The Strategic Role of Fiscal Policy in Sustaining Economic Stability and Growth in Developing Countries

Abstract

Fiscal policy plays a crucial role in maintaining economic stability, controlling inflation, and promoting sustainable economic growth in developing countries. Through its primary instruments, taxation and government spending, fiscal policy enables governments to stimulate aggregate demand and enhance public welfare. Expansionary fiscal policy is often employed to accelerate growth by increasing infrastructure investment and providing subsidies, while contractionary policy is implemented to curb inflation and maintain budgetary balance. Developing countries, however, face persistent challenges such as limited financial resources, fiscal deficits, and high public debt burdens, which may constrain policy effectiveness. The success of fiscal policy largely depends on the degree of transparency, the implementation of structural reforms, and its coordination with monetary policy. Effective fiscal management can strengthen macroeconomic stability, boost investment, generate employment, and improve income distribution, thereby contributing to inclusive and long-term economic development. When properly designed and implemented, fiscal policy becomes a vital instrument for ensuring resilient and equitable growth in developing economies amid global economic uncertainties.