Government debt isn’t just up in the US economy; it’s a common pattern around emerging market and developing economies, too. Thus, the most recent Global Economic Prospects report includes a special topics chapter focused on these countries in “Rebuilding Fiscal Space: The Case for Fiscal Rules” (World Bank, January 2026). Here’s a flavor:
At a time when global shocks have become more frequent and government debt among emerging market and developing economies (EMDEs) has climbed to a 55-year high, fiscal rules are an important policy tool for promoting fiscal discipline. More than half of EMDEs have at least one fiscal rule, up from about 15 percent in 2000. Fiscal rules are associated with improvements in budget balances that extend to the medium and long term. Among EMDEs, improvements in the cyclically adjusted primary balance (CAPB) peak five years after fiscal rules are adopted, reaching a cumulative 1.4 percentage points of trend GDP. The gains are more pronounced when institutions are strong and economic conditions are favorable at the time of adoption, and the use of a deficit rule is central to durable improvements. Fiscal rules are also associated with a greater likelihood of fiscal adjustment episodes—multiyear periods of improvement in the CAPB as a percent of trend GDP. During a fiscal adjustment episode, the CAPB in the typical EMDE improves by 1.6 percentage points of trend GDP per year. Fiscal rules with credible enforcement provisions are associated with a higher likelihood of expenditure-based adjustment. Further, fiscal rules need not be complex to be effective. Simple rule frameworks are associated with a higher likelihood of revenue-based adjustment
One of the obvious and intriguing questions here is whether countries that are already in weak economic shape, perhaps already with high levels of debt, are more likely to adopt fiscal rules. Or to put it another way, are fiscal rules a possible way of reducing the risk of high future debt? Or are they a response to already-high government debt?
Surprisingly to me, at least, about half the emerging market and developing economies that have adopted a fiscal rule did so when their existing level of debt was low, rather than high, and when their economies were weak, rather than strong. The effect of adopting a fiscal rule on future debt turns out to be larger for the already healthy economies with relatively little debt. It also turns out that about half of the countries adopting fiscal rules did so with slim rather than large parliamentary control–but this difference did not seem to affect the ability of the rule to reduce future deficits.
