Fiscal foundation of convergence to European Union in Pre-Accession Transition Countries

In: Discussion paper 02/03

Abstract

Pre-Accession Transition Countries (PATCs) aim at early admittance to the monetary club. Their fiscal indicators - deficit and debt - do not show any serious symptoms. Closer scrutiny reveals, however, that the interest burden of their public debt might be underestimated, and that restructuring and unavoidable fiscal transparency may increase their debt significantly. All in all about 1 per cent primary surplus might be sufficient to remain on the safe side of their debt in the medium run. According to the estimated model the fiscal adjustment is driven by the external imbalance, the monetary conditions are determined by the fiscal stress and their growth is affected by fiscal and monetary stimuli.