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International Monetary Fund

analyzing Jordan’s medium-term debt sustainability. First, are the original debt-ratio targets likely to be met under the current program? Second, what is the likely evolution of debt over the medium-term? Third, what is the proposed phasing of the debt reduction in the revised strategy relative to the baseline? 131. The authorities’ current program projections suggest that Jordan should be able to substantially reduce its central government debt burden to 80 percent of GDP by end-2006 and to 61.6 percent of GDP by end-2010. The overall debt ratio is projected to be

Arminio Fraga

concentration at the short end. This would match the long-term horizons governments ought to have. It would also lower the risk of run-like financial or currency crises, driven by sudden stops in financing. These pillars would deliver the four features recommended by the IMF. As it happens, they would serve the advanced economies as well. The key parameters, such as debt spreads and growth, differ across nations, but the same logic applies to all. The debt-ratio target of pillar 1 is quite subjective. It depends on several economic, political, institutional, and

S.M. Ali Abbas, Olivier Basdevant, Stephanie Eble, Greetje Everaert, Jan Gottschalk, Fuad Hasanov, Junhyung Park, Ms. Cemile Sancak, Ricardo Velloso, and Mr. Mauricio Villafuerte

solvency, ultimately making default inevitable. Snowballing effects may arise not only as a result of high deficits and debt, but also from the perception of a regime change toward a more relaxed attitude vis-à-vis fiscal solvency. A credible strategy is thus an important instrument for anchoring fiscal solvency expectations. What Should Be the Aim of a Fiscal Exit Strategy? In designing a fiscal exit strategy, a critical decision relates to the debt ratio target. It is obvious that an ever-increasing debt ratio is not sustainable. A key choice, however, is whether

Mr. Mauricio Villafuerte, Ms. Cemile Sancak, Jan Gottschalk, S. M. Ali Abbas, Olivier Basdevant, Ricardo Velloso, Fuad Hasanov, Greetje Everaert, Stephanie Eble, and Junhyung Park
In response to the global financial crisis, governments provided substantial support to the financial and other key sectors. Although this cushioned the adverse effects of the crisis, it is necessary now to articulate a strategy to ensure the sustainability of public finances. This paper discusses the scale and composition of fiscal adjustment that will need to occur once the recovery is securely under way. Although specific country-level circumstances will influence the composition of the adjustment and its political feasibility, in many cases restoring fiscal sustainability will require reforms to reduce spending and increase tax revenue.
Mr. Leif Lybecker Eskesen
Austria faces significant population aging. This will increase public spending on pensions, health care, and long-term care, while tax and social security revenues will fall. This paper analyzes the fiscal burden facing Austria due to aging and the policy steps necessary to address it. The paper finds that Austria is not well prepared to meet the fiscal burden of aging and that fiscal sustainability is threatened, even under fairly optimistic assumptions about the effects of recent pension and labor market reforms. Consequently, to ensure long-term sustainability, pension reform must go further and other saving measures might also be necessary.
Gabriel Di Bella

, in the sense that the CPS primary balance needed to reach a given debt ratio target will be larger: (i) the larger the initial debt ratio; (ii) the larger the size of any realized contingent liability shocks during the J periods; (iii) the larger the expected increase in CPS gross assets (most notably international reserves); (iv) the lower the expected seignorage (including that coming from legal reserve requirements on bank deposits); (v) the lower the target for the debt ratio; (vi) the faster the speed at which such debt ratio is to be reached (i.e., the

International Monetary Fund

eligibility thresholds for the openness of an economy (export-to-GDP ratio) from 40 to 30 percent and for the revenue effort (revenue-to-GDP ratio) from 20 to 15 percent; and changing the assessment base for debt relief under the Initiative, with calculation of debt relief now based on actual data for the year prior to the decision point rather than on projections for the completion point. In most cases, this change in the calculation is likely to result in higher assistance since the debt ratios targeted under the Initiative have typically declined as economic

Mr. George Kopits

rate, broadly in line with trend or potential GDP growth. Either in conjunction with a budget-balance rule, or simply with the goal of securing medium- to long-term fiscal sustainability, several countries have established targets for the phased reduction of the debt–GDP or debt–revenue ratio (Brazil), or limits on the debt–GDP ratio (Poland). The debt-ratio target or ceiling usually presupposes, either implicitly or explicitly (Brazil), an annual operational target in terms of a minimum primary surplus. Generally, the institutional coverage of rules depends on