This indicator measures the government’s commitment to prudent fiscal management and private sector growth.
Relationship to Growth & Poverty Reduction
Unsustainable fiscal deficits can impact economic growth by raising expectations of inflation or exchange rate depreciation. 1 Fiscal deficits driven by current expenditures decrease national savings and put upward pressure on real interest rates, which can lead to a crowding out of private sector activity. 2 In addition, fiscal deficits either force governments to increase tax rates, reducing the capital available for domestic investment, or to increase the stock of public debt. 3 High and growing levels of public debt have also led to financial and macroeconomic instability in many countries. 4 Taken together, these factors decrease labor productivity and wages, thereby increasing poverty. 5
The IMF’s World Economic Outlook (WEO) database, http://www.imf.org/external/ns/cs.aspx?id=28. Questions regarding this indicator may be directed to IMF country economists. See individual IMF country pages (http://www.imf.org/external/country/index.htm) for contact details.