Are Latin American and Caribbean Countries Complying with Their Fiscal Rules? by Oscar Valencia, Carolina Ulloa Suárez published by IDB (10/2022).
“Over the past two decades, a growing number of Latin American and Caribbean (LAC) countries began adopting fiscal rules to limit overspending influenced by election cycles, public pressure, and other political economy factors, helping the region strengthen its fiscal solvency and sustainability.
However, in recent years the region has suffered several external shocks that have put such rules to the test. The most recent episode related to the COVID-19 pandemic has forced countries to invoke escape clauses to such rules to deal with the health emergency and that has led to large budget deficits and a significant increase in debt levels. As their economies reopened, several countries now are seeking to adjust their fiscal commitments to control spending, ensure sustainable growth and regain investor confidence they will be able to pay off their debts.
To achieve the best outcome in adjusting their fiscal commitments, governments in the region must first consider to what extent the initially established framework has contributed to this purpose, what has worked, and what has not.
In this blog, we summarize the findings of our latest Working Paper Numerical Compliance with Fiscal Rules in Latin America and the Caribbean, which discusses how such rules have performed in the region through the development of a numerical compliance index that we will explain in the following paragraphs…”
