Assessing Fiscal Stress

42 Pages Posted: 20 May 2011

See all articles by Emanuele Baldacci

Emanuele Baldacci

International Monetary Fund (IMF) - Fiscal Affairs Department

Iva K. Petrova

International Monetary Fund (IMF)

Nazim Belhocine

International Monetary Fund

Gabriela Dobrescu

UC Berkeley

Samah Mazraani

International Monetary Fund (IMF)

Date Written: May 2011

Abstract

This paper develops a new index which provides early warning signals of fiscal sustainability problems for advanced and emerging economies. Unlike previous studies, the index assesses the determinants of fiscal stress periods, covering public debt default as well as near-default events. The fiscal stress index depends on a parsimonious set of fiscal indicators, aggregated using the approach proposed by Kaminsky, Lizondo and Reinhart (1998). The index is used to assess the build up of fiscal stress over time since the mid-1990s in advanced and emering economies. Fiscal stress has increased recently to record-high levels in advanced countries, reflecting raising solvency risks and financing needs. In emerging economies, risks are lower than in mature economies owing to sounder fiscal fundamentals, but fiscal stress remains higher than before the crisis.

Keywords: Cross country analysis, Developed countries, Developing countries, Economic models, Fiscal risk, Fiscal sustainability, Public debt, Sovereign debt

Suggested Citation

Baldacci, Emanuele and Petrova, Iva K. and Belhocine, Nazim and Dobrescu, Gabriela and Mazraani, Samah, Assessing Fiscal Stress (May 2011). IMF Working Paper No. 11/100, Available at SSRN: https://ssrn.com/abstract=1847333

Emanuele Baldacci

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

Iva K. Petrova

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Nazim Belhocine

International Monetary Fund ( email )

700 19th Street NW
Washington, DC 20431
United States

Gabriela Dobrescu

UC Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Samah Mazraani

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

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