Do Middle-Income Countries Continue to Have the Ability to Deal with the Global Financial Crisis?

This paper introduces an "index of macroeconomic space" -- demonstrating the ability of a country to run a countercyclical fiscal policy or a fiscal stimulus at any point in time -- to show how a sample of 20 mostly middle-income countries had entered the 2008 global financial crisis with different initial conditions that, in turn, determined their ability to respond to this crisis. Since 2008, many have implemented expansionary fiscal policies and have used up available macroeconomic space. Most have had to resort to increased borrowing by the public sector, both externally and domestically. Can the middle-income countries restore their pre-2008 macroeconomic space (to the level given by historical averages of key macroeconomic variables) or contain it from further deterioration in the medium term? In an endeavor to address this question, this paper shows, through illustrative scenarios, that the room to maneuver for some countries is somewhat limited unless they embark on severe, unprecedented fiscal adjustments or they may need more time to do so than current projections seem to suggest.

Bibliographic Details

Main Authors:	van Doorn, Ralph, Suri, Vivek, Gooptu, Sudarshan
Format:	Policy Research Working Paper biblioteca
Language:	English
Published:	2010-07-01
Subjects:	AGGREGATE DEMAND, ASSETS, BALANCE OF PAYMENTS, BANK CREDIT, BANK LENDING, BASIS POINTS, BILATERAL CREDITORS, BOND INDEX, BOND ISSUANCES, BONDS, BORROWING COSTS, CAPITAL FLOW, CAPITAL FLOWS, CAPITAL MARKET, CAPITAL MARKETS, CENTRAL BANKS, COMMERCIAL BANKS, COMMODITIES, COMMODITY, COMMODITY PRICE, COMMODITY PRICES, CONTINGENT LIABILITIES, CONTINGENT LIABILITY, CREDIBILITY, CREDIT EXPANSION, CREDIT GROWTH, CREDIT LINE, CREDIT MARKETS, CREDITORS, CURRENT ACCOUNT, CURRENT ACCOUNT BALANCES, CURRENT ACCOUNT DEFICIT, CURRENT ACCOUNT DEFICITS, CURRENT ACCOUNT SURPLUSES, DEBT, DEBT ACCUMULATION, DEBT BURDENS, DEBT CRISIS, DEBT DYNAMICS, DEBT INSTRUMENTS, DEBT LEVEL, DEBT LEVELS, DEBT MANAGEMENT, DEBT MANAGEMENT CAPACITY, DEBT PORTFOLIOS, DEBT RATIO, DEBT REDUCTION, DEBT RELIEF, DEBT SOURCE, DEBT STOCKS, DEBT SUSTAINABILITY, DEBT SUSTAINABILITY ANALYSES, DEVALUATION, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DOMESTIC CREDIT, DOMESTIC CURRENCY, DOMESTIC DEBT, DOMESTIC INTEREST RATE, ECONOMIC DOWNTURN, ECONOMIC OUTLOOK, EMERGING MARKET, EMERGING MARKET BOND, EMERGING MARKETS, EXCHANGE RATE, EXCHANGE RATE MOVEMENTS, EXCHANGE RATES, EXPANSIONARY FISCAL POLICIES, EXPANSIONARY POLICIES, EXPENDITURE, EXPENDITURES, EXPORTER, EXPORTERS, EXPORTS, EXTERNAL DEBT, EXTERNAL DEBT BURDENS, EXTERNAL DEBT SUSTAINABILITY, EXTERNAL FINANCING, EXTERNAL PUBLIC DEBT, FEDERAL RESERVE, FINANCIAL CRISIS, FINANCIAL MARKET, FINANCIAL MARKETS, FINANCIAL POSITION, FINANCIAL SECTOR, FINANCIAL SECTOR DEVELOPMENT, FINANCIAL STRUCTURE, FISCAL BALANCE, FISCAL BALANCES, FISCAL CONSOLIDATION, FISCAL DEFICITS, FISCAL EXPENDITURE, FISCAL POLICIES, FISCAL POLICY, FIXED EXCHANGE RATE, FOREIGN DIRECT INVESTMENT, FOREIGN EXCHANGE, FOREIGN EXCHANGE RESERVES, FOREIGN EXCHANGE RISK, GDP, GDP DEFLATOR, GDP PER CAPITA, GLOBAL ECONOMIC PROSPECTS, GOVERNMENT REVENUE, GROSS DEBT, GROWTH RATE, GROWTH RATES, HIGH DEBT, INCOME, INDEBTEDNESS, INFLATION, INFLATION TARGETING, INFLATIONARY PRESSURE, INFLATIONARY PRESSURES, INSTRUMENT, INTEREST EXPENDITURE, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL CAPITAL, INTERNATIONAL CAPITAL FLOWS, INTERNATIONAL CAPITAL MARKETS, INTERNATIONAL CREDIT, INTERNATIONAL INTEREST, INTERNATIONAL INTEREST RATES, INTERNATIONAL MARKET, INVENTORY, LEVELS OF DEBT, LIQUIDITY, LIQUIDITY SUPPORT, LOCAL CURRENCY, LOW DEBT, LOW-INCOME COUNTRIES, MACROECONOMIC MANAGEMENT, MACROECONOMIC POLICIES, MACROECONOMIC STABILITY, MACROECONOMIC VARIABLES, MARKET ACCESS, MARKET CONDITIONS, MARKET PARTICIPANTS, MATURITIES, MIDDLE-INCOME COUNTRIES, MIDDLE-INCOME COUNTRY, MONETARY FUND, MONETARY POLICY, NATIONAL INCOME, NET DEBT, NET EXTERNAL DEBT, NOMINAL INTEREST RATE, NUMERICAL VALUE, OUTPUT, OUTSTANDING CLAIMS, POLICY RESPONSE, POLITICAL CYCLE, PORTFOLIO, PORTFOLIO CAPITAL, PORTFOLIO EQUITY, PORTFOLIOS, POTENTIAL OUTPUT, PRICE RISKS, PRIVATE CREDIT, PRIVATE EXTERNAL DEBT, PUBLIC DEBT, PUBLIC DEBT STOCK, PUBLIC FINANCES, PUBLIC SPENDING, REAL GDP, REMITTANCES, RETURNS, RISK ASSESSMENTS, SAFETY NET, SHARE OF INCOME, SHORT-TERM DEBT, SOCIAL SAFETY NET, SOVEREIGN DEBT, SOVEREIGN ENTITIES, STOCK OF DEBT, SUB-NATIONAL ENTITIES, SUSTAINABILITY ANALYSES, SWAP, SWAPS, TOTAL DEBT, TOTAL EXTERNAL DEBT, TREASURIES, TROUGH, UNEMPLOYMENT, WARRANTS,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100726102850 http://hdl.handle.net/10986/3865
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