Pandemic Tests Resilience and Credibility of Fiscal Rules by W. Raphael Lam and Paulo Medas published by IMF (1/2022).
“Record debt and deficits during the pandemic prompted many nations to suspend their fiscal rules.
Since 1990, a growing number of countries have adopted fiscal rules to strengthen budgetary discipline and enhance the credibility of public finances. These numerical limits on spending, deficits, or debt signal a government’s commitment to prudence. At the same time, fiscal councils are becoming more common to provide independent oversight and monitor the compliance of rules.
What happens when a country must respond to a large shock such as the pandemic? Governments must strike the right balance between the imperative of emergency support and the credibility of the rules-based fiscal framework.
Our new research shows how countries navigate this challenge—particularly during the pandemic. As the crisis wears on, high deficit and debt levels will further challenge the credibility of fiscal policy frameworks anchored by rules…”
