Fiscal Rules Face Global Challenges Amidst Economic Pressures
Fiscal rules, in use since the mid-1980s and increasingly adopted worldwide, face mounting challenges. Over 120 countries employ these rules to manage public finances, yet many struggle to adhere to them.
Nearly two-thirds of emerging markets and 40 percent of advanced economies exceed their fiscal limits. Governments grapple with demands for infrastructure, public services, and economic security, which can strain fiscal rules. To balance growth-enhancing spending and fiscal risks, careful calibration and design are crucial. Effective rules require a clear fiscal anchor, robust correction mechanisms, and strong fiscal institutions.
However, loosening rules in over 60 percent of emerging market countries in the last two years has not significantly improved public finance security. Aimed at short-term economic support, these changes prioritized immediate needs over long-term sustainability.
Despite their widespread use, fiscal rules face significant challenges. To ensure they support growth without compromising fiscal sustainability, countries must strengthen fiscal discipline. This involves careful rule calibration, robust mechanisms, and strong institutions. Balancing short-term needs with long-term fiscal health is crucial for maintaining stable public finances.
