Global Economic Prospects, June 2017 by World Bank Group

Author:World Bank Group
Language: eng
Format: epub
Publisher: World Bank Publications

By 2016, fiscal positions in most EMDEs set government debt on clearly rising trajectories. Negative sustainability gaps exceeded 1 percent of GDP in roughly 80 percent of commodity-exporting EMDEs and in about 40 percent of commodity-importing EMDEs. In more than 70 percent of EMDEs, debt dynamics had worsened materially (i.e., sustainability gaps had deteriorated by more than 1 percentage point of GDP) from 2007. In principle, temporary negative sustainability gaps that are quickly reversed would be of limited concern; however, sustainability gaps and fiscal deficits in EMDEs have worsened steadily since 2012. That said, in 27 percent of EMDEs, debt dynamics in 2016 were still more favorable than in 2000, when a period of steady improvement began that lasted until the global financial crisis.

Regional dimensions. Pre-crisis improvements and post-crisis deteriorations in government debt dynamics were most pronounced in regions hosting large numbers of commodity-exporting countries (LAC, Middle East and North Africa (MENA), and SSA; Figure SF1.4). In Europe and Central Asia (ECA), falling commodity prices in the eastern part of the region and private sector deleveraging in the western part following the global financial crisis slowed growth from pre-crisis rates. This aggravated the challenges of debt sustainability despite fiscal consolidation efforts that kept fiscal deficits the smallest among EMDE regions. Sustainability gaps have remained positive since the global financial crisis in East Asia and Pacific (EAP) but narrowed to below-zero in 2016. In South Asia (SAR), sizable primary deficits contributed to persistently negative sustainability gaps through most of the 2000s, although deficits and negative sustainability gaps have narrowed since the global financial crisis.

FIGURE SF1.4 Evolution of fiscal space in EMDE regions

Sustainability gaps are particularly wide in MENA, LAC, and SSA, which host a large number of commodity-exporting EMDEs, whereas rapid growth supported sustainability in EAP and SAR.

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