Front Matter

Front Matter

Richard Hemming, Axel Schimmelpfennig, and Michael Kell
Published Date:
May 2003
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© 2003 International Monetary Fund

Production: IMF Multimedia Services Division

Typesetting: Alicia Etchebarne-Bourdin

Figures: Theodore F. Peters, Jr.

Cataloging-in-Publication Data

Hemming, Richard

Fiscal vulnerability and financial crises in emerging market economies / Richard Hemming, Michael Kell, and Axel Schimmelpfennig — Washington, D.C.: International Monetary Fund, 2003

p. cm. — (Occasional paper, ISSN 0251-6365; 218)

Includes bibliographical references.

ISBN 1-58906-196-9

1. Fiscal policy. 2. Financial crises. 3. Currency question. I. Kell, Michael. II. Schimmelpfennig, Axel. III. International Monetary Fund. IV. Occasional paper (International Monetary Fund); no. 218

HJ192.5.H35 2003

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The following symbols have been used throughout this paper:

  • … to indicate that data are not available;
  • — to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;
  • – between years or months (e.g., 2001–02 or January-June) to indicate the years or months covered, including the beginning and ending years or months;
  • / between years (e.g., 2001/02) to indicate a fiscal (financial) year.

“n.a.” means not applicable.

“Billion” means a thousand million.

Minor discrepancies between constituent figures and totals are due to rounding.

The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.


This Occasional Paper focuses on the fiscal aspects of financial crises in emerging market economies, and as such fills a gap in the crisis literature. The discussion in the paper is based on statistical analysis of a large dataset of fiscal variables and case studies of eleven emerging market crises during the 1990s. The paper concludes that there are several important fiscal causes of crises, related to the size of deficits and their financing, the level and composition of public debt, and structural fiscal factors. Some fiscal indicators are useful for predicting crises, including banking crises. That said, fiscal indicators add little to existing early warning system models in terms of calling crises, but may be useful in improving the ability of such models to predict tranquil periods. It is found that crises tend to put upward pressure on deficits and add to debt as output falls, the exchange rate depreciates, and the government has to cover the costs of bank restructuring. However, the fiscal adjustment usually required in response to a crisis more than offsets the underlying increase in deficits. Crises have also proved to be a catalyst for difficult structural fiscal reforms.

The authors are especially indebted to Teresa Ter-Minassian for her overall guidance and support, to Nigel Chalk and Tony Annett for their contributions to the case studies, and to Estella Macke for excellent research assistance. They would also like to thank Andy Berg, Marco Cangiano, Luis Cubeddu, James Daniel, Liam Ebrill, Hali Edison, Anne-Marie Guide, Paolo Manasse, Luiz de Mello, Eric Mottu, Saleh Nsouli, Carmen Reinhart, Nouriel Roubini, Gerd Schwartz, and Hung Tran for their helpful comments on earlier drafts, and colleagues in area departments and the offices of Executive Directors who commented on the case studies. Administrative assistance was provided by Constanza Bryant, Veronique Catany, and Mileva Radisavljeviç. Esha Ray of the External Relations Department edited the paper and coordinated its publication.

The opinions expressed in the paper are those of the authors and do not necessarily reflect the views of national authorities, the IMF, or IMF Executive Directors.

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