The Great Crisis and Fiscal Institutions in Eastern and Central Europe and Central Asia

Abstract

This paper presents an overview of the fiscal reforms enacted by the countries of Eastern and Central Europe and Central Asia (ECA) during the last two decades, with a focus on Poland, Russia and Turkey. In particular, most of the ECA countries adopted binding budgetary rules in order to reduce institutional fragmentation, enhance transparency and promote fiscally responsible behaviour. During the 1990s these countries were determined to accelerate the transition from the central-planning system. In a favourable external environment, they strengthened their fiscal institutions and improved their fiscal outcomes. This positive trend reversed when the global financial crisis struck and some reforms proved too inflexible for a period of economic downturn. In the short term, the ECA countries reacted with measures to contain the deficit, boost aggregate demand or protect certain segments of the population. Later, once the crisis revealed the risks that volatile environments pose for long-term stability, the need for further institutional, social and fiscal reforms became paramount.