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Can They Do it All? Fiscal Space in Low-Income Countries

41 Pages Posted: 16 Oct 2017  

Anja Baum

International Monetary Fund (IMF)

Andrew Hodge

International Monetary Fund (IMF)

Aiko Mineshima

International Monetary Fund (IMF)

Marialuz Moreno Badia

International Monetary Fund (IMF)

Rene Tapsoba

International Monetary Fund (IMF)

Date Written: May 2017

Abstract

According to U.N. estimates, low-income countries will have to increase their annual public spending by up to 30 percent of GDP to achieve the Sustainable Development Goals (SDGs), raising the question of whether they can do it all. This paper develops a new metric of fiscal space in low-income countries that accounts for macroeconomic uncertainty, allowing us to assess whether those spending needs can be accommodated. Illustrative simulations based on this methodology imply that, even under benign conditions, the fiscal space available in lowincome countries is likely insufficient to undertake the spending needed to achieve the SDGs. Improving public investment efficiency and domestic revenue mobilization can somewhat narrow the gap but it will require major efforts relative to recent trends.

Keywords: Fiscal space, Low-income developing countries, Sustainable Development Goals (SDG), Public investment, Fiscal policy, External shocks, Public debt, Econometric models, sustainability, SDGs, low-income countries, Deficit

JEL Classification: E62, H62, H63

Suggested Citation

Baum, Anja and Hodge, Andrew and Mineshima, Aiko and Moreno Badia, Marialuz and Tapsoba, Rene, Can They Do it All? Fiscal Space in Low-Income Countries (May 2017). IMF Working Paper No. 17/110. Available at SSRN: https://ssrn.com/abstract=3053193

Anja Baum (Contact Author)

International Monetary Fund (IMF) ( email )

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

Andrew Hodge

International Monetary Fund (IMF) ( email )

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

Aiko Mineshima

International Monetary Fund (IMF) ( email )

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

Marialuz Moreno-Badia

International Monetary Fund (IMF) ( email )

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

Rene Tapsoba

International Monetary Fund (IMF) ( email )

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

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