布鲁盖尔-The-impact-of-the-crisis-on-budget-policy-in-Central-and-Eastern-Europe_60页_851kb

Summary of "The Impact of the Crisis on Budget Policy in Central and Eastern Europe"

Core Content

This paper, authored by Zsolt Darvas and presented at the OECD's fifth meeting of Senior Budget Officials from Central, Eastern and South-Eastern European Countries, examines the impact of the global financial and economic crisis on budget policy in Central and Eastern and South-Eastern European (CESEE) countries. It highlights the structural vulnerabilities and policy responses of these countries during the crisis, emphasizing the need for fiscal reforms to improve budget credibility and reduce pro-cyclical tendencies.

Main Viewpoints

• Severity of the Crisis: CESEE countries were hit harder by the crisis compared to other emerging and developing regions, with significant variations in the impact across the region.
• Pro-Cyclical Fiscal Policy: Many CESEE countries exhibited pro-cyclical fiscal behavior, meaning that budget policies amplified both the economic boom and the subsequent bust, exacerbating the crisis effects.
• Fiscal Challenges: CESEE countries generally have limited fiscal policy space, with most facing severe financing constraints, small and open economies, and relatively low-quality fiscal institutions.
• Keynesian Policy Obstacles: Despite the need for Keynesian stimulus, the lack of fiscal flexibility in most CESEE countries has hindered the implementation of such policies.
• Reform Opportunities: The crisis presents an opportunity for structural reforms, particularly in fiscal policy, to enhance budget quality, credibility, and reduce future pro-cyclical tendencies.

Key Information

Impact of the Crisis on CESEE Countries

• The crisis significantly affected CESEE countries, with GDP forecasts revised downward substantially from October 2007 to April 2009.
• CESEE countries were projected to experience the largest GDP decline among all regions, with the Baltic states (Latvia, Estonia, Lithuania) facing the most severe drops, ranging from 11% to 16% in GDP from 2008 to 2010.
• The crisis was amplified by pre-existing vulnerabilities such as large current account deficits, high levels of private sector credit, and reliance on foreign trade and remittances.

Fiscal Policy Characteristics

• Pro-Cyclicality: Fiscal policy in many CESEE countries was pro-cyclical, meaning it expanded during booms and contracted during downturns, worsening the economic cycle.
• Private Sector Role: The private sector was a major driver of credit booms, which contributed to economic vulnerabilities. However, fiscal policy also played a role in amplifying these effects.
• Fiscal Consolidation: Most CESEE countries had to undertake significant fiscal consolidation, which, when accompanied by reforms, could be offset by non-Keynesian effects that promote growth and stability.

Policy Responses

• Governments in CESEE responded to the crisis with a mix of fiscal measures, including discretionary stimulus and support for the financial sector.
• The role of the public sector in stabilizing the banking system has become more critical, as private sector debt was largely in foreign currencies and led to higher risk exposure.

Lessons from Previous Crises

• The crisis should be viewed as an opportunity for fiscal reforms to avoid future pro-cyclical behavior.
• Reforms should include fiscal responsibility laws, medium-term fiscal frameworks, fiscal rules, and the establishment of independent fiscal councils.
• These reforms are essential to improve budget credibility and ensure more sustainable fiscal policies.

Fiscal Policy Reforms

• Fiscal Responsibility Laws: These should be introduced to create a more stable and predictable fiscal environment.
• Medium-Term Fiscal Frameworks: These frameworks help in managing fiscal policy over a longer horizon, avoiding excessive short-term fluctuations.
• Fiscal Rules: Clear fiscal rules can limit the scope for pro-cyclical spending and ensure fiscal discipline.
• Independent Fiscal Councils: These councils can provide objective analysis and advice, enhancing the credibility of fiscal policy decisions.

Conclusion

• The crisis has exposed the limitations of pro-cyclical fiscal policies in CESEE countries.
• Structural reforms in fiscal policy are crucial to improve budget quality and long-term economic stability.
• Fiscal consolidation, when supported by credibility-enhancing reforms, can lead to better post-crisis growth prospects compared to major economies.

Key Figures and Tables

• Figure 1: GDP growth forecasts for CESEE and other regions from 2007 to 2009 show a sharp decline in growth expectations for CESEE.
• Figure 2: Demonstrates the negative correlation between GDP growth and current account balances in CESEE, contrasting with positive correlations in other regions.
• Figure 3: Shows the rapid increase in private sector credit to GDP in CESEE countries, particularly in Latvia.
• Figure 4: Highlights the growth in government debt as a percentage of GDP in CESEE countries up to 2010.
• Figure 5: Reflects the increase in credit default swaps (CDS) on government bonds, indicating heightened default risk.
• Figure 6: Illustrates the relationship between CDS and net foreign liabilities, showing that government default risk is now tied to external debt.
• Table 1: Provides correlation coefficients between GDP and government consumption growth for various periods, showing a positive correlation in most CESEE countries.

Policy Recommendations

• Implement fiscal responsibility laws that incorporate medium-term fiscal frameworks and fiscal rules.
• Establish independent fiscal councils to enhance the credibility and quality of budgeting.
• Undertake fiscal consolidation in conjunction with structural reforms to mitigate contractionary effects.
• Learn from past emerging market crises to avoid repeating similar mistakes in fiscal policy design.