Fiscal policy is central to macroeconomic management and is, therefore, the subject of considerable attention in the course of Article IV surveillance and in the design of IMF-supported programs. In fact, it is often the centerpiece of program design, with quantified targets included as key elements of conditionality. Fiscal adjustment is also among the most controversial elements in IMF-supported programs. Critics complain that the scale of the adjustment is often unduly harsh and likely to impart a contractionary impulse at a time when economic activity is depressed in any case, thereby leading to unnecessary loss of output and employment, with adverse effects on the poor.1 Apart from aggregate output and employment effects, fiscal adjustment is also controversial because of its potential distributional effects. Policies for reducing or constraining spending to meet fiscal targets are often criticized on the grounds that they squeeze socially beneficial spending such as health and education or withdraw subsidies on items of essential consumption, thus placing a disproportionate burden of the adjustment on those least able to bear it. Efforts to mobilize higher tax revenue are also sometimes criticized because many of the tax measures which can be introduced in practice in the short term, such as an increase in the rate of general sales taxes or VAT, are viewed as regressive.