How Should Fiscal Policy Respond to the Economic Crisis in the Low Income Commonwealth of Independent States ? Some Pointers from Tajikistan

27 Pages Posted: 20 Apr 2016

See all articles by Martin Brownbridge

Martin Brownbridge

University of Manchester - Institute for Development Policy and Management (IDPM)

Sudharshan Canagarajah

affiliation not provided to SSRN

Date Written: June 1, 2009

Abstract

The paper analyses how the global economic crisis will affect the economies of the low income Commonwealth of Independent States (CIS) and discusses the fiscal measures which can be taken to help mitigate the adverse impact of the crisis. It focuses on Tajikistan, the poorest member of the CIS but also highlights similarities with the economies of Armenia, the Kyrgyz Republic and Moldova. The main channels through which the global economic crisis will affect the low income CIS economies is through a sharp reduction in remittances from migrant workers in Russia and lower export earnings. The adjustment to this external shock will involve a reduction in imports, private consumption, domestic output and government revenue. Fiscal policy, constrained by very limited macroeconomic and fiscal space, faces acute challenges. Maintaining budget targets for fiscal deficits and domestic borrowing in the face of revenue shortfalls will lead to a tightening of the fiscal stance, exacerbating recessionary pressures and making it very difficult to protect priority social expenditures from cuts. To avoid these outcomes, external support from donors, preferably in the form of quick disbursing budget support, is required. If additional external budget support can be mobilized, the priorities for fiscal policy should be to protect spending on budgeted social sector programs and, if sufficient budget resources are available, to implement a program of labor intensive repair and maintenance of public infrastructure to provide employment for returning migrant workers. Tax cuts are unlikely to be an effective use of scarce budget resources, either to stimulate the economy or protect the incomes of the poor. Up scaling existing social assistance programs may be a feasible way to protect the poor in some low income CIS countries provided they are not as poorly targeted as in Tajikistan.

Keywords: Debt Markets, Currencies and Exchange Rates, Access to Finance, Banks & Banking Reform

Suggested Citation

Brownbridge, Martin and Canagarajah, Sudharshan, How Should Fiscal Policy Respond to the Economic Crisis in the Low Income Commonwealth of Independent States ? Some Pointers from Tajikistan (June 1, 2009). World Bank Policy Research Working Paper Series, Vol. , pp. -, 2009. Available at SSRN: https://ssrn.com/abstract=1427630

Martin Brownbridge (Contact Author)

University of Manchester - Institute for Development Policy and Management (IDPM) ( email )

Manchester M13 9GH
United Kingdom

Sudharshan Canagarajah

affiliation not provided to SSRN

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