Back to the future: Fiscal rules for regaining sustainability in a disaster-prone country

This paper develops and applies a novel stochastic simulation methodology to evaluate the effectiveness of alternative fiscal rules in guiding policy decisions and promoting long-term fiscal sustainability. The proposed framework integrates macro-fiscal uncertainty into a forward-looking simulation environment, allowing for the systematic assessment of fiscal outcomes under various rule configurations and economic shocks. By explicitly accounting for stochastic variations in revenues, expenditures, and debt dynamics, the methodology provides a robust tool for examining the trade-offs between fiscal flexibility and credibility. The results highlight the critical importance of embedding fiscal rules within a comprehensive fiscal responsibility law, complemented by the establishment of an independent fiscal council to strengthen transparency, accountability, and policy credibility. Empirical findings derived from the Caribbean experience underscore that well-designed and consistently enforced fiscal rules can significantly enhance fiscal discipline, reduce procyclicality, and improve debt sustainability. The analytical approach and policy lessons presented in this study offer valuable guidance for policymakers in the Caribbean and other developing regions seeking to reinforce fiscal governance and institutional resilience.