The second pillar of defence against the crisis may be a countercyclical fiscal policy, that is, the stimulation of domestic demand during the time of recession. However, the scope for implementing countercyclical fiscal policy is usually smaller in developing countries. It narrows down even further with the swelling of fiscal deficits in times of crisis, sounding alarms on public debt sustainability in many countries.
That is why experts recommend fiscal consolidation instead of fiscal expansion. True, in the short run, fiscal consolidation negatively impacts GDP, but in the medium and long run it lays groundwork for sound and sustainable economic growth, which strengthens investor confidence and pushes down the country risk premium.