Legacy Debts Limit Fiscal Space

The fiscal impulse so far in 2018 has been mildly contractionary, despite higher revenues and greater spending through quasi-fiscal channels. Local governments have been severely impacted by the contraction in corporate credit availability, and have been unable to borrow for any purpose other than refinancing old debt so far this year. Conditions will be more accommodative in 2H, led by policy banks and the expansion of the central bank’s balance sheet, but localities’ debt burden will continue to preclude spending at levels necessary to compensate for the slowdown in credit creation.

Posted July 1, 2018
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