THE IMF APPROACH TOWARDS THE STRUCTURAL DEFICIT
THE IMF APPROACH TOWARDS THE STRUCTURAL DEFICIT

Summary/Abstract: The aim of this paper is to assess the methodologies and techniques used by the International Monetary Fund in order to estimate the structural fiscal balance, which is crucial for evaluating fiscal sustainability. Ensuring fiscal discipline gained a major importance especially during the recent financial crisis. In the case of the Economic and Monetary Union in Europe the previous indicators were not enough to establishing an environment of fiscal discipline. Therefore, new limits regarding the structural deficit were imposed through the Treaty of Stability Coordination and Governance in the Economic and Monetary Union. However, experience shows that removing cyclical and other transitory elements from revenues and expenditure is not an easy task. This study will provide a clear understanding of the methodology used by the International Monetary Fund in order to quantify the structural deficit, its shortcomings, a comparison with the results obtained by the European Commission and recommendations. Furthermore, it will show that, despite the limits of the evaluating the structural fiscal balance, this represents the right indicator for stating where the economy is heading over the medium term.

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