Fiscal Guardrails against High Debt and Looming Spending Pressures

Many countries have adopted fiscal rules to foster fiscal discipline, but compliance has been mixed. Recent policy shifts and heightened policy uncertainty further intensify spending pressures and persistent debt challenges, underscoring the need for stronger fiscal guardrails. Results from a major update of IMF databases on fiscal rules and councils suggest that two-thirds of countries have revised their fiscal rules but deficits and debt continue to be well above countries’ rule limits. Robust correction mechanisms, with predefined timelines and measures, could better guide the return to rule limits and reduce sovereign spreads. In addition, supportive fiscal institutions, such as independent fiscal councils, reinforce compliance. Finally, revisions to fiscal rules to meet spending pressures should be carefully designed to preserve their integrity and transparency.