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Governments in provinces relying on natural resource commodities for significant amounts of revenue face the distinct challenge of unpredictably fluctuating budget circumstances. As politicians routinely point out, much of that challenge is in the volatility of global commodity prices. But a big part of it is actually the policies of the governments themselves. In fact, when effects of commodity prices, economic cycles and fiscal policy are separated from one another, one of the biggest impacts on government debt over the last 30 years in Canada's four resource-dependent provinces — Alberta, Saskatchewan, British Columbia and Newfoundland and Labrador — has been government policy. While years of booming economies have offset years of busts, virtually all the debt racked up by these provinces over more than three decades has been a combination of movements in commodity prices and political decisions. In Alberta, over three periods since the early 1980s, totalling more than 15 years cumulatively, it was policy — not energy prices or economic factors — that had the biggest impact on government debt levels. From 1988–89 to 1993–94, Progressive Conservative policies were the biggest factor in raising Alberta's debt, and from 1995–96 to 1999–2000, the Klein government's policies were the biggest factor in reducing Alberta's debt. The policies of then premier Ralph Klein also played the biggest role in reducing debt from 2001–02 to 2003–04, while from 2006–07 to 2013–14, the policies of the Stelmach and Redford governments outweighed economic and commodity-price effects in ways that both reduced debt at times, and then raised it again. Over the entire period from 1982–84 to 2013–14, PC government policy increased Alberta's debt ratio by 9.5 percentage points of GDP, while the business cycle decreased it by only one percentage point, and the commodity-price cycle decreased it by only 1.9 points. In Saskatchewan, the policy component raised the provincial debt ratio by 11.6 percentage points of provincial GDP from 1982–84 to 2013–14. The business cycle added 1.5 points and the commodity-price cycle decreased the debt ratio by 6.1 points. Ironically, given assumptions about party proclivities, it was Progressive Conservative government policies that added most of that debt, and NDP government policies that made the most progress in reducing it. In Newfoundland and Labrador, where a reliance on resource revenue is a more recent phenomenon, the policies of both PC and Liberal governments were almost indistinguishable, together reducing the debt ratio by 9.8 percentage points of GDP from 1982–84 to 2013–14, while the effect of commodity prices reduced it by 16.9 percentage points. But in B.C., government policy was, as in the other western provinces, the biggest factor on the debt ratio: decreasing it by 12.5 percentage points of GDP, compared to the increase of two points caused by economic cycles, and the reduction of 4.9 percentage points caused by commodity prices. Whatever the politicians in resource-dependent provinces say about their unpredictable budgeting challenges, clearly policy can have the biggest impact on debt accumulation. As it happens, that is also the one factor over which those politicians actually have total control. †

Governments in provinces relying on natural resource commodities for significant amounts of revenue face the distinct challenge of unpredictably fluctuating budget circumstances. As politicians routinely point out, much of that challenge is in the volatility of global commodity prices. But a big part of it is actually the policies of the governments themselves. In fact, when effects of commodity prices, economic cycles and fiscal policy are separated from one another, one of the biggest impacts on government debt over the last 30 years in Canada's four resource-dependent provinces — Alberta, Saskatchewan, British Columbia and Newfoundland and Labrador — has been government policy. While years of booming economies have offset years of busts, virtually all the debt racked up by these provinces over more than three decades has been a combination of movements in commodity prices and political decisions. In Alberta, over three periods since the early 1980s, totalling more than 15 years cumulatively, it was policy — not energy prices or economic factors — that had the biggest impact on government debt levels. From 1988–89 to 1993–94, Progressive Conservative policies were the biggest factor in raising Alberta's debt, and from 1995–96 to 1999–2000, the Klein government's policies were the biggest factor in reducing Alberta's debt. The policies of then premier Ralph Klein also played the biggest role in reducing debt from 2001–02 to 2003–04, while from 2006–07 to 2013–14, the policies of the Stelmach and Redford governments outweighed economic and commodity-price effects in ways that both reduced debt at times, and then raised it again. Over the entire period from 1982–84 to 2013–14, PC government policy increased Alberta's debt ratio by 9.5 percentage points of GDP, while the business cycle decreased it by only one percentage point, and the commodity-price cycle decreased it by only 1.9 points. In Saskatchewan, the policy component raised the provincial debt ratio by 11.6 percentage points of provincial GDP from 1982–84 to 2013–14. The business cycle added 1.5 points and the commodity-price cycle decreased the debt ratio by 6.1 points. Ironically, given assumptions about party proclivities, it was Progressive Conservative government policies that added most of that debt, and NDP government policies that made the most progress in reducing it. In Newfoundland and Labrador, where a reliance on resource revenue is a more recent phenomenon, the policies of both PC and Liberal governments were almost indistinguishable, together reducing the debt ratio by 9.8 percentage points of GDP from 1982–84 to 2013–14, while the effect of commodity prices reduced it by 16.9 percentage points. But in B.C., government policy was, as in the other western provinces, the biggest factor on the debt ratio: decreasing it by 12.5 percentage points of GDP, compared to the increase of two points caused by economic cycles, and the reduction of 4.9 percentage points caused by commodity prices. Whatever the politicians in resource-dependent provinces say about their unpredictable budgeting challenges, clearly policy can have the biggest impact on debt accumulation. As it happens, that is also the one factor over which those politicians actually have total control. †

In Pakistan all the macro indicators have been adversely
affected by the persistently high deficits and the strategy adopted to
finance them in the last two decades. The excessive domestic borrowing
at high rates to finance deficits without any attempts at domestic
resource mobilisation and controlling of the deficits over extended
periods absorbed all available domestic and external resources. The
resulting debttrap led to increased external borrowings at high rates
with short-term maturity. This, coupled with massive exchange rate
depreciation throughout the last two decades, resulted in rapid debt
accumulation. The recent fiscal space created in the wake of events of
9/11, resulting in high reserves, follows considerable debt relief and
availability of massive funds on very soft terms. However, the decline
in budget deficit continues to occur at the expense of development
expenditure, along with some increase in tax revenues. This trend in
expenditure needs to be reversed if serious progress in debt reduction
is the aim.

This paper explores the interaction between centralized monetary policy & decentralized fiscal policy in a monetary union with heterogeneous countries. Discretionary monetary policy suffers from a failure to commit. Moreover, heterogeneous decentralized fiscal policymakers impose externalities on each other through the influence of their debt policies on the common monetary policy. These imperfections can be alleviated by adopting shock-contingent inflation targets (to combat the monetary policy commitment problem) & shock-contingent debt targets (to internalize the externalities due to decentralized fiscal policy). 3 Tables, 17 References. Adapted from the source document.

It hardly takes a shrewd premier to keep a province from racking up debt when economic times are good, and it does not necessarily take a reckless government to accumulate debt when economic times are tough. What matters more, when assessing a government's fiscal responsibility, is how policy decisions — as opposed to cyclical effects — influence a province's debt ratio. With economically small provinces being especially vulnerable to exogenous shocks, the need to avoid chronic deficits and debt accumulation is particularly high, since minimizing deficit and debt at least improves the resilience of these provinces to recover from shocks when they do occur. An analysis of the provincial government finances of Canada's four smallest provinces— P.E.I., New Brunswick, Nova Scotia and Manitoba — finds that some are better at preparing for inevitable exogenous economic shocks. Taxpayers in Nova Scotia and P.E.I. in particular have legitimate reason to be worried. Taxpayers in New Brunswick and Manitoba can breathe a little easier, but both provincial governments have in recent years begun introducing policies that have reduced their potential for resiliency, too. From 1982–2008, New Brunswick's governments — both Liberal and Progressive Conservative (PC) — were the most successful of the four provinces in keeping its operating account more or less in fiscal balance. However, to best manage future economic shocks the province will have to reverse a six-year string of sizeable policy-induced deficits amassed first under a Liberal government and more recently under a PC government. Currently, New Brunswick's policies are doing more to increase provincial debt than are cyclical influences, by a factor of more than two. Manitoba also has one of the stronger records of the four provinces but labours under the burden of the consequences of a rapid accumulation of policy-induced debt incurred during the mid-1990s. Unfortunately, during the last three years of our period of analysis, policy-induced deficits have the province sliding in the wrong direction, adding 2.6 percentage points of GDP to its accumulated operating account deficit. Notably, there appears to be little difference between NDP and PC governments when it comes to policy-induced debt accumulation. The one distinction appears to be that the PCs have tended to begin governing by adding debt, and reducing it later, while the NDP has followed the opposite pattern. The record of P.E.I.'s policy decisions, meanwhile, has been the reverse of Manitoba's: After managing to keep its debt in check for 20 years, the government since 1999 has added 11 percentage points of GDP to its accumulated operating account deficit almost entirely as the result of policy choices. Particularly worrisome is the recent rapid accumulation of debt between 2009 and 2014. In the meantime, Nova Scotia continues working to undo the risky policies of the "lost decade" from 1984 to 1994, where PC governments increased the debt ratio by nearly a third. In all four provinces the ability to keep debt ratios under control will depend heavily on constraining the growth in health-care spending. Health spending has soared in all provinces since 1999–2000, the most extreme case being in New Brunswick where the share of revenue spent on health has leaped from 25.4 to 35.9 per cent. Even if these provinces cannot change the fact that they are small and exposed, and are stuck with the specific economic risks that entails, they do have the ability to make policy choices that mitigate the length and severity of the effects of exogenous shocks. With three of the provinces (save P.E.I.) expected to enjoy faster growth in 2015, the work in better preparing their economies for shocks should begin right away.

It hardly takes a shrewd premier to keep a province from racking up debt when economic times are good, and it does not necessarily take a reckless government to accumulate debt when economic times are tough. What matters more, when assessing a government's fiscal responsibility, is how policy decisions — as opposed to cyclical effects — influence a province's debt ratio. With economically small provinces being especially vulnerable to exogenous shocks, the need to avoid chronic deficits and debt accumulation is particularly high, since minimizing deficit and debt at least improves the resilience of these provinces to recover from shocks when they do occur. An analysis of the provincial government finances of Canada's four smallest provinces— P.E.I., New Brunswick, Nova Scotia and Manitoba — finds that some are better at preparing for inevitable exogenous economic shocks. Taxpayers in Nova Scotia and P.E.I. in particular have legitimate reason to be worried. Taxpayers in New Brunswick and Manitoba can breathe a little easier, but both provincial governments have in recent years begun introducing policies that have reduced their potential for resiliency, too. From 1982–2008, New Brunswick's governments — both Liberal and Progressive Conservative (PC) — were the most successful of the four provinces in keeping its operating account more or less in fiscal balance. However, to best manage future economic shocks the province will have to reverse a six-year string of sizeable policy-induced deficits amassed first under a Liberal government and more recently under a PC government. Currently, New Brunswick's policies are doing more to increase provincial debt than are cyclical influences, by a factor of more than two. Manitoba also has one of the stronger records of the four provinces but labours under the burden of the consequences of a rapid accumulation of policy-induced debt incurred during the mid-1990s. Unfortunately, during the last three years of our period of analysis, policy-induced deficits have the province sliding in the wrong direction, adding 2.6 percentage points of GDP to its accumulated operating account deficit. Notably, there appears to be little difference between NDP and PC governments when it comes to policy-induced debt accumulation. The one distinction appears to be that the PCs have tended to begin governing by adding debt, and reducing it later, while the NDP has followed the opposite pattern. The record of P.E.I.'s policy decisions, meanwhile, has been the reverse of Manitoba's: After managing to keep its debt in check for 20 years, the government since 1999 has added 11 percentage points of GDP to its accumulated operating account deficit almost entirely as the result of policy choices. Particularly worrisome is the recent rapid accumulation of debt between 2009 and 2014. In the meantime, Nova Scotia continues working to undo the risky policies of the "lost decade" from 1984 to 1994, where PC governments increased the debt ratio by nearly a third. In all four provinces the ability to keep debt ratios under control will depend heavily on constraining the growth in health-care spending. Health spending has soared in all provinces since 1999–2000, the most extreme case being in New Brunswick where the share of revenue spent on health has leaped from 25.4 to 35.9 per cent. Even if these provinces cannot change the fact that they are small and exposed, and are stuck with the specific economic risks that entails, they do have the ability to make policy choices that mitigate the length and severity of the effects of exogenous shocks. With three of the provinces (save P.E.I.) expected to enjoy faster growth in 2015, the work in better preparing their economies for shocks should begin right away.

This article deals with hysteresis in the fundamental equilibrium exchange rate (FEER) arising from misalignment. When the actual real exchange rate departs from its FEER value, current account realisations—and consequently, debt service obli gations—will differ from those assumed in the initial FEER calculation, necessitating its recomputation. The article derives a formal expression for this hysteresis effect in the FEER, and derives and applies rules of thumb for computing the hysteresis effect when considering the rate of approach of an exchange rate toward its FEER value.