With global interest rates expected to stay elevated for an extended period, Saudi Arabia’s finance minister has urged governments to put fiscal discipline at the heart of economic policymaking.
Speaking at the AlUla Conference for Emerging Market Economies, Mohammed Al-Jadaan said countries should not assume that monetary easing will arrive anytime soon. Borrowing costs, he warned, are likely to remain high for years, making prudent budgeting essential.
Al-Jadaan’s comments are made against the backdrop of lingering global uncertainty as central banks of advanced and emerging economies maintained their cautious stance after implementing rate hikes to tame rising inflationary pressures.
“We are unlikely to see any significant easing in monetary policy in the next few years,” he said, emphasizing the point that governments have to adapt their fiscal strategies accordingly.
He advised against relying on the assumption of increases in revenue and growing deficits as a stimulus to growth. Higher interest costs raise the refinancing costs of government debt. They limit the capacity of countries to respond to the next crisis.
The warning does not pertain to developing countries alone, as emphasized by Al-Jadaan, who stated: “Some developed economies exhibit fiscal risks, such as large deficits, high debt, and low buffers, which are similar to risks seen at times in EMs.” These risks become accentuated in a high-rate environment.
Preparedness formed a key pillar of the minister’s address. He said governments tend to expand spending during boom periods rather than build reserves. When downturns follow, from commodity shocks, geopolitical disruptions or climate events, limited fiscal space constrains their capacity to respond decisively.
For emerging markets, high global interest rates trigger capital flight and currency turbulence. In those circumstances, investor sentiment is mostly based on perceived fiscal prudence.
Muhammad Aurangzeb, the finance minister of Pakistan, likewise called for discipline, citing his country's recent effort to narrow its fiscal deficit. Strengthening fiscal buffers, he noted, bolsters resilience both in regard to economic and climate-related shocks.
The message from AlUla was clear: discipline during the stable periods determines flexibility during crises.
Al-Jadaan stopped short of advocating blanket austerity. Instead, he distinguished productive and unproductive borrowing. Borrowing to finance infrastructure, ports, logistics networks, and digital systems can crowd in private investment and support long-term growth.
In contrast, undertaking borrowings to support recurring expenditures without increasing economic capacity may lead to structural liabilities. Similarly, officials fromthe World Bank emphasized the need to support job creation led by the private sector rather than sustaining unsustainable public sector employees.
In a world where global growth is slowing down and uncertainty is rising, it was very clear from Riyadh that, in an environment of sustained high interest rates, fiscal discipline is the foundation of economic resilience.