A Framework for Fiscal Vulnerability Assessment and its Application to Poland

Abstract

The sharp worsening of fiscal positions in the aftermath of the global economic crisis has brought the issues of fiscal sustainability to the fore of economic policy debate. This has focused the attention of policymakers on the broader implications of unsustainable fiscal positions, including the consequences for monetary policy and financial stability. As a result, there is now an increased need for central banks to closely monitor risks to fiscal vulnerability. This note proposes a framework for such an assessment, consisting of five elements: (i) the level of public debt; (ii) the medium-term dynamics of public debt; (iii) longterm sustainability of public debt; (iv) public debt management and the liquidity position of the government; and (v) fiscal rules and institutions. The note also presents a brief assessment of Poland’s fiscal vulnerability using the framework described above, and finds that Poland’s vulnerability to fiscal risks is quite limited, although there is still a need to correct the fiscal imbalances that could otherwise lead to a build-up of public debt.

Full publication: Fiscal Policy, Public Debt and Monetary Policy in Emerging Market Economies

Keywords: Public debt, fiscal vulnerability, fiscal sustainability

JEL Classification: H63