Decline in public sector savings
Other Names: Inadequate government savings capacity
Incidence: Measures taken to redress external imbalances in payments have also affected the savings capacity of governments. Currency devaluation has been an important factor since it raises the domestic currency cost of servicing the external public debt, and hence aggravates the budget problem created by high interest rates and debt-service obligations. Where domestic interest rates have been raised substantially in order to prevent a collapse of the currency and forestall capital flight, internal debt-service obligations have also risen. In debtor developing countries, many of which have been experiencing falling real incomes, it has not been possible to offset these higher burdens to any significant extent through cuts in expenditure or higher taxation. As a result, the government budget balance deteriorated and public sector savings fell. The situation was further aggravated in those countries, a majority, for which receipts from tariffs represent an important source of revenue. Where imports were reduced as part of an adjustment programme, government revenues fell correspondingly, again reducing public sector savings.
Problem Type: D: Detailed problems
Date of last update 01.05.2000 – 00:00 CEST