Fiscal Policy Frameworks

Fiscal rules in oil economies: what actually works If your revenues move with oil prices, a fiscal rule should do one job above all: stop the budget from moving with the cycle. The Journal of Development Economics paper “Rethinking fiscal rules in resource-rich economies” makes a straightforward point: many rules were designed for stable tax systems, so they struggle when revenues are volatile and exhaustible. So what does a workable approach look like for policymakers? 1) Base the budget on a conservative reference price Use a rule-of-thumb price (often a multi-year average or a cautious forecast) to set spending. When prices exceed that benchmark, treat the excess as temporary and save it. 2) Cap the growth of primary spending Instead of chasing annual deficit numbers, limit how fast primary spending can rise—especially recurrent spending. This prevents booms from ratcheting up the spending baseline. 3) Pair the rule with a stabilization fund that runs automatically Make the mechanics predictable:    •   revenue above the benchmark → deposits    •   revenue below the benchmark → withdrawals (within clear limits) This turns volatility into a financing problem, not an annual political crisis. 4) Protect high-value public investment Build in safeguards so adjustment doesn’t fall mechanically on capital spending. Focus cuts on low-priority items, improve project selection, and keep execution disciplined. 5) Allow flexibility, but only with strict conditions A limited escape clause can make the rule credible—if it requires transparency, a clear trigger, and a published path back to compliance. ⸻ The bottom line is not “more rules.” It’s rules that match the economics of commodity revenue: volatile, uncertain, and linked to finite wealth. https://lnkd.in/dWixGP7e #FiscalPolicy #FiscalRules #ResourceEconomies #Oil #PublicFinance #DevelopmentEconomics

WHY DOES GHANA NEED A FISCAL COUNCIL 1.      In recent years, Ghana’s fiscal policy management has come under scrutiny due to recurring budget deficits, debt sustainability concerns, and limited fiscal space. 2.      These challenges have exposed the need for stronger fiscal institutions that can promote transparency, accountability, and long-term discipline in public financial management. 3.      One such institutional reform is the establishment of an Independent Fiscal Council, as envisaged in Section 11 of the newly passed Public Financial Management (Amendment) Act, 2025 (Act 1136). The new act repeals the Fiscal Responsibility Act, 2018 (Act 982) and consolidates Ghana’s fiscal management laws under a single legal framework. 4.      Two key aspects of this law are the introduction of strict numerical budget balance and debt rules, as well as the establishment of an Independent Fiscal Council. The budget rules mandate an annual surplus of at least 1.5% of GDP on a commitment basis and set an upper debt-to-GDP ceiling of 45% by 2034. 5.      Meanwhile, the Independent Fiscal Council will be responsible for monitoring compliance with these fiscal responsibility rules, among other functions. 6.      The next step for the government is to establish the Independent Fiscal Council and ensure that it builds build the necessary technical and managerial capacity to effectively implement these fiscal rules. 7.      The empirical literature shows that having a fiscal council is associated with “more accurate and possibly less optimistic fiscal forecasts, as well as greater compliance with fiscal rules”.  However, the independence of such a Council is critical to achieving such compliance. 8.      Last week, The Imani Center for Policy and Education (IMANI CPE) and International Institute for Sustainable Development (IISD) held a stakeholder workshop in Accra, Ghana where it presented its cutting-edge research on designing fiscal frameworks that balance credibility with the flexibility needed to respond to economic challenges. 9.      The report provided a deep-dive analysis of the design options available to Ghana, drawing lessons from comparative country experiences in Africa and globally. It recommends a roadmap for operationalising the Council with a clear legal mandate, functional autonomy, and strong analytical capacity. These points were also expressed by various stakeholders. 10. Stakeholders at the workshop advocated for continued support and guidance to ensure the fiscal council effectively carries out its mandate.  We look forward to continuing this work with the government and other stakeholders in supporting the all important work of the Fiscal Council. Anahí Wiedenbrüg Fernando Morra Franklin Cudjoe DENNIS ASARE Josephine Adjei-Tenkorang International Institute for Sustainable Development Imani Center for Policy and Education

In my column for the Financial Express (India), i write that while sub-national fiscal responsibility legislations (FRLs) were introduced to bring discipline, their inconsistent design and enforcement across states highlight systemic flaws. The RBI’s latest State Finances Report, using the PEFA framework, reveals troubling trends: declining budgeting accuracy, poor fiscal marksmanship in revenue and capital expenditure, and mounting inefficiencies in critical sectors like urban development, agriculture, and energy. The PEFA scores underscore persistent weaknesses, exacerbated by the pandemic, but also point to deeper structural gaps in fiscal planning. States must bridge these gaps by formalizing off-budget borrowings and improving fiscal disclosures. Linking Finance Commission grants to measurable reforms could nudge states toward better fiscal responsibility and transparency. Without such accountability, the risk of fiscal instability looms large.

Fiscal Maturity in an FTA-Driven, Multipolar World India’s shift from a fiscal deficit-centric framework to a debt-to-GDP-based fiscal anchor marks a clear maturation of its fiscal policy architecture. It reflects a transition from short-term control toward long-term stewardship—from managing annual numbers to managing the nation’s economic balance sheet. By prioritising debt sustainability while preserving flexibility for growth-oriented spending, the new framework seeks to balance macroeconomic stability with developmental aspirations. It aligns fiscal policy with India’s expanding role in global trade, its engagement through ambitious Free Trade Agreements, and its emergence as one of the world’s largest economies. Yet, this transition is not guaranteed to succeed. It will depend on robust nominal growth, disciplined and transparent borrowing, and meaningful participation by states. Cooperative fiscal federalism, rooted in trust, coordination, and shared responsibility, will be more critical than ever. Ultimately, the shift is not merely technical. It is philosophical. It signals that India is ready to be judged not just on how tightly it controls spending, but on how wisely it invests in its future. In embracing a debt-to-GDP anchor, India is choosing fiscal statecraft over fiscal symbolism and laying the foundations for sustainable growth in an increasingly complex world.

#Tariffs and the #markets continue to dominate the headlines—but something else also of significance happened in Washington: the Senate passed its budget resolution over the weekend.  It didn’t get much attention, but it should have. This resolution lays the groundwork for potential tax changes later this year, and the #Senate introduced a notable shift in approach. For the first time, the Senate used a “current policy” baseline—one that assumes the 2017 Tax Cuts and Jobs Act (#TCJA) provisions scheduled to expire at the end of 2025 will be extended. This allows an expanded framework that would support up to $5.8 trillion in tax changes over the next decade without triggering the same deficit concerns that would arise under the current scoring system. In contrast, the #House passed its own budget resolution a little over a month ago, using the “current law” baseline (as required under current law), which assumes the TCJA provisions do expire. Under this view, extending the tax cuts would add an estimated $4 trillion to the deficit over ten years unless offset with spending cuts or new revenue. The $1.8 trillion difference isn’t just technical —it sets up a potential clash between the chambers over how we measure fiscal impact. It also underscores how much long-term fiscal planning depends on the assumptions we choose. As someone who advises families on multi-generational wealth and tax planning, I’ve seen firsthand how different starting points can lead to very different results. Assumptions drive decisions, whether it’s Congressional tax policies or a family trust - how you define the baseline shapes the outcome. While much of this may be too technical for most, it’s important that as advisors, we are keeping track for our clients.  Budget resolutions don’t have carry the same flash as market headlines, but this is big news and a development worth tracking. #TaxPolicy #WealthManagement #BudgetResolution #FiscalPolicy

Are PPP Projects Truly Affordable for Governments? A Fiscal Perspective Public–Private Partnerships (PPPs) are often promoted as a way to accelerate infrastructure delivery without immediate pressure on public budgets. But the real question is: what are the long-term fiscal implications once these commitments are fully accounted for? A proper fiscal assessment is essential before approving any PPP project to ensure it is not only viable, but also sustainable for public finances. 1. Direct Fiscal Commitments These are the known and contractual obligations, including: Availability payments Capital contributions or subsidies (e.g., VGF) Revenue guarantees Land acquisition costs Tax incentives These must be fully integrated into budget planning from the outset. 2. Contingent Liabilities These are potential future exposures that may arise under certain conditions: Demand or revenue shortfalls Exchange rate and inflation risks Termination payments Government debt guarantees Force majeure events While uncertain, their fiscal impact can be significant and long-lasting. 3. Affordability Check The key issue is whether commitments fit within: Annual budget ceilings Medium-term fiscal frameworks Debt sustainability limits Sector investment priorities Without this, PPPs can quietly create future fiscal pressure. 4. Risk Allocation & Value for Money Effective PPPs allocate risks to the party best able to manage them. Poor allocation often results in higher government exposure and reduced value for money compared to traditional procurement. 5. Transparency & Monitoring All fiscal obligations should be: Clearly disclosed in financial reporting Regularly monitored throughout the concession period Integrated into fiscal risk management systems So, are PPPs always “off-balance sheet” savings—or future liabilities in disguise? The answer depends on how well fiscal risks are identified, quantified, and managed before financial close. A strong role from Ministries of Finance and PPP units is critical to ensure that only truly affordable and sustainable projects move forward. #PPP #PublicPrivatePartnership #InfrastructureFinance #FiscalRisk #ProjectFinance #GovernmentFinance #ValueForMoney #RiskManagement #FiscalSustainability #InfrastructureDevelopment

My first CESifo working paper proposes a framework to inform macroeconomic policies in a context of deep uncertainty, and applies it to the assessment of the impact of debt-financed investments in risk management on long-term debt sustainability. This work is co-authored with Remzi Baris Tercioglu, Florent McIsaac and Charl Jooste. We apply to a macroeconomic model (the The World Bank Group's MFMod macrostructural model) a set of ideas and methods that would be familiar to colleagues designing long-lived infrastructure, to identify how various policy packages perform under uncertainty on external shocks and endogenous economic dynamic. To illustrate the approach, we investigate how much to invest in disaster prevention and preparedness to maximize both GDP and debt sustainability. This work is illustrative, as the same ideas would work with other sources of uncertainty (a financial crisis instead of a natural disaster) and other objectives (such as trade balance or poverty). Some key findings: 🔹 Debt-financed prevention investments improves GDP and debt sustainability, but only up to a point when the effect on debt dominates the gains in terms of GDP. 🔹 Preparedness measures, such as contingency funds, strengthen fiscal resilience, particularly against low-probability, high-impact events, and complements investments in prevention. 🔹 Preparedness creates fiscal space for larger prevention investments without increasing debt risks, making a policy package (prevention + preparedness) overperform compared with independent policies. 🔹 Model uncertainty widens the range of possible outcomes, but the main policy conclusions remain robust. Beyond the methodological aspects, we hope this framework contributes to the growing discussion on integrating climate risk, uncertainty, and fiscal sustainability into macroeconomic policy analysis. It shows in particular that well-designed investments in resilience enhance long-term debt sustainability, even if they are financed by debt and lead to short-term increases in debt-to-GDP ratios. https://lnkd.in/eF8DQejb

Independent Fiscal Institutions, such as the Netherlands' Centraal Planbureau, play an important part in the fiscal governance of the European Union and its Member States. Today, the European Fiscal Board (EFB) released a new report providing an assessment of national efforts to transpose the revised directive on budgetary frameworks -- which aims to strengthen the position of IFI's. The findings reveal a mixed picture: while some Member States are found to have made genuine efforts to align domestic legislation with the directive’s strengthened provisions, others seem to have adopted a minimalist approach or taken no measures at all yet, raising concerns over potential gaps in fiscal governance. The EFB remarks that, while for many Member States the transposition is still ongoing, it is nonetheless a good time to start focusing on enforcement. In particular, the EFB underscores the need for: i) monitoring compliance, especially for countries with partial or unclear measures; ii) addressing gaps in access to information which could weaken IFIs’ ability to scrutinise fiscal policies; and iii) encouraging public debate to ensure transparency and pressure governments to honour their commitments Legislation and improved procedures are only the first step. The next challenge lies in how the safeguards are guaranteed in practice, especially in this challenging economic and geopolitical conjuncture. The EFB is committed to cooperate closely with IFIs and has a stake in the adequacy of their safeguards. Read the full report here: https://lnkd.in/eD67x8xm

In April 2024, the National Treasury initiated a comprehensive review of the budget process, with the goal of identifying and implementing reforms that would enhance the efficiency, transparency, and effectiveness of public resource allocation.  The challenges associated with the 2025 Budget elevated the urgency and importance of this work, which culminated in Medium Term Expenditure Framework guidelines that were issued yesterday and demonstrates a clear break with past practice. This year's budget process will leverage new spending reviews, including of all infrastructure grants, data driven approaches to identify and eliminate ghostworkers as well as fraud in government grants, and reform of inefficiencies in the public sector wage bill. Proposals will be made to Cabinet and tabled in November along with the Medium Term Budget Policy Statement. https://lnkd.in/dNMYGX7w