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Pietro Bomprezzi, Silvia Marchesi, and Rima Turk-Ariss
This paper provides new evidence on the role of IMF programs in stimulating private sector investments. Using detailed firm-level data on tangible fixed assets and a local projection methodology, we first estimate the dynamic response of firm investments to the approval of an IMF arrangement. We find that distinguishing between GRA and PRGT financing matters for the path of firm investment and its growth, and we also document the presence of two financial channels; the degree of firms’ external financial dependence and firms’ sectoral uncertainty. Exploiting these firm-level characteristics, we employ a difference-in-differences approach to understand the mechanisms through which the approval of an IMF arrangement propagates in the private sector. We find that the more firms rely on external finance and the more they are subject to uncertainty, the less binding these financial frictions become, and hence the more firms invest following a program approval. Finally, using ownership data, we find that private investments are stimulated more for domestic firms. The presence of a private investment transmission channel could help improve our understanding of what factors could affect the success and effectiveness of IMF programs.
Fazeer Sheik Rahim, Mr. Claude P Wendling, and Ms. Eliko Pedastsaar
Expenditure baseline projections (hereafter, “base¬lines”) are a key analytical concept in budget preparation that refers to estimates of future expenditure on the assumption that current policies remain unchanged. They serve as reference points against which other data, such as proposed or approved budgets, or expenditure ceilings, can be compared. In many countries they are a basic tool for starting the preparation of the budget. They represent neither future spending allocations nor total expected outturn as they do not incorporate estimates of the cost of new policies and the expected impact of saving measures. Other features of baselines are that they are generally produced over a multiyear period, they can be calcu¬lated at any level or form of the budget classification (that is, ministries, economic classification, specific policies, functions or programs), and can be summed up to higher levels (such as the whole budget). Hence, they can be useful at both a micro and an aggregate level. This note aims to clarify and establish a framework that covers baselines’ various purposes and uses. It first discusses the definition and objectives of baselines and the methodology used for producing them before outlining how they should be prepared. It concludes with a discussion of the key success factors for making the most effective use of baselines.
Sascha Buetzer
This paper argues that in reserve currency issuing economies at the effective lower bound, outright transfers from the central bank to households are both more equitable and more effective in achieving monetary policy objectives than asset purchases or negative interest rates. It shows that concerns pertaining to central banks’ policy solvency and equity position can be addressed through a careful assessment of a central bank's loss absorbing capacity and, if need be, tiered reserve remuneration policies. It also spells out key differences to a debt or money financed fiscal stimulus, which are particularly pronounced in a currency union without a central fiscal capacity. The paper concludes by discussing broader institutional, political, and legal considerations.
Torsten Wezel and Naly Carvalho
Using a newly-compiled dataset of state-owned enterprises in Sub-Saharan Africa, we present aggregate information about profitability, liquidity and leverage. We find that 40 percent of the close to 300 surveyed SOEs are unprofitable, while larger firms also tend to be illiquid and overleveraged. In cross-sectional regressions we find that SOE debt stock sustainability is impacted by firms’ profitability and liquidity, while macroeconomic factors cannot be shown to matter, expect for some governance variables. Based on these findings and citing country examples, we also illustrate that weak SOE performance may have a macrofinancial impact affecting bank soundness through delinquent loan exposures.
Mr. Antonio David, Alexandre Nguyen-Duong, and Hoda Selim
This paper assesses the adequacy and effectiveness of the WAEMU fiscal framework along three pillars that have proven to effectively support fiscal discipline in monetary unions—common fiscal rules (including adequacy of numerical ceilings as well as elements of design and enforcement), shared public financial management systems, and coordination mechanisms for decentralized fiscal policies. We undertake a calibration of regional debt and fiscal deficit ceilings taking into account different macroeconomic tradeoffs and risks and conclude that numerical ceilings that prevailed before the suspension of the fiscal rules remain adequate and strike the right balance between growth and fiscal sustainability. The paper also proposes reform options to strengthen the WAEMU regional fiscal surveillance framework, with a view to more effectively supporting fiscal discipline.