Governments Urged to Strengthen Fiscal Discipline Worldwide
Governments worldwide are urged to bolster their commitment to fiscal discipline. Despite the widespread adoption of fiscal rules since the 1980s, many countries struggle to keep deficits and debt under control. Over 40% of advanced economies and nearly two-thirds of emerging markets exceed their fiscal limits.
Fiscal rules, now used by more than 120 countries, aim to balance fiscal sustainability with room for essential spending. However, many rules have proven ineffective, with frequent revisions often leading to increased flexibility rather than improved public finance safeguards.
To be effective, fiscal rules must have a clear fiscal anchor, a robust correction mechanism for off-track spending, and supportive fiscal institutions. Countries with more independent fiscal councils tend to have better rule compliance and smaller deficits.
Historically, fiscal rules were too rigid, hindering responses to economic downturns. Over time, flexibility was introduced successfully. Yet, recent revisions in several countries have not adequately secured public finances, as indicated by the need for significant fiscal consolidation by 2027.
With challenges like record debt, increasing spending pressures, aging populations, and development needs, strong and effective fiscal rules are crucial. Governments must strive for a careful balance in their fiscal rules to ensure public finances remain a source of stability, not vulnerability.
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