Fiscal Imbalances and Sustainability: Concepts and Country Experiences

Fiscal balancing is a fine act that should take into account a number of factors, viz., fiscal discipline, growth, inflation and positive business environment that stabilize the economy and pave the way for further growth. There has been no consensus on the right balance that is to be achieved or the way to achieve it. There have been arguments both in favor of the fiscal deficits in the budget and against it. Traditional view has been in favor of limiting the fiscal deficit within certain limits that are based on the prevailing economic conditions. The manageability of the deficit forms an important aspect of defining the limit of fiscal deficit. This view has been endorsed by leading international financial institutions such as the International Monetary Fund (IMF). However, there is another view that fiscal deficits are needed for a growing economy and higher fiscal deficits do not lead to any adverse effect. The overall view has been in favor of limiting fiscal deficits even if it helps in enhancing the growth of the economy.