IMF's Fiscal Monitor

See the transcript of the discussion of the FM;

QUESTIONER: Hi. One, I have a basic math question I’m trying to understand and then a sort of broader question.

So, you’re saying overall for the advanced G-20 countries, by 2030 the debt increases by 40 percentage points or thereabouts. And so to get it to a safe level they have to reduce the deficit by 8.5 percentage points over 10 years -- 8.75, sorry. How does that math work? Why does 8-3/4 get you 40 percentage points?

And then secondly, a sort of broader philosophical question, so you have a variety of tax increases and spending cuts, why don’t you have built in there, since you’re saying growth is so important, growth measures that you would score in the same way you’re scoring this?

MR. COTTARELLI: Let me start from the second one. Of course, there is a recovering growth in the projections, but there is no major increase in potential growth. The reason why we have not done this is to be, in a way, on the cautious side because these reforms in this area are extremely important but it’s difficult to calculate when they will yield benefits.

So, I think that while all countries facing fiscal adjustment should implement the measures to boost potential growth, I think it would be a bit risky to assume from the beginning that potential growth would pick up more strongly than expected, than before the crisis.

What countries, in our view, should do is to base fiscal adjustment on relatively conservative projections on output growth and then hope, to have the strong expectation, that through reforms it would be possible to improve potential growth and there would be upside surprises.

But in terms of measuring risk, I think it would be better not to base fiscal adjustment plans on the expectation that potential growth will be higher than before the crisis. Actually, it is better to be cautious.

On your specific question, the difference is between flows and stock. The improvement in the primary balance is an improvement in the flow and that of course is not from the first tier. It’s a gradual improvement, but it’s an improvement in the flow, in the primary position every year. As a result of this, at the end, you get a decline in the debt ratio by about -- with respect to the baseline and to the starting point, by about 35, 40 percentage points. We can perhaps go through separately to do the math later on at the end.