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Shocks to the Purse
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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

Qualities

  • 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.

Take-Aways

  • “Fiscal shocks” to government finances are costly, and they can arise from events such as economic crises, bailouts of banks or state-owned enterprises, and natural disasters.
  • The ramifications of fiscal shocks unfold in the form of either public revenue shortfalls or liabilities resulting from the events.
  • A study of 80 nations over the 1990–2015 period reveals that economies confront a fiscal shock that costs them 6% of GDP about every 12 years, on average.

About the Authors

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

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