Fiscal Stabilization & Adjustments in Developing Countries

Abstract

From the literature review, it is particularly argued that failure to implement effective fiscal policy measures have greatly hampered economic growth and sound macroeconomic stability in most developing countries. The prevailing economic climate indicates that growth has slowed down substantially in most developing economies especially in sub-Saharan Africa (SSA) region. The discussion on the fold is that economic turbulence and uncertainty persist despite implementing the famous Structural Adjustments Programmes (SAPs) in the early 1980s and 1990s. Many scholars still argue that developing economies have maintained a stable and positive rate of growth while significant challenges of high real interest rates, declining investment opportunities, and volatility in exchange rates and fiscal deficit remains key on the development agenda.At the end of the 1990s, most developing economies saw a full span of macroeconomic and microeconomic measures in order to resolve structural rigidities. For obvious reasons the economic outlook of the late 1990s provided a greater opportunity for sustained economic growth in most developing economies. However, this was not the case as most of them experienced a balance of payment crisis, growing foreign debt, high interest high rates and increase in public expenditure which was caused by imprudent fiscal policies. Most governments undertook a combination of austerity measures such as cutting down of public expenditure, raising enough revenues and reducing the fiscal deficit so as to promote macroeconomic stability. On the contrary, the fiscal austerity measures led to the prolonged suffering of the poor as poverty rose to seriously levels. Mostly important, poverty in most developing economies has remained on the rise despite possible interventions. It is not surprisingly to note that the incidence of both rural and urban poverty is sharp and widespread despite the implementation of stabilization and adjustments programmes in some of the developing countries. The poorly designed fiscal austerity measures have caused a long period of disproportionately suffering among the poor in many developing countries. Governments in developing countries should shift from the perception of being an obstacle but a catalyst of development through their action in sustaining fiscal stabilization and adjustment measures.