Policy Changes Needed For Eastern Europe

August 12, 2010 International Tax CooperationTaxation in EU

International Monetary Fund [oct 25]Eastern European Governments will need to adopt new fiscal policy strategies in the near future, to adequately deal with a reduction in economic growth and a post-crisis international economic environment.

The International Monetary Fund (IMF) has projected overall economic growth of approximately 3.3 percent for the countries of Eastern Europe in 2010, with a notable increase in all stability measures. However, according to Bas B. Bakker and Anne-Marie Gulde of the IMF European Department, Governments will need to embrace the fact that in the near future they will not experience pre-crisis levels of economic prosperity.

To sustainable growth, fiscal policies need to be implemented to discourage excessive imports and domestic spending. Governments also need to adjust their own fiscal outlooks, and take on policies of decreased boom-time spending. While this will reign in short-term prosperity, it will also build a fiscal buffer to alleviate the necessity for significant recession-time expenditure cuts and ballooning national deficits.

In addition to fiscal policy revival, Easter European nations are advised to change their economic models. Instead of concentrating on building comparative advantage through low wages alone, the countries of Eastern Europe should aim to produce “increasingly sophisticated products”. Structural reforms to improve the local business climate and increase education levels would also produce tangible and sustainable positive results.

The Czech and Slovak Republics were praised by the IMF experts, as examples of countries with appropriate policy making prior to and during the financial crisis. Domestic consumption was kept at appropriate levels, national debt was comparatively low, and economic expansions were well balanced. While the growth of both economies was regarded as muted during boom-times, they were less effected by the recession, and are currently in a more favorable position.

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