Fiscal Policy and its Implication for Central Banks

Abstract

Over the past decade, prudent fiscal management has served Thailand well in cushioning the impact of the global financial turbulence. However, going forward, fiscal risks which include a weakened global economic outlook, unbalanced fiscal structure and growing contingent liabilities may have implications for fiscal debt sustainability in the medium term. Since the credibility of fiscal policy greatly influences the conduct and effectiveness of monetary policy, central banks have an incentive to monitor fiscal positions closely. At the same time, it is important to preserve central bank independence and credibility to ensure that the central bank can carry out its primary mandate. In relation to this, policy coordination between the central bank and the government is crucial both in terms of policy stance and public debt management, which will also help foster bond market development and promote financial stability.Full publication: Fiscal Policy, Public Debt and Monetary Policy in Emerging Market Economies