Fiscal issues and central banking in emerging economies

Central banks have an incentive to monitor the fiscal position of the government for at least two reasons. First fiscal policy can constrain the implementation of monetary policy, particularly when governments call on the central bank to fund government programmes. Second, fiscal policy measures can affect aggregate demand as well as the condition of the financial sector. Fiscal measures therefore affect the central bank's ability to achieve macroeconomic and financial stability. Three key issues are: (i) How should central banks assess fiscal positions? (ii) What is the experience with countercyclical fiscal policy? and (iii) How do fiscal operations affect central bank balance sheets, and does this raise any problems? Senior officials from a number of emerging economies discussed these issues at a meeting in Basel in December 2002. This volume contains revised versions of the papers prepared by participants describing experiences in their own economies, and the background papers prepared by BIS staff.