The report documents the central role played by fiscal policy over the last decade in supporting initial macroeconomic adjustment and creating the space for rapid economic progress and improved social outcomes. However, it argues that fiscal policy needs to adjust to support the increase in national savings, reduce the reliance on cyclically volatile consumption-based taxes, and, in turn, lay the foundation for sustained growth in the coming period.
According to the report, over the past decade,
The report notes that rising government revenues and the dramatic reduction in interest payments made room to increase social expenditures - by about 5 percentage points of GDP. Health and pension expenditures dominated the rise in government spending and help explain better the social outcomes observed over the period.
The consolidation of public finances also helped the country attract greater international capital flows, reinforcing the decline in interest rates and fuelling private sector growth. However, the report says that the access to cheap global liquidity also precipitated a trend decline in domestic savings and a corresponding increase in external imbalances.
According to the report, the dynamics of fiscal outcomes and private investment and savings in
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