Front Matter

Front Matter

James Daniel
Published Date:
August 2006
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Pamphlet Series

No. 55

Fiscal Adjustment for Stability and Growth

James Daniel, Jeffrey Davis, Manal Fouad, and Caroline Van Rijckeghem


Washington, D.C.


ISBN 9781589065130

ISSN 0538-8759

August 2006

Cataloging-in-Publication Data

Fiscal adjustment for stability and growth/James Daniel … [et al.]—Washington, D.C.: International Monetary Fund, 2006—(Pamphlet series; no. 55)

  • “Updates and replaces the original 1995 pamphlet, Guidelines for fiscal
  • adjustment”—Introduction.
  • Includes bibliographical references.
  • ISBN 1-58906-513-1

1. Fiscal policy. 2. Economic stabilization. I. Daniel, James, 1967–II. Series: Pamphlet series (International Monetary Fund) ; no. 55

The views expressed in this pamphlet, including any legal aspects, are those of the authors and should not be attributed to Executive Directors of the IMF or their national authorities.

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This pamphlet is the product of a collaborative effort of the staff of the Fiscal Affairs Department (FAD). In particular, Peter Barrand, Matt Davies, Robert Gillingham, Michael Keen, Wojciech Maliszewski, Paulo Medas, and Theo Thomas provided valuable input. Advice and support from Teresa Ter-Minassian (Director of FAD) is gratefully acknowledged. The pamphlet also benefited from comments by staff of other departments within the IMF. Marina Primorac of the External Relations Department coordinated production of the publication.


The IMF’s approach to fiscal adjustment focuses on the role that sound and sustainable government finances play in promoting macroeconomic stability and growth. Achieving and maintaining such a fiscal position often requires adjusting fiscal policy, as well as strengthening fiscal institutions. Fiscal adjustment may involve either tightening or loosening the fiscal stance, depending on each country’s circumstances.1

This paper updates and replaces the original 1995 pamphlet, Guidelines for Fiscal Adjustment. It reflects the significant changes in the world economy and in the way the IMF has approached fiscal adjustment since then. The key changes include globalization, which raises new challenges and opportunities for fiscal policy; the increasing importance of balance sheet variables, as highlighted by debt and capital account crises; the growing perception of institutions as key determinants of development success and macroeconomic stability; and the greater emphasis on helping low-income countries scale up productive expenditure and make good use of increased aid.

Fiscal policy and adjustment involve many fundamental and complex issues, about which much has been written and on which debate still flourishes. To be focused and more widely understood, this paper necessarily simplifies some of these issues. The paper also concentrates on broad topics and practical policy options, rather than on more technical or theoretical aspects, and is selective in the topics it addresses.2 And, while much of the analysis is relevant for advanced economies, its focus is on emerging market and low-income economies.

In keeping with this practical emphasis, the paper is organized around five questions:

  • When is fiscal adjustment needed?
  • How should the fiscal position be assessed?
  • What makes fiscal adjustment successful?
  • How should fiscal adjustment be carried out?
  • What institutions can help fiscal adjustment?

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