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A recent IMF working paper, supported by a major update to the IMF Fiscal Rules and Councils databases and country fiches, provides a comprehensive assessment of their adoption, design, and effectiveness. Drawing on new data covering 123 countries and 54 fiscal councils, the analysis offers important insights into the evolution of these institutions since the pandemic, highlighting both progress and ongoing challenges. Among other things, the findings underscore the importance of:
The paper introduces new indices to quantify the “strength” of fiscal rules and the institutional quality of fiscal councils. The fiscal rule strength index assesses legal basis, monitoring, enforcement, and flexibility, while the fiscal council index benchmarks mandates, independence, and communication. The analysis indicates that fiscal rules have been generally strengthened across all income groups, with particularly notable improvements observed in emerging markets and developing economies (EMDEs) over the past decade. Countries with well-designed fiscal rules tend to experience smaller deviations, in general. The findings also highlight a positive link between robust fiscal rules and effective fiscal councils, emphasizing the value of independent oversight in enhancing fiscal discipline.
The Rise and Evolution of Fiscal Rules and Councils
Fiscal rules serve as enduring constraints on budget aggregates—deficits, debt, expenditure—aiming to foster discipline and signal commitment to sound public finances. Over the past two decades, the number of countries with fiscal rules has more than doubled, surpassing 120 by the end of 2024. Advanced economies led the initial wave, often influenced by supranational frameworks, but recent growth has been driven by EMDEs.
Fiscal councils—independent, nonpartisan fiscal watchdogs—have also proliferated, with their numbers more than doubling since 2010. Almost half of countries with fiscal rules have established a fiscal council.
The updated IMF databases of fiscal rules and fiscal councils broaden their coverage to include 18 additional countries (mostly small developing or fragile states) and extend the time horizon to 2024. New information includes escape clauses, correction mechanisms, compliance indicators, and medium-term fiscal frameworks (MTFFs). The fiscal councils database also includes country fiches covering over 50 countries, and places greater emphasis on communication strategies—a key element for impactful oversight.
Evolving Design: Flexibility mechanisms but lack of sufficient enforcement
Fiscal rules have become more sophisticated and flexible, but still lacking in enforcement with effective correction mechanisms. The pandemic and other shocks prompted countries to revise their fiscal rules frameworks, with many opting to include escape clauses to temporarily suspend rules in exceptional circumstances. By 2024, two-thirds of fiscal rules included escape clauses, double the share in 2000. Also, between 2020 and 2024, more than two-thirds of countries revised their fiscal rules. Approaches varied: some loosened targets, others introduced new rules or fiscal responsibility laws, and several overhauled frameworks to allow differentiated adjustments based on debt sustainability risks. Supranational frameworks also evolved, in particular, the EU revamping its rules to allow country-specific medium-term expenditure paths.
However, accountability mechanisms for returning to compliance remain weak in many cases. Correction mechanisms, which specify actions when rules are breached, have gained traction, with about one-third of countries now incorporating them (up from just 4 percent in 2000). These mechanisms range from preventive (activated before a breach) to ex-post requirements (after a breach), but their effectiveness depends on clear procedures to avoid political discretion and implement robust reporting. Evidence shows that sound correction mechanisms—such as those that prespecify actions when debt exceeds certain thresholds—can reduce sovereign spreads by 25 percent in a lasting manner.
Compliance: Persistent Challenges
Despite widespread use of fiscal rules, compliance remains uneven and often weak. Even before the pandemic, in the period 2014-2019, about 60 percent of advanced economies and 40 percent of EMDEs failed to comply with debt rules; 20 percent and 40 percent, respectively, breached deficit limits. The pandemic exacerbated these trends, with widespread activation of escape clauses and suspensions. Five years on, deficits and debt in many countries continue to exceed rules’ limits, reflecting both the magnitude of recent shocks and shortcomings in rule design and enforcement. Deviations are highly persistent, often taking several years to revert to average levels. This underscores the need for credible adjustment plans and robust rules’ design.
Persistent noncompliance reflects frequent exclusions from rules’ coverage, limited oversight, absence of correction mechanisms, and weak links to medium-term fiscal frameworks. While escape clauses provided needed flexibility during the pandemic, the extension beyond the initial shock undermines the credibility of fiscal frameworks.
The Role and Impact of Fiscal Councils
Fiscal councils’ mandates focus on assessing macro-fiscal forecasts (MTFFs) and rules’ compliance. Some also conduct fiscal risks and debt sustainability analyses. Only a smaller fraction of councils performs more resource-intensive tasks, such as costing fiscal measures or preparing own forecasts. Most conduct ex-post analysis to assess fiscal performance. Communication strategies are more common in advanced economies, supporting transparency and public engagement, while gaps persist in EMDEs. The fiscal council index shows higher scores in advanced economies, particularly in Europe, and a strong correlation with fiscal rule strength.
Fiscal councils with robust mandates, operational independence, and effective communication are better positioned to enhance fiscal oversight and accountability. Over three-quarters of councils in advanced economies have a communication strategy, and their reports tend to be more comprehensive. Many councils in EMDEs fall short in terms of communications, such as the lack of strategy and limited discussion in fiscal council reports.
Supportive PFM Institutions and Medium-Term Frameworks
The update also includes information on MTFFs, which are the main tool to link fiscal rules to annual budgets and report noncompliance risks. While more than two-thirds of countries with fiscal rules also publish an MTFF, these frameworks do not necessarily inform budget preparation, especially in EMDEs, which means that the fiscal rules cannot become operational through the budget. However, more countries tend to put emphasis on MTFFs and fiscal strategy reports to commit to a 4–5-year fiscal path (e.g., Ecuador, Maldives, Sri Lanka).
Conclusions and Policy Implications
The global landscape of fiscal rules and councils has advanced significantly, with broader adoption, improved design, and stronger institutions. Yet, compliance remains a major challenge, and large deviations from rule limits persist. As countries navigate post-pandemic fiscal pressures, robust rules and effective councils will be essential to restore discipline, support adjustment, and build public trust in fiscal policy.
For further details, see:
- Alonso et al. (2025), “Fiscal Rules and Fiscal Councils: Recent Trends and Revisions since the Pandemic”, IMF Working Paper No. 25/198.
- Fiscal Rules: https://www.imf.org/external/datamapper/fiscalrules/map/map.htm
- Fiscal council: https://www.imf.org/en/data/fiscal/fiscal-council-dataset
