Public Financial Management (PFMx) Module 2 Required Negative Space (Not for instructor notes.)...

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Module

PFM and Fiscal Policy

Public Financial Management (PFMx)2

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Public Financial Management (PFM) and Fiscal Policy





PFM Makes Fiscal Policy Work




Defining Fiscal Policy

Policymakers have two main levers of influence…

… the use of government spending and revenue to influence the economy.

Fiscal Policy Monetary Policy

Fiscal Policy is…





The Influence of Fiscal Policy





Musgrave’s Functions of Government





Three Functions of Fiscal Policy





Fiscal Stimulus – 1




Fiscal Stimulus – 2

34

36

38

40

42

44

46

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Averagepublicspendingratioinadvancedeconomies(GeneralgovernmentexpenditureinpercentofGDP)

Source:IMF,WorldEconomicOutlook.

2008GlobalFinancialCrisis





Countercyclical Fiscal Policy





Countercyclical Fiscal Policy Instruments




The Need for Fiscal Consolidation

Fiscal Consolidation Measures

60

70

80

90

100

110

2005 2008 2011 2014

GrossDebt2008GlobalFinancialCrisis

Ratiosforadvanced economies:(ForgeneralgovernmentinpercentofGDP)

-10

-8

-6

-4

-2

0

2005 2008 2011 2014

Budgetbalance

Source:IMF,WorldEconomicOutlook.

2008GlobalFinancialCrisis





Defining Fiscal Responsibility

… anagreedsetofpolicies,processes,orarrangementstoimprovefiscaloutcomes.

Fiscal Responsibility is…

Fiscal Responsibility has three goals:





Benefits of Fiscal Responsibility





Modern Fiscal Policy Objective 1





Limits to Fiscal Responsibility





Three Functions of Fiscal Policy





Modern Fiscal Policy Objective 2





Fiscal Policy Objectives in Summary





Fiscal Policy Objectives





Fiscal Policy Objective 1





Fiscal Policy Objective 2





Role of PFM Instruments





The Budget Cycle

Legal framework





Fiscal Planning: General Process





Key PFM Instruments

TB





Fiscal Responsibility Frameworks

Set guidelines and rules to support fiscal discipline, transparency and accountability.

Complement budget system laws.

Contain procedural and/or numerical rules.





Fiscal Responsibility Goals




Defining Fiscal Rules

A (numerical) fiscal rule can be defined as:

A rule which imposes a long-lasting constraint on fiscal

policy through a numerical limit on fiscal aggregates.





International Evidence

0

10

20

30

40

50

60

70

80

1985 1990 1995 2000 2005 2010 2015

DebtruleDeficit(orbudgetbalance)ruleExpenditureruleRevenuerule

NumberofCountrieswithDifferentFiscalRules

Source:IMFFiscalRulesDataset.





Designing Effective Rules

Design Principles:

1. Simplicity

2. Sustainability

3. Stabilization

4. Operational Guidance

5. Resilience

6. Monitoring





Challenges





Challenges – 1





Challenges – 2





Challenges – 3





Challenges – 4





PFM Requirements





Public Financial Management (PFM) and Fiscal Policy





Fiscal Policy Objectives

Public Financial Management (PFMx) Module 2 Required Negative Space (Not for instructor notes.)...

Documents

Transcript of Public Financial Management (PFMx) Module 2 Required Negative Space (Not for instructor notes.)...