Both the origins of the current financial crisis and the determinants of its future evolution lie outside the low-income countries. In these countries, GDP did not in general fall, but growth was sharply reduced in 2009, to less than half the pre-crisis rate of over 5 percent. This has been associated with declines in exports, remittances and FDI; the prospects for aid are uncertain. The fiscal effects have been large and reflect revenue losses, with commodity-related revenues being particularly affected.
This paper focuses on key fiscal and public spending issues, and reviews policy options facing the authorities. The paper has two substantive parts. The first provides an extended discussion of recent debates concerning the nature and consequences of fiscal policy in low-income countries as well as summarizing the available evidence. The second part assesses the pros and cons of various fiscal responses that are available to governments in low-income countries, as well as summarizing the sorts of action they have taken to date.
Department of Economics, Oxford University, UK. 42 pp.