According to the IMF, fiscal stimulus must be customized to the nature of the crisis. That’s why a slow acting fiscal policy can be used on the current crisis (while usually it comes too late and adds up inflation). Expenditure measures are hence appropriate because of their direct stimulation of the demand. Moreover, due to the lack of accurate and reliable estimates, IMF also recommends the diversification of the fiscal policies used in order to maximize their effectiveness.
The global nature of the current crisis and the different capacities of the worldwide governments involved imply the necessity to coordinate the stimulus plans in order to yield better and quicker benefits that will help out the countries with lower abilities (free-rider externalities effect).
By analyzing the situation from 2008 to end 2010, it appears that the recovery is on track but risks and uncertainty remain. The next move then is to consolidate and create an adequate environment for balanced and sustained economic growth, fiscal sustainability and financial stability on a worldwide level.

Using short term fiscal policies, the governments should first increase their credibility and consolidate their budgets by employing fiscal rules. Second, the exit from the exceptional fiscal policies used should be well timed to a strong growth or delayed if conditions are still weak: “difference between US - Europe vs. Japan”. Third, the fiscal policies used in developed countries will generate capital inflows towards emerging countries. These inflows will boost real-estate sector, increase the value of the stock market, and strengthen the local currency which will affect their competitiveness on the international trade level and might create a resilience to let the currency appreciate. If this were to happen, they might suffer counter measures from their trading partners.

By taking Lebanon’s example, the reduction of the public debt is top priority. This can be achieved by more fiscal discipline and fixing the main budget burden: the electricity sector. Moreover Lebanon benefits from a cushion to its public debt: the banking sector, that is why it is very important to safeguard its stability. The cash inflows into the bank deposit accounts kept increasing during the crisis (due to attractive rates) thus increasing banks balance sheets and safety net. Moreover Lebanon’s economic structure has a low percentage contribution from exports thus there was no real impact on growth due to the lower global demand.

If we go back to a global scale and analyze the situation today, we notice the differences between emerging countries and advanced countries. The emerging countries have received strong capital inflows which helped in lowering borrowing cost, but have also created more challenges, like overheating of the economy or risks of bubbles. The advanced countries are still in slow growth phase, which has created high unemployment and low interest rates have yet to be applied and these countries still need to consolidate their deficits. In order to declare the crisis over, unemployment must go down. A solution to this is to boost skills by implementing lifelong learning techniques: change from “lifelong employment” to “lifelong employability”. On the emerging countries side, growth has prevailed in the past years. The challenge now is how to fight inflation (Brazil-China) and tackle the fiscal deficit (India). So more spending should be done on social goals and advancing the structural reform agenda.
Turkey is an example of emerging market which successfully tackled the crisis. In 2008, it benefited from a competitive dynamic private sector which reinforced its currency and helped with disinflation. The side effect to that was lowering its competitive edge vis-à-vis lower cost countries. However it will now have to consolidate macroeconomic policy and focus on a more growth employment friendly microeconomic environment.

One of the successes of advanced countries economy is Sweden: high saving, low interest rates and an improving job market encouraged consumers to increase spending. In addition to this, Sweden’s low public debt and sizeable budget surplus helped the authorities tackle the crisis without storing up long-term problems.
This all seems quite perfect, let’s start by analyzing the mechanism behind this success.
The low interest rates applied during the crisis are part of the monetary policy used to boost the economic recovery. In fact, low interest rates will allow more borrowing in the private sector, which will result in more investments. More investments means more jobs, more income, more taxes, more money to the government, more public investments and a positive effect GDP. We can see in this graph how the unemployment has worsened during the peak of the crisis, and has picked up a downward trend towards previous levels.
This recovery in the unemployment means growth and growth will give confidence to households which will then spend more and buy more durable goods (another sign of good health in the economy).
Let’s not forget to neutron the classical dilemma that every economy faces: inflation or unemployment – the arbitrage between these two is crucial. We can see (according to OECD) that inflation is being contained by moderate pressures from the syndicates.
In fact, these normally have a tendency to put pressure on the company managers to increase wages. (The impact on the firms will depend on the elasticity of the demand of labor). If wages are increased, this will imply more costs on the firms, this raises end product prices, which will then impact the usual basket of consumable goods by which we measure the CPI; hence creating inflation. A good thing in the Swedish economy is that these wage pressures have remained low (as mentioned earlier), thus allowing nominal rates to remain low (above consequences).
The global nature of the crisis ended up lowering the aggregate demand of foreign trade counterparts, which means lower income from exports. This has surely been a concern to the Swedish government because the economic structure of the GDP is highly based (~50%) on exports (the economy is highly oriented towards exports). If we take the Y=C+I+G+X–M formula, we can definitely see how investments (as stated by the OECD report) have counterbalanced the direct impact of a slowing export growth (due to lack of international demand) on GDP. It is worth mentioning that privately owned firms account for about 90% of industrial output.
If we take a look at the major sources of financing for investments (national savings, borrowing from foreigners, government saving), we can already see (OECD) that Sweden has high national savings and low public debt. The government savings is determined by netting tax revenues and government expenditures. The budget surplus Sweden benefits from, gives the government a margin in its case of available policies. In fact, this surplus is due to an economy that has matured, is stable, and has implemented a very high tax rate. It is considered as one of the most rigorous tax systems because it starts applying very high rates on low incomes.

According to the OECD, the Swedish economy is on track to recover from the crisis. It needs now to consolidate its credibility and set up the grounds for further expansionary policies. What is most flagrant though is that, as described by the OECD, Sweden seems to be the model of the perfect economy. We can point out weaknesses that need to be maintained:
If we consider that revenue of individuals is composed of consumption, savings and taxes (R=C+S+T), we can state that a very high percentage of the individual revenue goes into taxes; this keeps money flowing into the government treasury, but also implies higher welfare dependency. This dependency is becoming more and more of a burden to the Swedish economy. We can see how, in anticipation of future increases in the government expenditures (to cover for the welfare dependency), individuals have a high saving ratio. In fact, they consider that the government will need to either cut the spending on this issue, or increase more its taxes (already high). Therefore reforms must be put in place to reassure the population vis-à-vis the generational effect of the fiscal policy. It’s also worth mentioning that the demographic structure of Sweden has changed: life expectancy has reached a minimum of 80 for both genders, while retirement can start as early as 61 years old. A need for more pension funds will be necessary, hence even more saving from individuals. This tendency to save more and more will slow the economic growth in the near future – saving is the opposite of investment, and without investment, there is no growth. So even if the Swedish economy has overcome the crisis very quickly, it appears to be nurturing the condition of a future slow down in the economy.

As we can see on the above studies, structural unemployment is bound to rise (more retired people, more people welfare dependant). A solution to that can be “lifelong employability” (adaptation of the jobs to the new demographic age profile). Growth will slow progressively (savings are increasing to maintain a constant standard of life). A solution to that are new reforms to the welfare and pension services.

Finally, as it appears, the policies used need to be adapted to each economic condition. We saw how autonomous stabilizer helped with the quick recovery of Sweden, but what is most important, is to have a good forecast of future programs in order to diversify/adapt and implement the necessary discretionary policies.