Growth Effects of Structural Adjustment Program: Evidence from South Asian Economies
DOI:
https://doi.org/10.32350/jfar.82.03Keywords:
budget deficit, economic growth, indirect taxes, subsidiesAbstract
South Asian economies repeatedly turn to the IMF and World Bank Structural Adjustment Program (SAP) because of persistent fiscal and external imbalances. However, there is no agreement on whether these policy instruments help or hurt economic growth in these countries. Hence, this study aims to empirically examine the effects of four SAP-targeted variables (indirect taxes, subsidies, budget deficit, and the exchange rate) on economic growth in selected South Asian countries (Pakistan, India, Bangladesh, and Sri Lanka). For this purpose, panel data for the years 2000-2023 were collected from the World Development Indicators (WDI) and the International Monetary Fund (IMF). The study estimates the Fixed Effects Model (FEM) and the Random Effects Model (REM), while the Hausman specification test indicates that FEM is appropriate. The empirical results indicate that budget deficit (-0.120) is negatively and significantly associated with economic growth, while indirect taxes (0.733), exchange rate (0.715), and subsidies (0.072) have a positive and significant effect on economic growth in selected South Asian countries. The results suggest that the growth effect of the SAP-targeted variables depends on how governments utilize them, rather than on the programs themselves. Finally, the study recommends that governments should cut their non-productive expenditures to reduce budget deficit, raise domestic revenue by designing tax reforms that do not burden middle-income households, increase subsidies on productive sectors, and increase exports by adopting effective exchange rate policies.
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