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Shocks to the Purse
Article

Shocks to the Purse

Governments must understand and manage risks to public spending and debt

Benedict Clements, Xavier Debrun, Brian Olden and Amanda Sayegh
Finance & Development , 2016
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Editorial Rating

8

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  • Analytical
  • Well Structured
  • Overview

Recommendation

The Great Recession, euro-zone crises and Brexit were exogenous shocks to sovereign economies and, by extension, to their finances. International Monetary Fund economists Benedict Clements, Xavier Debrun, Brian Olden and Amanda Sayegh explore the relationship between these “fiscal risks” and their effects on public sector finances. Governments, the authors contend, must put in place policy frameworks for forecasting the impacts of fiscal risk events, as well as a series of measures to manage and alleviate the outcomes. getAbstract recommends this enlightening overview to public officials, economists and financial professionals.

Summary

Governments devote considerable resources to budget forecasts, reviews, and revisions to taxes and spending allocations. Then the unanticipated happens: “Fiscal shocks” are costly events. The perpetrators most often are “fiscal risks” in the form of economic downturns, bailouts of banks or state-owned enterprises, and natural disasters. The ramifications of fiscal shocks unfold either as revenue shortfalls or as liabilities arising from the event. These unforeseen expenses can add considerably to budget deficits and create unsustainable levels of debt. A study of 80 nations over the 1990–2015 period reveals...

About the Authors

Benedict Clements et al. are economists with the International Monetary Fund.

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