Abstract

A persistent imbalance between aggregate domestic demand (absorption) and aggregate supply will be reflected in a worsening of the external payments position, an acceleration of domestic inflation, and a slower rate of growth. To address these problems, and in particular to regain a viable balance of payments position, measures will have to be taken (with or without Fund assistance) to bring about an orderly adjustment between absorption and aggregate supply. Either the level of absorption must be reduced or domestic output increased, or both.