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Countries urged to build fiscal space
As risks in the global economy looms on the horizon, governments around the world should build adequate fiscal space as a buffer for their economies ahead of the next downturn, according to the International Monetary Fund in its flagship report Fiscal Monitor
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span>As risks in the global economy looms on the horizon, governments around the world should build adequate fiscal space as a buffer for their economies ahead of the next downturn, according to the International Monetary Fund in its flagship report Fiscal Monitor.
IMF director for fiscal affairs department Vitor Gaspar urged countries to use the positive momentum in their economy to build the fiscal space, such as by mapping their public assets and liabilities to manage the risks.
“Systematic compilation of use of public sector balance sheets can lead to lower debt servicing costs and higher return on assets [and] better management of risks,” he said during the event as part of the IMF-World Bank Group Annual Meetings 2018 on Wednesday.
Gaspar was referring to the balance sheet approach used in the latest Fiscal Monitor report, which took into accounts a country’s assets — including natural resources and public corporations — and liabilities — including pension liabilities — to offer a broader picture of its fiscal condition and the public wealth that the government manages.
“Knowing what you own in addition to what you owe allows you to better manage your finances,” Gaspar said in an e-mail interview with The Jakarta Post days before to the event.
In the latest edition of the report, the IMF took data sample from 31 countries representing 61 percent of the global GDP. It estimated that total assets of the countries stood at US$101 trillion, equal to 219 percent of the GDP.
As the public wealth highlighted a country’s public assets, Gaspar said the government could utilize the assets to “work at the service of societies’ economic and social goals”, adding that building tax capacity was crucial to enable state capacity and achieve the global initiative of Sustainable Development Goals (SDG).
On a separate occasion, Angel Gurria, secretary-general of Organization for Economic Cooperation and Development and Finance Minister Sri Mulyani Indrawati presented the latest OECD economic survey of Indonesia that highlights the importance of policies that could boost resilience as global risks are on the rise.
“[Global risks] also underline the potential for tax reforms that increase government revenues to meet financing needs in a growth and equity-friendly manner, as well as how tourism can contribute to sustainable regional development,” the survey said.
The report also highlighted the increase in Indonesia’s public wealth as the government ramped up its infrastructure spending over the past few years, driven by increases in tax revenue.
The report estimated that Indonesia could increase its public wealth by 6.5 percent of its GDP if it is able to boost investment in infrastructure by raising tax revenue’s contribution by 1 percent of the GDP annually for three years.
By improving efficiency of public investments, the percentage of Indonesia’s public wealth-to-GDP could increase as high as 10 percent, Gaspar said. He said the potential benefit could be larger as the IMF’s estimates did not take into account the impact of infrastructure investment to private wealth.
Gaspar suggested that Indonesia continue pursuing its ‘tax-financed public investments’ despite the possibility that rising tax revenue’s contribution to GDP had a negative effect on economic growth as taxpayers would be discouraged to spend their money.
