thailand 24.7
Laos 22.2
Vietnam 27.7
Source: IMF, October 9, 2013 Fiscal Monitor
44
23
Some Asian countries: government revenues
and expenditures
Government revenues and expenditure as a share of GDP, 2010
Indonesia
Malaysia
Philippines
Thailand
Vietnam
China
India
ment Revenue (% GDP)
Indonesia
Malaysia
Philippines
Thailand
Vietnam
China
India
e
rnment Expenses (% of GDP)
45
0 5 10 15 20 25 30 35
Japan
Hong Kong SAR
Korea
Singapore
Taiwan Province of China
Govern
0 1020304050
Japan
Hong Kong SAR
Korea
Singapore
Taiwan Province of China
General Gov
e
Source: FAD
Expenditures (II)
Economic classification
Expenditures
Current expenditures
o/w Wages and salaries
o/w Goods and services
Capital expenditures
Functional classification
Expenditures
Education
Defense
Justice
Capital
expenditures
Net lending
…
46
24
Financing
Non repayable receipts: taxes, profits, and grants
Edit
–
E
xpen
dit
ures
Net lending
=
FINANCING:
Domestic borrowing
47
OVERALL
BALANCE
Domestic
borrowing
- Central bank (monetization)
- Bank financing
- Non-bank financing
Foreign borrowing
Privatization receipts
=
The overall balance
Total revenues and grants –
T l di d l di
It reflects the financing needs of the general government, and is
sometimes called the net borrowing requirement
It also indicates the balance between positive contribution of
T
ota
l
expen
di
tures an
d
net
l
en
di
ng =
OVERALL BALANCE
It
also
indicates
the
balance
between
positive
contribution
of
spending vs negative effects of taxes to GDP
It is usually presented in percent of GDP
48
25
Adjusted overall fiscal balance
Overall balance –
Selected items =
It excludes:
- grants
- revenues that are not predictable or out of the government control
(e.g. the oil sector)
ADJUSTED OVERALL BALANCE
- expenditure items that are automatically financed (ex. Spending
financing by grants or “project loans”)
• It allows to measure the balance on items over which the
government has greater control.
49
Targeting the overall balance
Overall balance or adjusted balance if main concern is
containin
g
a
gg
re
g
ate demand
(
inflation and CAD
)
ggg g ( )
Target decided based on broad macroeconomic objectives:
• Objectives for inflation, current account balance, and reserves
• Prospects for external financing, changes in money demand
Financial programming helps us solve for the budget balance
50
Financial
programming
helps
us
solve
for
the
budget
balance
consistent with targets on inflation, the current account and FX
reserves, and credit to the private sector.
26
Targeting financing
Financing requirement if main concern is liquidity crisis
Target decided based on :
• Expected liquidity needs (on a cash basis) both for current
operations but also for debt servicing (including capital)
•
Expected resources (including IMF lending)
51
•
Expected
resources
(including
IMF
lending)
Primary balance
Total revenues and grants –
(Total expenditures and net lending
iitt t)
Measures the effect of current discretionary budgetary policy or
fiscal effort (current interest payments depends on the stock
ofdebt whichdependonpastdeficits)
m
i
nus
i
n
t
eres
t
paymen
t
s
)
=
PRIMARY BALANCE
of
debt
,
which
depend
on
past
deficits)
Shows how recent policies affect government debt.
The debt-stabilizing primary balance is the primary balance
necessary to keep the debt-to-GDP constant
52
27
Targeting the primary balance
Primary balance if main concern is debt sustainability
Target decided based on:
• Estimate of debt stabilizing primary balance
• Primary balance necessary to achieved targeted level of debt
• Fiscal space (the gap between actual debt and “safe” levels of
db h hd d h l f
53
government
d
e
b
t, w
h
ic
h
d
epen
d
on t
h
e qua
l
ity o
f
institutions,
revenue raising ability, the volatility of revenues, and risks
which affect debt sustainability)
Current balance
Current revenues –
Current expenditures =
Used as measure of government savings.
Targeting the current balance can help safeguard investment in
times of fiscal consolidation.
Current
expenditures
=
CURRENT BALANCE
- It does not account that large public investment can lead to large
current expenditures in the future (wages, increase in debt and
interest payments,...).
- It does not compare the social return of investment projects to that of
current expenditures (hiring teachers vs. building schools).
54
28
Targeting the current balance
Current balance to
p
reserve ca
p
ital s
p
endin
g
g
iven
Cu e ba a ce o p ese e cap a spe d g g e
available resources
Target decided based on:
• Available financing (excluding financing in support of capital
55
spending
–
for example, capital grants)
• Macroeconomic considerations (similar to overall balance)
Stock indicators
The most common stock indicators are:
Net financial worth = financial assets minus total liabilities
Net worth = total assets minus total liabilities
Total liabilities (including contingent) to GDP, or to revenues
Other indicators include:
Debt service to GDP, or to revenues
Debt
service
to
GDP,
or
to
revenues
56
29
Targeting debt-to-GDP
Dbt
t
GDP if i t h fi l (b ff )
D
e
b
t-to-
GDP
if
concern
i
s to
h
ave
fi
sca
l
space
(b
u
ff
ers
)
Target decided based on:
• Amount of expected fiscal expansion needed to stabilize the
57
economy to shocks
• Sustainable level of debt
Fiscal stance and fiscal impulse
What is the impact of fiscal policy on domestic demand and
financial resources? How does this change over time?
The cyclically adjusted or the structural balance are used to
define the fiscal stance (deficit = expansionary fiscal policy)
The fiscal stance (expansionary or contractionary)
quantifies the addition or withdrawal of domestic
demand through fiscal policy
58
The fiscal impulse is the change in fiscal stance over time
Is fiscal policy becoming more or less expansionary (or more or
less contractionary) over time?
30
Fiscal impulse in selected countries
In most Asia the withdrawal of fiscal stimulus has not fully
started yet
Fiscal impulse
59
Source: IMF WEO October 2012
Fiscal rules
Pros
• Reduce the deficit bias
Cons
• Lack flexibility
• Reduce tax rate variability
and force expenditure
smoothing
• Support intergenerational
equity
• Substitute for market
• Reduce the quality of fiscal
policy and of policy goals
• Breed nontransparent
accounting practices
• Lacking political
commitment are unlikely
60
discipline
• Build reputation for macro
stability and credibility
commitment
are
unlikely
to be sustained and may
end up undermining policy
credibility.
31
Fiscal Challenges in Emerging and
Developing Economies
• Small tax base;
•
Tax administration system that is unable to fully collect
Tax
administration
system
that
is
unable
to
fully
collect
taxes and other levies;
• Greater vulnerability to external shocks: especially for
governments with sizeable foreign currency denominated
debt;
• Fiscal dominance: high public debt and persistent deficits
also accentuate the links between fiscal and monetary policy
61
Successful fiscal reforms in emerging and
developing economies
• Tax reforms and Expenditure control;
•
Structural and expenditure reforms to boost growth
•
Structural
and
expenditure
reforms
to
boost
growth
;
• Reducing exposure to exchange rate and interest rate
movements;
• Acknowledging contingent liabilities;
• Steps to improve the credibility of fiscal policy;
62
32
Additional Slides:
63
OT14.51 - FAF
Key structural reforms
• Price adjustment and liberalization
o Wage policy, administered prices, etc.
• State enterprise reform, privatization, restructuring
• Policies to promote competition
• Tax, expenditure, and budgetary reforms
o Example: rationalizing social safety nets
• Financial sector reforms
o Developing broader capital markets, related legal
reforms
• External sector reforms
o Trade liberalization, capital account liberalization
db
• More transparency an
d
b
etter governance
o Strengthening public institutions, legal system
64
33
Poverty and social spending
• Avoid perverse
iti k th
Social spending in percent of GDP
i
ncen
ti
ves, ma
k
e sure
th
e
money goes to the real
poor
• Phase out generalized
subsidies
• Make use of conditional
-65-
cash transfers
• Review credit guarantee
schemes to limit
distortions
-66-
Source: IMF Asia REO, April 2013, pg. 44
34
-67-
Source: IMF Asia REO, April 2013, pg. 44
4
5
Energy Food and fertilizer
Food and Energy Subsidies
1
2
3
-68-
Source: IMF Asia REO, April 2013, pg. 44
0
Phillippines
Vietanam
Australia
Hong Kong SAR
New Zealand
Mongolia
Taiwan Province of
China
Japan
Nepal
Thailand
India
Korea
Sri Lanka
Bangladesh
China
Malaysia
Indonesia
Advanced economies
35
-69-
Source: IMF Asia REO, April 2013, pg. 43
