Abstract
The reform of fiscal policies and institutions lies at the heart of structural adjustment in developing countries. Although the immediate aim of such reform is to reduce fiscal imbalances to achieve macroeconomic stability, the long-term goal is to secure more durable improvements in fiscal performance. This study reviews the fiscal reform experience of 36 low-income developing countries that undertook macroeconomic and structural adjustment in the context of the IMF's Structural Adjustment Facility and Enhanced Structural Adjustment Facility during the period of 1985-95.
Abstract
Since 1986 the International Monetary Fund has supported the adjustment programs of its low-income members with loans on highly concessional terms through two arrangements, the Structural Adjustment Facility (SAF) and the Enhanced Structural Adjustment Facility (ESAF) (Box 1). These facilities rest on two premises: first, that macroeconomic stabilization and structural reform of economic systems and institutions complement each other and second, that both are needed for economic growth with external viability.
Abstract
The countries that seek support under the SAF and ESAF programs are typically those experiencing deep-seated macroeconomic and structural problems, often associated with persistent weak growth, high inflation, low rates of national savings, and fragile external positions. For example, during 1981–85, the average annual real per capita GDP growth in countries that later entered into ESAF arrangements was –1.1 percent, in contrast to 0.3 percent in non-ESAF developing countries. In addition, the annual inflation rates for prospective ESAF countries during this period averaged about 95 percent, and most ESAF countries—with the exception of those in the CFA franc zone and some in Asia—experienced significant and disruptive volatility in inflation rates.3
Abstract
Adjustment programs have often been initiated at times of fiscal stress, with initial efforts focused on alleviating fiscal imbalances that threatened macroeconomic stability. Although short-term measures, such as increased transfers from parastatals and temporary surcharges, often helped meet immediate revenue needs, these measures were generally unsuited to sustained revenue mobilization. Thus, an important aim of many SAF/ESAF programs has been to improve the structure and administration of tax systems to enhance efficiency and facilitate revenue mobilization.
Abstract
As noted above, expenditure reforms are necessary for ensuring macroeconomic stability, promoting growth, and enhancing the efficiency of public expenditures. This section discusses expenditure policy objectives underlying the SAF/ESAF-supported programs and the success in achieving these objectives.
Abstract
The preceding analysis shows that both revenue and expenditure policy reforms need to be viewed in the context of structural reforms more generally. But structural reforms have long gestation lags and their realization can extend beyond the program period. Thus, the structural elements of programs may need to be sufficiently front-loaded if they are to have the desired impact during the program period. The issues discussed below have potential implications for ESAF program design.