Overview
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Fiscal space

In view of multiple crises, state agencies must stay able to invest in crucial infrastructure and services

Excessively tight budgets

Humankind is facing a polycrisis. The challenges that governments must rise to include disease control, global heating, food insecurity, the fallout of the Ukraine war, the erosion of ecosystems, high energy prices and violent strife. In many places, public budgets were strained even before the start of the Covid-19 pandemic. Several sovereign nations are now heavily indebted, but even those that are not tend to struggle to mobilise the funds they need to tackle urgent problems.

Achievement of the sustainable development goals requires considerable investments. Not least, social-protection systems must be expanded. To widen governments' fiscal space, it is essential to raise sufficient taxes. At the same time, excessive debt must be restructured. Both issues require international cooperation.

Content

    Recent articles

    New contributions on fiscal space

    D+C/E+Z regularly reports on government action within tight budget constraints, national debt, currencies and the international financial market. Here you can find current articles related to the topic.

    Who else profits from remittances

    Many Zimbabweans who left the country to find work abroad are in the habit of sending money home to support their relatives. Migrants bemoan, that these remittances are heavily taxed and end up benefiting corrupt politicians back home.

    Fundamental challenges

    Making the most of public finance

    The G20 summit in Indonesia in November 2022 took stock of a host of global challenges. The leaders of the most important national economies assessed matters and made incremental progress. Quite evidently, more needs to happen. It is indispensable to increase tax revenues. High interest rates in prosperous nations are compounding problems in the disadvantaged world. Nonetheless, central banks can play their part in facilitating indispensable investments in climate adaptation and mitigation, for example. 

    Reforming development finance

    Macroeconomic conditions have changed, so the way that development goals are financed needs to be reformed urgently. Policymakers and international financial institutions have launched a number of initiatives in a search of solutions. These include debt restructuring and debt cancellation, the reform of multilateral development banks and greater mobilisation of domestic resources.

    Boost social protection

    Reducing people’s vulnerability

    Global shocks are increasingly plunging people into poverty. Countries with low and lower middle incomes must cope with difficulties they have not caused. Social protection systems are needed to protect vulnerable communities. Such systems are essential for eradicating poverty and ending hunger as aspired in the SDGs.

    Social protection improves food security

    Social safety nets are key to fighting hunger and poverty in the global south. That is why Germany is supporting partner countries to establish and expand those nets, as Minister Svenja Schulze elaborates.

    Multilateral debt management

    How to tackle the debt crises

    As multilateral agencies have been acknowledging for several years now, sovereign-debt problems are growing and becoming unmanageable in some countries. While the rhetoric of the World Bank and the International Monetary Fund has been quite progressive, the Fund’s stance towards individual countries has been less generous. It would make sense to create an international mechanism for dealing with sovereign default. The G20 have taken steps in the right direction, but more must happen. It has become increasingly obvious, moreover, that the conventional concept of official development assistance (ODA) is not fit for purpose in this era of polycrisis.

    The concept of official development assistance is outdated

    The international community must cooperate to provide global public goods, but the most resourceful economies are contributing too little to this cause. The system of official development assistance (ODA) is outdated.

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    Three countries’ debt scenarios

    Struck by crisis: Sri Lanka, Zambia and Pakistan

    Sovereign debt problems are haunting several countries. Three prominent examples are Sri Lanka, Zambia and Pakistan.

    Sri Lanka’s reform agenda is intimidating

    The economic crisis, that ended the presidency of Gotabaya Rajapaksa in Sri Lanka in July, is not over. Poverty has worsened considerably. A new IMF loan could help – but the IMF has made the restructuring of other debts a precondition.

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    Digital Monthly on fiscal space in polycrisis

    Our Digital Monthly 2022/12 focuses on tight state budgets in times of multiple crises. Click on the title on the left to download the issue as a PDF free of charge.

     

    The contributions of our authors deal, among other things, with
    - how to expand the fiscal space in developing countries,
    - the G20 summit in Bali in November 2022,
    - international problems caused by the strong dollar,
    - Zambia's vulnerable economy,
    - economic crisis in Pakistan and
    - how Kenya's new president wants to increase tax revenues.

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