Empirical evidence has shown that fiscal adjustment is critical to successful stabilization effort in countries facing domestic debt overhang. It should be noted, however, that deficit budgeting, per se, is not the critical issue of concern. Rather, it is the size, source of financing and quality of expenditure.
In their 2011 budgets, countries need to specify the necessary fiscal adjustment measures in detail, while standing ready to correct any slippages from the fiscal objectives announced. Substantial and far-reaching structural reforms should be rapidly implemented to enhance the prospects for higher sustainable growth.