Topic > Fiscal Policy: The Sustainability of Fiscal Policy

The sustainability of fiscal policy, defined as government measures to guide and control spending and taxation, is critical. The importance arises from the role of fiscal policy in promoting strong and sustainable economic growth and sustained poverty reduction, mobilizing and allocating resources and enabling most low-income countries to achieve the Millennium Development Goals. To analyze the sustainability of these policies, it is necessary to examine the fiscal position of a particular government. Different problems, objectives and economic structures mean that no single measure will be suitable for all circumstances. A good understanding of how sustainable policy that needs to take into account individual country practices reflects this diversity. In our case, a country exporting raw materials is taken into consideration. In particular, I assume that the country in question is an oil exporter. An assessment of the fiscal position must comprehensively analyze inventory, flow and debt indicators, particularly the non-oil primary balance for this assumed country. Among the relevant flow indicators, the following should be analyzed: The overall fiscal balance, which is the difference between total revenues (including grants) and total expenditures plus loans minus reimbursements and reflects links to the net financial need of the government and with the foreign current account. This however may not be a good indicator of the impact of fiscal policy on domestic demand or the government's adjustment effort as it has the potential to mask underlying vulnerabilities. For example, with rising oil revenues, a fiscal expansion through increased spending may be masked by an improvement in the overall balance. • Fiscal policy analysis of the business cycle has become more critical... half of paper... ...GDP, keeping non-oil revenues and the ratio of total spending to non-oil GDP unchanged. This approach helps isolate the specific impact of oil price changes, but has some obvious drawbacks as it assumes local linearity between oil prices and oil tax revenues. The evolution of the debt-to-GDP ratio is also important. The need to achieve fiscal sustainability should anchor the medium-term fiscal path. In these cases, the primary objective is to improve the primary balance so that it is consistent with debt sustainability. The slower the improvement, the greater it will have to be, as the debt-to-GDP ratio will continue to rise. Understanding the evolution of the relationship is important. Finally, understanding how the deficit is financed can be fundamental for assessing sustainability. Overreliance on oil revenues can expose the balance sheet to volatility that leads to need