How Did Fiscal Rules Hold Up in the Commodity Price Crash?

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Fiscal rules—permanent quantitative constraints on government finances—are an important tool to help mitigate the macroeconomic challenges associated with managing natural resource revenues. Partly inspired by successes in managing resource revenues in countries such as Chile, Peru and Norway (countries that have established fiscal rules and have abided by these budgetary constraints for over a decade), more countries have been adopting such rules.
 
The authors of this paper reviewed the use of fiscal rules across countries assessed in the Resource Governance Index (RGI). For each of the 34 RGI countries with fiscal rules, they reviewed the evidence on the rule’s characteristics, the compliance with the rule, and oversight of this compliance. They analyzed levels of compliance in 2015 and 2016, the years directly following the commodity price crash. The research provides new insight into how these fiscal rules performed during serious economic shocks.
 
The analysis sheds light on large gaps in compliance and oversight of fiscal rules, and the paper provides policy recommendations on how fiscal rules can be further strengthened.