Governments facing high debt levels and seeking to undertake fiscal consolidation are often confronted with a number of interrelated questions. What promotes a successful fiscal consolidation? How large should the adjustment be and how fast? Should one adjust now or later, and what are the consequences of postponing adjustment? Should one cut expenditures, raise revenues or do both? Which components of expenditures or revenues should one adjust, and does the composition of adjustment really matter? Would the adjustment be self-defeating? Is there a political price for fiscal adjustment?
Joel Chiedu Okwuokei, Charles Amo-Yartey, and Mr. Machiko Narita
Countries in the Caribbean have undertaken fiscal consolidation at various times with the primary objective of putting the debt-to-GDP ratio on a sustainable downward trajectory. Yet public debt levels in most of these countries remain high today, suggesting that past and ongoing fiscal consolidation efforts have not yielded durable benefits. Some questions immediately come to mind. Why are public debts levels not falling as one would expect? Would it be connected with the Caribbean approach to fiscal consolidation, country-specific circumstances, or some challenges unique to the region? What are the characteristics of fiscal consolidation in the region, and how different are they from the experiences around the world?