An economy’s growth potential, from a relatively longer-term perspective, depends on the growth in capital stock and labor input, as well as improvements in productivity through innovation and the like. This indicates that it is private economic entities that play the most important role in efforts to strengthen growth potential and pursue the growth strategy.
This underscores the importance of maintaining a prudent fiscal stance during credit booms. Actually, in the years preceding the crisis headline fiscal positions in most CEE countries were broadly balanced, but in many cases this was the result of exceptional revenues associated with cyclical demand and asset price booms. Adjusted for these factors, the underlying fiscal positions looked much less healthy.