To Bind or Not to Bind: A Fiscal Policy Dilemma in the Caribbean

Nov 2014
Given that the Caribbean region remains open to external vulnerabilities, fiscal policy is a critical tool in managing debt sustainability. But since fiscal outcomes have been persistently poor in the region, it is important to assess the appropriateness of fiscal rules as a device to impose fiscal discipline. This Policy Brief juxtaposes the historical fiscal outcomes against political outcomes to show that the current system is not functioning. It then develops a case for introducing fiscal rules over time but argues that a slow and deliberate movement to creating and implementing such rules may be the best approach for the Caribbean countries. However, it also points out the introduction of adjustment programs may also represent opportunities to quicken such implementation.