Title

Fiscal sustainability challenges in South Asian countries

Abstract/Description

Government across countries are facing fiscal stress despite of declining interest rates and larger scope for government expansion. According to the IMF (2020) “emergent pandemic has again shifted the focus towards fiscal policy and the need for structural changes in the fiscal policy design. According to the Yicai Global (2020) report, mean social security spending as percent of GDP has remained the lowest in the South Asian countries across all major groups of nations in the world. South Asian countries together spend 0.9 percent of their GDP on social safety nets as compared to the World average of 1.54 and 1.1 of East Asia. Discretionary Fiscal Response for Covid-19 has been around 1.1 to 2.0 percent of GDP in South Asian Countries as against the world mean of above 5 percent. Due to the prevailing economic slowdown, fiscal stress has deteriorated coupled with the social vulnerabilities. For last one decade or so South Asian nations have been focussing on maintain the countercyclical fiscal policy stance due to the rigid fiscal sustainability rules. The present paper aims to analyse the status of fiscal stress and fiscal responses in the seven south Asian countries. the second objective is to analyse the fiscal policy stance through selected structural fiscal indicators. The paper further estimates the impact of fiscal sustainability rules on economic growth and fiscal space in terms of public revenue growth and public debt burden for these countries. The paper uses the panel data set with fixed effect model. An initial panel data analysis reveals that south Asian countries adopt a procyclical fiscal policy and the sustainability indicators are insignificant with respect to economic growth and fiscal space. Alternative if the fiscal sustainability rules are more based on expenditure-based parameters as compared to deficit and debt, there are larger significant impact on fiscal space and economic growth. The paper uses the Fiscal Monitor data set of IMF since 2003.

Session Theme

Governance, Finance and Fiscal Policy - Session IC

Session Type

Parallel Technical Session

Session Chair

Dr. Sana Tauseef, Chairperson, Department of Finance, Institute of Business Administration, Karachi

Session Discussant

Dr. Hilal Butt, Associate Professor, Institute of Business Administration, Karachi

Start Date

2-4-2021 2:30 PM

End Date

2-4-2021 4:00 PM

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Apr 2nd, 2:30 PM Apr 2nd, 4:00 PM

Fiscal sustainability challenges in South Asian countries

Government across countries are facing fiscal stress despite of declining interest rates and larger scope for government expansion. According to the IMF (2020) “emergent pandemic has again shifted the focus towards fiscal policy and the need for structural changes in the fiscal policy design. According to the Yicai Global (2020) report, mean social security spending as percent of GDP has remained the lowest in the South Asian countries across all major groups of nations in the world. South Asian countries together spend 0.9 percent of their GDP on social safety nets as compared to the World average of 1.54 and 1.1 of East Asia. Discretionary Fiscal Response for Covid-19 has been around 1.1 to 2.0 percent of GDP in South Asian Countries as against the world mean of above 5 percent. Due to the prevailing economic slowdown, fiscal stress has deteriorated coupled with the social vulnerabilities. For last one decade or so South Asian nations have been focussing on maintain the countercyclical fiscal policy stance due to the rigid fiscal sustainability rules. The present paper aims to analyse the status of fiscal stress and fiscal responses in the seven south Asian countries. the second objective is to analyse the fiscal policy stance through selected structural fiscal indicators. The paper further estimates the impact of fiscal sustainability rules on economic growth and fiscal space in terms of public revenue growth and public debt burden for these countries. The paper uses the panel data set with fixed effect model. An initial panel data analysis reveals that south Asian countries adopt a procyclical fiscal policy and the sustainability indicators are insignificant with respect to economic growth and fiscal space. Alternative if the fiscal sustainability rules are more based on expenditure-based parameters as compared to deficit and debt, there are larger significant impact on fiscal space and economic growth. The paper uses the Fiscal Monitor data set of IMF since 2003.