Review literature on Fiscal Devaluations

Given the recent measures adopted by the government I post a small reading list on Fiscal Devaluations for the interested readers.

1. Emmanuel Farhi Gita Gopinath Oleg Itskhoki: Fiscal Devaluations
2. Ruud de Mooij, Michael Keen: Fiscal Devaluation and Fiscal Consolidation: The VAT in Troubled Times
3. Francesco Franco: Improving competitiveness through a fiscal devaluation: the case of Portugal (first attempt/cross section)
4. Francesco Franco: Adjusting to external imbalances within the EMU, the case of Portugal (second attempt/time series)

Source | The Portuguese Economy | http://theportugueseeconomy.blogspot.com/2012/09/review-literature-on-fiscal-devaluations.html

Statement by the EC, ECB, and IMF on the Fourth Review Mission to Portugal

The program remains on track amidst continued challenges.The authorities are implementing the reform policies broadly as planned and external adjustment is proceeding faster than expected. At the same time, rising unemployment has emerged as a pressing concern. The need to combine fiscal consolidation with deleveraging private balance sheets while restoring external cost competitiveness remains a difficult balancing act. But the authorities are determined to stay the course of adjustment and reform. Broad-based political support and social consensus is a key contribution to a successful adjustment.

Growth in 2012 may hold up better than expected. The rebalancing of the economy has continued, with stronger-than-expected exports more than offsetting weaker domestic demand. GDP in 2012 is now expected to decline by 3 percent (against 3¼ percent before). Positive albeit still subdued growth is expected in 2013. However, with domestic demand weak and pressures on firms to reduce high indebtedness, unemployment has increased sharply as part of the adjustment process, and could peak at close to 16 percent in 2013. Continued tensions in the euro area represent a risk clouding the external outlook.

The ambitious 2012 fiscal deficit target remains within reach. Notwithstanding the weaker labor market and a less tax-friendly growth composition, the authorities expect to achieve the deficit target of 4.5 percent of GDP. As during the third review, new fiscal measures were not discussed, but developments warrant close monitoring to detect potential slippages in a timely manner. The strategy to prevent new and to settle existing arrears is being implemented and regional and local governments under financial stress receive additional support, on the condition of enhancing their own consolidation efforts. Reforms of state-owned enterprises and public-private partnerships are on track. Efforts to strengthen public financial management, bolster tax compliance, and streamline public administration are continuing at good pace.

Protecting the banking system and ensuring orderly deleveraging remain among the program priorities. Liquidity in the banking system continues to benefit from exceptional support from the Eurosystem. The authorities are finalizing efforts to ensure that mid-year targets for banks’ capital buffers will be met. Further progress has also been made in strengthening the banking supervision and resolution frameworks. Tight credit conditions remain a concern and a range of measures is in train to ensure that sound companies, particularly in the tradable sectors, can fund their activities.

Progress is being made on reforms to raise long-term growth. Although product market reforms could still be stepped up in some areas, the program’s structural reform agenda will create the conditions for sustainable growth in productive jobs over the medium term. Reforms are in progress as regards removing rigidities in the housing market, privatizing state companies, making the ports more competitive, and increasing the efficiency of the judicial system. Examples of reforms already legislated include the competition law, the insolvency code, and the urban lease law. Some progress has also been made in reducing the undue burden on consumers and taxpayers by increasing competition and reducing rents in the network and sheltered services sectors, including in the electricity sector. Nevertheless, more determination is needed to push through reforms that touch on sensitive political and vested interests.

The surge in unemployment requires decisive policy action.Temporarily higher unemployment is part of the transition to a more export-oriented economy, but its rise has been exacerbated by Portugal’s long-standing labor market rigidities. The recent approval of the revised Labor Code should attenuate job losses. The broader structural reform agenda and rising capacity utilization in the export sector should help employment recover in the medium term. Nevertheless, further action to improve the functioning of the labor market is urgent. This includes institutional reforms that give firms more flexibility in matching labor costs and productivity. The exceptionally high unemployment, particularly among the young, also calls for more immediate measures, including active labor market policies. We also welcome the government’s initiative to consider, in the context of the budget 2013, ways to reduce social security contributions targeting specific segments of the labor force.

Overall, this review confirms that the program is making good progress amid continued strong external support. Provided that the authorities persevere with strict program implementation, the euro area member states have declared they stand ready to support Portugal until market access is regained. The efforts of the Portuguese authorities are being complemented by a strengthened EU economic policy framework and new EU initiatives to support growth and employment in Portugal, and in Europe as a whole.

The government’s program is supported by loans from the European Union amounting to €52 billion and a €26 billion Extended Fund Facility with the IMF. Approval of the conclusion of this review will allow the disbursement of €4.1 billion (€2.7 billion by the EU, and €1.4 billion by the IMF). These disbursements could take place in July subject to the approval of the IMF Executive Board and ECOFIN and EUROGROUP. The joint mission for the next program review is expected to take place in September 2012.

Source | International Monetary Fund - Blog NEWS | http://imf-news.blogspot.com/2012/06/statement-by-ec-ecb-and-imf-on-fourth.html

IMF Executive Board Completes Fourth Review Under the Policy Support Instrument for Uganda

The Executive Board of the International Monetary Fund (IMF) has completed the fourth review under a three-year Policy Support Instrument (PSI) for Uganda. The Executive Board’s decision was taken on a lapse of time basis and enters into effect today¹. The PSI for Uganda was approved by the IMF’s Executive Board on May 12, 2010 (see Press Release No. 10/195). The IMF’s framework for PSIs is designed for low-income countries that may not need IMF financial assistance, but still seek close cooperation with the IMF in preparation and endorsement of their policy frameworks. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners.

The PSI-supported program with Uganda remains on track. All end-December 2011 quantitative assessment criteria were met, as were most of the structural benchmarks.

The stance of macroeconomic policy remains appropriate. Monetary tightening, initiated in July 2011 in response to rising inflation, has been effective in reducing demand and price pressures in the economy. High interest rates supported by tighter fiscal policy have strengthened the currency and raised reserve levels, while private sector credit growth and overall demand pressures are now much reduced. Prices have been generally stable for the last few months and annual inflation is coming down. The disinflationary effort has had limited effect on financial sector stability. Nonetheless, the tighter policies combined with weaker global demand are projected to reduce economic growth this year.

Looking forward, economic growth should recover significantly next year, as the expected decline in inflation will allow a phased and gradual relaxation of the monetary policy stance and a recovery of credit growth. The FY2012/13 budget aims at further moderate fiscal consolidation while increasing spending on infrastructure and other development priorities. In addition, tax policy measures will be introduced and a comprehensive reform of tax exemptions linked to a new tax procedure code carried out, both aimed at improving revenue and budget performance over the medium term. While external borrowing for development is expected to increase in the years ahead, debt sustainability analysis carried out jointly by the IMF and the World Bank establishes that Uganda continues to face a low risk of debt distress.

Key risks to the outlook arise mainly from external factors. Slower than expected global growth would worsen the trade deficit and possibly reduce remittances and capital flows. Higher energy prices would dampen growth, as would deterioration in the regional security environment. However, absent these risks materializing, economic growth is expected to continue to improve, reaching 6 percent by 2013/14, and achieving its estimated potential of about 7 percent by 2014/15.

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¹ The Executive Board takes decisions under its lapse of time procedures when it is agreed by the Board that a proposal can be considered without convening formal discussions.

Source | International Monetary Fund - Blog NEWS | http://imf-news.blogspot.com/2012/06/imf-executive-board-completes-fourth_19.html

IMF Completes the Fifth Review Under the Extended Fund Facility (EFF) for Seychelles

The Executive Board of the International Monetary Fund (IMF) has completed the fifth review under the three-year Extended Arrangement (EFF) for the Seychelles. The completion of the review enables a disbursement of SDR 2.64 million (about US.6 million). The Board's decision was taken on a lapse of time basis.¹ The arrangement became effective on December 23, 2009, in the amount of SDR 19.8 million (see Press Release No. 09/472).

In 2011, the solid recovery that was set in motion by decisive policy changes after the 2008 crisis continued, supported by a vibrant tourism sector and continued high foreign direct investment. Consumer price inflation increased from near-zero levels at the beginning of 2011 to 5½ percent by year end, reflecting higher international food and fuel prices and, late in the year, a depreciating exchange rate. Fiscal performance was stronger than projected, despite higher losses from the national airline’s operations. Public debt remained on a downward trend, and the country continued to rebuild international reserves. The economic program supported by the EFF remains on track, and all quantitative performance criteria at end-December 2011 were met.

In 2012, economic growth is expected to moderate owing to less favorable external conditions. Inflation is projected to peak in mid-year, once recent adjustments of fuel prices and utility tariffs are fully reflected in the consumer price index. Monetary policy is appropriately being tightened, which should alleviate pressures on the exchange rate and bring down inflation during the second half of 2012. Public finances will need to absorb the one-off costs of restructuring Air Seychelles, but an improved fiscal revenues outlook will ensure that the primary balance target is met. The upcoming implementation of the value-added tax will improve the efficiency of the tax system. Public finances should be strengthened by enhanced oversight of public enterprises, the launch of the public sector investment program, and the implementation of further public utility tariff reforms. The financial infrastructure will be improved by the introduction of a new electronic clearing system.

Source | International Monetary Fund - Blog NEWS | http://imf-news.blogspot.com/2012/06/imf-completes-fifth-review-under.html

Forex Trade Review

Last Friday, Non-Farm Payrolls is out. This is like fuel for Usd and it effect all pair especially eur/usd and gbp/usd. Last friday the report came out a mixed bag. People are confused and the price swing up and down. I was on the losing side of the trade but because of the swing at certain point I was 30 pips up but because Marketiva usually lock out during news hour, I finally end up at a lost. Well its forex anyway. If you dont lose in forex you dont feel the thrill.

Anyway Im going to review few pairs. Maybe some of you can find a trade from my review. As for me I am currently out of the market waiting for it to come to sense. Currently all pairs are at extreme oversold or overbought.

Eur/Usd
Currently at 1.2532 after a drop of almost 200 pips. Currently its on a thin downtrend with a possible target of 1.2450. For those of you who are already on a short position, you may hold the position with trailing stop loss of your choice. For me I will only consider an entry at 1.2450, that will depend on the strength of the momentum.

Gbp/Usd
Currently at 1.8540 and just like eur/usd it drop like a rock during NFP report out. Possible target is 1.8200. Looks like a retrace coming soon. Just watch the trend and momentum for possible entry. I will be looking at this one.

Usd/Cad
Currently at 1.1330. My last signal manage to get me 30 pips. Too small for the effort. Currently going up with possible target of 1.1450. Overshot all indicators. Possible retrace at 1.1360. I will be watching this one.

This is my review. Its not a trade recommendation. Be very carefull on your trade coz forex is a risky market. If you are not sure better stay out until the market make some sense. Happy trading.

Source | 24/7 UP To Date Forex News - Foreign Exchange Market | http://247forexnews.blogspot.com/2010/11/forex-trade-review.html

IMF Executive Board Completes Fourth Review Under the Policy Support Instrument for Rwanda

The Executive Board of the International Monetary Fund (IMF) has completed on June 7, 2012, the fourth review under a three-year Policy Support Instrument (PSI) for Rwanda.¹ The Executive Board’s decision was taken on a lapse of time basis.²

The Rwandan economy continued to grow strongly, and its economic program supported under the PSI remains on track. Real GDP growth is estimated at 8.6 percent for 2011, driven by agricultural output, exports, and domestic demand. Inflation rose sharply—mainly due to rising food and fuel prices but also an accommodative monetary policy—but stayed in single digits (8.3 percent in March 2012) and was the lowest in the region. All quantitative assessment criteria for end-December 2011 including fiscal and monetary targets were met. Most structural benchmarks were also met, albeit some with delays. In completing the review, the Executive Board approved the modification of the end-June 2012 assessment criteria. Rwanda continues to be assessed at moderate risk of external debt distress.

Growth is expected to remain high in 2012, but risks remain—a renewed global slowdown or sharply higher world fuel prices could threaten growth, revenue, and inflation objectives. The fiscal framework for 2012/13 is in line with the main objectives of the PSI, and the authorities committed to delay non-priority spending rather than resort to additional domestic financing if revenue collections fall short of target. Efforts are ongoing to further strengthen public financial management and enhance revenue administration. Monetary policy is aimed at maintaining inflation in single digits, and efforts are continuing to improve the liquidity management framework. To that end, it will be important to be proactive in monetary policy and improve the functioning of the money and foreign exchange markets. Improving access to financial services while safeguarding financial stability remains a key objective for Rwanda. Careful management of the consolidation of Savings and Credit Cooperatives will be very important in that regard.

The Executive Board approved a three-year PSI for Rwanda on June 16, 2010 (see Press Release No. 10/247).

Source | International Monetary Fund - Blog NEWS | http://imf-news.blogspot.com/2012/06/imf-executive-board-completes-fourth_1230.html