Reconciling fiscal growth and consolidation

The launch of the IMF regional report on Central, Eastern and Southeastern Europe (CESEE) was hosted at CEPS on November 17th. Jörg Decressin, Johannes Wiegand and Ernestro Crivelli presented the outlook for the region, pointing to a healthy pace of growth, with the exception of Russia and other CIS countries that remain in recession, although a further slowdown in emerging markets could represent a downside risk. The report is an in-depth exploration of the ways in which fiscal consolidation can be reconciled with long-term growth in CESEE and argues that, based on empirical evidence, budgetary structure can affect growth. On the one hand, countries that managed to avoid cuts in capital expenditure (public investment) and to use EU structural funds benefited from a temporary boost in growth. On the other hand, most countries in the region whose budget structures were not growth-friendly, e.g. those featuring large unproductive transfers or high taxes on labour, will have to make adjustments. Interestingly, most of these recommendations would also apply to most euro-area members.