Fiscal policy is how the government uses the budget. Raising or cutting taxes, expanding or shrinking public spending, and running deficits or surpluses all fall under it. It differs from monetary policy, which is mainly the central bank’s domain of interest rates and money conditions.
Key takeaways
- Stimulus spending can support growth but may widen deficits.
- Tax changes alter household cash and company investment incentives.
- Large public debt can crowd out private borrowing or raise risk premiums.
- Markets watch fiscal credibility as closely as growth headlines.
Why it matters in Ethiopia
Budget choices on infrastructure, subsidies, and taxation feed into inflation, the birr, and business conditions. Investors reading ESX companies still need a basic grip on the fiscal backdrop.