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Covid and after: the battle for fiscal space in LAC

What is fiscal space and who wants it?

There are various definitions of ‘fiscal space’, all broadly based on the idea of having some kind of financial reserve or money held ‘in the back pocket’ which would allow a government to deal with unexpected spending needs. Economist Peter Heller has defined it “as room in a government’s budget that allows it to provide resources for a desired purpose without jeopardising the sustainability of its financial position or the stability of the economy”. Various multilateral institutions such as the IMF and the World Bank have their own definitions. US-based credit rating agency Moody’s Services defines fiscal space as the difference between an estimated upper limit of public debt, beyond which action would have to be taken to avoid default, and actual public debt, expressed as a percentage of GDP.

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