Rethinking Fiscal Policy and Frameworks in the Caucasus and Central Asia

This paper evaluates the fiscal frameworks in the CCA and finds significant scope to strengthen fiscal policy along its stabilization, allocation, and sustainability dimensions. Priorities include enhancing automatic stabilizers through reforms to personal income taxation and social protection systems; refining fiscal rules to better accommodate cyclical conditions and strengthen enforcement; and anchoring fiscal planning in credible medium-term expenditure and fiscal frameworks underpinned by realistic macro-fiscal projections. Reinforcing fiscal risk management—including risks associated with state-owned enterprises (SOEs), public-private partnerships (PPPs), financial sector vulnerabilities, and climate-related shocks—will also be increasingly important for safeguarding fiscal space. Improvements in transparency, specifically on fiscal reporting and the coverage of quasi-fiscal activities would strengthen accountability and help policymakers better assess underlying fiscal positions, supporting more effective prioritization and resource allocation. The successful implementation of these reforms would require sustained political commitment, coordinated capacity development, and sustained engagement with international partners. By modernizing fiscal institutions and grounding policy in transparent, forward-looking frameworks, CCA countries can strengthen the countercyclical role of fiscal policy, support private-sector development, and enhance resilience to future shocks. Taken together, these reforms would help the region sustain higher, more inclusive growth and make progress further on its economic transition path.