We are pleased to announce the latest post on the SUARA SEACEN Blog by Nur Ain Shahrier, Senior Economist in the Macroeconomic and Monetary Policy Management pillar at the Centre.
Not All Fiscal Cuts Are Created Equal: Why Fiscal Multipliers Matter for Central Banks?
As governments across Asia tighten budgets, one truth becomes clear: not all fiscal cuts are created equal. This paper shows that reducing public wages, investment, or procurement can shrink the economy far more than expected, hitting jobs, supply chains, and confidence at once. Using a SAM-based lens, the results reveal that spending cuts which fuel long-run growth carry the highest economic cost, while tax measures and targeted reforms are gentler on activity. For central banks, this means fiscal consolidation is not merely a budget exercise but a macro financial one. What is trimmed, and when, will shape inflation paths, output gaps, policy rates, and ultimately recovery. In a post-pandemic world racing to restore debt sustainability, the smarter route is clear: protect growth engines, coordinate monetary and fiscal policy, consolidate in a way that strengthens, and strengthen social safety nets to cushion adjustment.
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