Experience with Large Fiscal Adjustments

This Occasional Paper analyzes the experience of countries that have implemented very sizable fiscal adjustments over the past three decades. It aims to identify key conditions and institutional approaches that have contributed to sustained outcomes and to favorable macroeconomic developments. ln this way, the paper may provide operational guidance to policymakers. The paper was prepared by George Tsibouris, Mark Horton, Mark Flanagan, and Wojciech Maliszewski while they were in the IMF's Fiscal Affairs Department (FAD). The authors would like to thank Teresa Ter-Minassian, Jeff Davis, Sanjeev Gupta, and Rolando Ossowski for their guidance and advice on this study. Useful commentsand suggestions were also provided by Anupam Basu, Adrienne Cheasty, Alfredo Cuevas, James Daniel, Xavier Debrun, Liam Ebrill, Hans Flickenschild, Manal Fouad,Michael Keen, Steven Symansky, and Ricardo Velloso. We are also grateful for feedback provided by participants in the annual FAD Academic Panel Conference in January2004. Case studies were prepared by Thomas Baunsgaard, Ana Corbacho, Stephan Danninger, Lubin Doe, Stefano Fassina, Mark Flanagan, Mark Horton, and Antonio Spilimbergo. Luis Blancas and Noel Pelez Benitez provided excellent research assistance throughout, while Anna Mateos-Perry and Juliet Narsiah ably assisted in preparing the manuscript. Archana Kumar of the External Relations Department edited the manuscript and coordinated production of the publication. Opinions expressed in this paper are solely those of its authors and do not necessarily reflect the views of the International Monetary Fund, its Executive Directors, or national authorities.