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Mr. Hugh Bredenkamp and Ms. Susan M Schadler


In the aftermath of the debt crisis of the early 1980s, many of the IMF’s poorest member countries embarked on far-reaching programs of adjustment and economic reform. The severity and structural nature of the economic problems to be addressed suggested a need for longer-term financial support than that available under the IMF’s conventional instrument for members’ use of its resources, the Stand-By Arrangement. At the same time, given the low per capita incomes and typically large external debts of the countries concerned, there was a desire in the international community to ease the burden of new IMF loans by offering them to eligible borrowers on highly concessional terms. Those benefiting would be expected to combine strong macroeconomic policies with extensive reform of their economic systems, to remove distortions, enhance efficiency, and redirect the role of government in the economy. These circumstances led to the creation of the IMF’s Structural Adjustment Facility (SAF) in 1986, followed a year later by its successor, the Enhanced Structural Adjustment Facility (ESAF). By the end of 1994, 36 countries had drawn on the ESAF, in support of 68 multiyear programs.1

Mr. Hugh Bredenkamp


The extent of progress with respect to the objectives of the ESAF can be assessed from a variety of perspectives. The most commonly used in evaluations of adjustment programs are:

Ms. Sharmini Coorey


The countries under review were among the world’s poorest, with annual per capita GNP averaging about US$400 in the early 1980s (compared with over $1,800 for other developing countries). This gap in income had widened steadily over a 15-year period from 1970 to 1985, most notably in the final decade (Figure 3.1).

Mr. Louis Dicks-Mireaux, Jean Le Dem, Mr. Steven T Phillips, and Ms. Kalpana Kochhar


This chapter examines developments in the macroeconomic and structural policies of the ESAF countries during the period under review and takes stock of the progress achieved toward greater macroeconomic stability and more open, flexible, and market-driven economies. Three critical areas are covered: fiscal policy, exchange rate and monetary policies, and structural reform. The analysis of structural reform focuses on five key areas: domestic markets and prices, the exchange and trade system, financial sector reform, public enterprise reform, and fiscal reform. Significant advances, albeit uneven, were made in all three policy areas over the past ten years. Looking ahead, there remains considerable scope for further improvement in some areas.

Ms. Kalpana Kochhar and Ms. Sharmini Coorey


The promotion of sustainable economic growth is one of the principal objectives of ESAF-supported programs. This chapter examines the pattern of growth in ESAF countries over the past 10–15 years, drawing comparisons with other developing countries, and seeking to explain differences in growth outcomes among countries and over time. The chapter begins with a brief outline of the stylized facts. It then presents a general overview of the methodology used to examine the empirical behavior of long-term growth and surveys the extensive literature on this subject to identify the various policy-related and other factors that have been found to influence growth. An equation relating growth to these factors is estimated on data for 84 low- and middle-income countries, and it is used to compare the growth performance of ESAF countries with that of other developing countries (information on the data and results is reported in an appendix). A more detailed analysis focuses on the impact of structural policies on growth in ESAF countries. The chapter concludes with a summary of its findings.

Mr. Steven T Phillips


This chapter begins with a review of inflation performance and arrives at a mixed assessment: the record on ending high inflation is satisfactory, but the record on achieving low (single-digit) inflation is disappointing. Such an impression arises both from a long view over the past 15 years and from developments during SAF/ESAF-supported programs. For most of the countries under review, there was no tendency to reduce inflation during 1981–95. SAF/ESAF-supported programs tended to target a phased movement to single-digit inflation, but overshooting of program inflation targets was pervasive. Targets aside, some drop in inflation occurred during programs, but much of this only reversed a run-up just before programs began. Moreover, the gradual disinflation during many three-year programs generally did not continue into the following years. Together, these stylized facts account for the absence of a general movement, over time, into the low-inflation range.

Mr. Tsidi M Tsikata


Progress toward external viability is a central objective in ESAF-supported programs. To this end, the programs emphasize macroeconomic policies and structural reforms that are designed to strengthen external sector performance and alleviate the severe external debt-service burdens that many ESAF users face. However, despite increasingly concessional terms on both new and old (rescheduled) loans, and continuing positive net transfers from official sources, the debt burdens of many of these countries remain high and in some cases have grown over the past decade. This chapter will review the evidence on the external performance of ESAF users since the mid–1980s, with a view to:

Jorg Decressin, Zia Ebrahim-zadeh, Mr. Louis Dicks-Mireaux, and Mr. Ali Ibrahim


Large, inefficient public enterprise sectors and distressed banking systems existed in virtually all of the 36 ESAF countries covered by this review and weighed heavily on the finances of the budget and private sector entrepreneurship. They thus hampered efforts to achieve durable macroeconomic stability.2

Mr. Mauro Mecagni


Adjustment programs are seldom implemented exactly as planned. Slippages, delays, midcourse corrections, and, occasionally, missed targets are in the nature of ambitious reform. Nevertheless, a track record of stable, market-oriented and consistently implemented economic policies is widely recognized as central to the achievement of sustained high growth, a principal objective of SAF/ESAF-supported programs.1 The rationale has to do mainly with the response of private investors—domestic and foreign—to uncertainty regarding the permanence of changes in macroeconomic and structural policies. If policies are perceived as likely to be reversed, and relative price incentives as highly uncertain, investors may delay committing resources and may postpone irreversible investment until such uncertainty is resolved. Because investment is a primary engine for growth, perceived uncertainty created by stop-and-go policy implementation risks locking the economy into a low-capital-accumulation, low-growth trajectory and reducing the effectiveness of resource allocation signals from structural reforms. These adverse effects may be farther exacerbated if delayed adjustment curtails access to external financing and provokes a crisis requiring harsh corrective measures.


This paper is an empirical study of fiscal policy in countries with extreme monetary regimes. We study members of multilateral currency unions, dollarized countries that officially use the money of another country, and countries using currency boards. We find that belonging to an international common currency area is not associated with fiscal discipline; if anything, spending and taxes are higher inside currency unions. This effect is especially pronounced for dollarized countries that unilaterally adopt the currency of another country. Currency boards are associated with fiscal restraint.