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
This indicator is general government net lending/borrowing as a percent of GDP, averaged over a three-year period. Net lending/borrowing is calculated as revenue minus total expenditure.
MCC’s Fiscal Policy Score = (2017 + 2018 + 2019) / 3
MCC relies exclusively on the International Monetary Fund’s (IMF) World Economic Outlook (WEO) database for Fiscal Policy data. The fiscal policy indicator measures general government net lending/borrowing as a percent of GDP, averaged over a three year period. Net lending / borrowing is calculated as revenue minus total expenditure. The FY21 score averages the annual data of 2017, 2018 and 2019. As better data become available, the IMF makes backward revisions to its historical data.
The IMF published the net lending/borrowing series for the first time in the 2010 WEO database.