## Fiscal Rules Foster Stability as Spending Pressures Grow

_IMF Blog, September 25, 2025_

## Source details

**Canonical URL:** [Fiscal Rules Foster Stability as Spending Pressures Grow](https://www.imf.org/en/blogs/articles/2025/09/25/fiscal-rules-foster-stability-as-spending-pressures-grow)

## Other formats

- [Markdown version](/en/blogs/articles/2025/09/25/fiscal-rules-foster-stability-as-spending-pressures-grow/index.md)
- [Structured JSON version](/en/blogs/articles/2025/09/25/fiscal-rules-foster-stability-as-spending-pressures-grow/index.json)
- [Bundle manifest](/en/blogs/articles/2025/09/25/fiscal-rules-foster-stability-as-spending-pressures-grow/bundle-manifest.json)

## Bibliographic details
- Authors: Era Dabla-Norris, Raphael Lam, Francisco Roch
- Published: September 25, 2025

---

### Overview and key findings
- Countries have increasingly adopted fiscal rules and frameworks to give clarity and predictability to government spending.
- About 40 percent of advanced economies and nearly two-thirds of emerging markets exceed their own fiscal limits.
- More than 120 countries have fiscal rules, covering 122 economies and 54 fiscal councils.
- More than two-thirds of countries have revised their fiscal rules, often making them more flexible without considerably safeguarding public finances.
- Fiscal rules have been used since the mid-1980s, with usage increasing over the last two decades.
- Severe shocks (for example the pandemic) tested fiscal rules; many countries’ deficits and debt exceeded their own limits despite greater flexibility.

### Effective guardrails: elements of effective fiscal rules
- Clear, appropriate fiscal anchor:
  - Examples include a debt-to-GDP ratio or a medium-term budget balance target.
  - Anchors should be tailored within a risk framework to a country’s debt capacity and exposure to shocks.
  - To be credible, anchors must be easy to monitor, clearly communicated to the public, and closely linked to annual budgets.
- Robust corrective mechanisms:
  - Pre-defined triggers, timelines, and policy responses when thresholds are breached.
  - Examples of corrective devices: requiring governments to submit fiscal plans or take corrective actions; progressive triggers that activate stricter measures as debt nears critical levels.
  - Empirical example: an analysis of six countries (Armenia, Costa Rica, Cyprus, Czech Republic, Poland, and Slovak Republic) shows well-designed correction mechanisms helped lower the cost of issuing debt by about 0.3 percentage points within six months and 0.75 percentage points within a year, compared to similar economies without effective fiscal rules.
- Supportive fiscal institutions:
  - Medium-term fiscal frameworks should translate fiscal rules into multi-year plans and align short-term budgetary decisions with long-term debt goals.
  - Fiscal councils can act as nonpartisan watchdogs by producing and/or evaluating government forecasts, monitoring compliance, and informing the public about government finances.
  - Example: the fiscal council in the Netherlands assesses government forecasts and evaluates the cost of policy initiatives while providing valuable information to the public.
  - Analysis indicates countries with more independent fiscal councils tend to experience smaller deficits and better compliance with rules.
- Bottom line: linking annual budgets with medium-term fiscal frameworks and independent oversight strengthens policy credibility and makes fiscal rules more effective.

### Balancing discipline and spending pressures: policy implications
- Governments face rising demands for infrastructure, public services, and economic security; aging populations require more healthcare and pensions; many countries are increasing defense spending.
- Fiscal rules are not inconsistent with growth-enhancing or priority spending, but require careful calibration and design.
- Policy guidance for different debt positions:
  - Low-debt countries: may ease limits to support growth-enhancing spending as long as debt remains within debt stabilizing limits.
  - High-debt countries: need to match any new spending with revenue increases and/or reallocate existing expenditures to avoid adding to fiscal and debt risks.
- As spending pressures intensify, countries must strengthen—not weaken—their commitment to fiscal discipline to ensure public finances remain a source of stability, not vulnerability.

*Source: Fiscal Rules Foster Stability as Spending Pressures Grow — Era Dabla-Norris, Raphael Lam, Francisco Roch; September 25, 2025.*

---


## References

- [new report](https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2025/09/22/Fiscal-Guardrails-against-High-Debt-and-Looming-Spending-Pressures-569841?cid=bl-com-SDNEA2025004)
- [database](https://www.imf.org/external/datamapper/fiscalrules/map/map.htm)

_Source: https://www.imf.org/en/blogs/articles/2025/09/25/fiscal-rules-foster-stability-as-spending-pressures-grow_