The Governance Imperative: Aligning Fiscal Discipline with Inclusive Growth

Financial Stewardship has seen the sharpest decline among CGGI pillars since 2021. Lee Kok Fatt, former Director of Fiscal Policy at Singapore’s Ministry of Finance and former Principal Private Secretary to the President of Singapore, calls for growth‑led fiscal stability to bolster governance quality and the social compact.

Financial Stewardship has seen the sharpest decline among CGGI pillars since 2021. Lee Kok Fatt, former Director of Fiscal Policy at Singapore’s Ministry of Finance and former Principal Private Secretary to the President of Singapore, calls for growth‑led fiscal stability to bolster governance quality and the social compact.

Since 2020, governments around the world have operated in crisis mode, be it to address health emergencies such as the COVID‑19 pandemic or mitigate geopolitical and trade risks. Their resilience has come at the cost of weakened financial muscle, straining their ability to govern well and deliver outcomes that matter to citizens.

There is a strong correlation between good overall governance and sound financial management. The latter is both a product and a driver of governance quality.

Governments that are capable, accountable, transparent, and strategic tend to manage public finances effectively. They eschew populist spending, focus on providing basic public services, channel resources towards enhancing productivity and skills, and attract investments that create jobs and fuel economic growth.

This correlation is captured in the latest edition of the annual Chandler Good Government Index (CGGI), first launched in 2021, which measures the capabilities and effectiveness of governments across seven pillars including Leadership & Foresight, Strong Institutions, and Financial Stewardship. It shows that countries—including Singapore, Norway, and Denmark—with good public financial management, budget discipline, and fiscal transparency tend to perform better in delivering outcomes to citizens, and typically rank at the top‑end of the Index.

The CGGI shows that countries—including Singapore, Norway, and Denmark—with good public financial management, budget discipline, and fiscal transparency perform better in delivering outcomes to citizens.

Financial Stewardship recorded the steepest drop among the seven CGGI pillars, with 70% of the countries tracked since 2021 registering lower scores. The decline was witnessed globally over the six‑year period, with only the broad region comprising the Middle East, Central & West Asia eking out a modest gain. Europe & North America recorded the steepest drop, followed by Africa, Asia Pacific, and Latin America & Caribbean.

Yet, there are positive stories in each region. While Argentina and Zimbabwe improved their CGGI scores for indicators of Country Budget Surplus and Spending Efficiency, Mongolia and the UAE recorded improvements in measures of Government Debt. Ireland improved against all four indicators of Financial Stewardship, including Country Risk Premium.

The broader global trend, however, underscores the urgency for governments to strengthen their finances to be capable of governing well and improving the lives of citizens.

A Troubling Global Debt Landscape

According to the International Monetary Fund (IMF), about one‑third of all countries—accounting for roughly 80% of global GDP—now carry public debt that exceeds pre‑pandemic levels and is rising rapidly.¹ At the present rate, the IMF projects global public debt will top 100% of GDP by 2029, reaching the highest level since 1948.²

This flags a systemic risk that could roil our interconnected world in the event of a debt default.  Added to geopolitical and trade risks, its implications for governance are profound.

Against this backdrop, while many narratives have surfaced about fiscal consolidation to “balance the books”, solutions are not straightforward and require a calibrated approach.

Improving Financial Stewardship is not merely a narrow cost‑cutting exercise, even though it is necessary to improve Spending Efficiency by reducing avoidable expenses. Populist policies that favour broad‑based handouts and subsidies drain fiscal resources and reduce a country’s economic potential by eroding incentives to work, hampering competition, and discouraging innovation. 

Yet, expenditure control and disciplined budgeting cannot by themselves sustain public spending, especially in ageing societies with growing healthcare needs and rising pension costs. In fact, cutting essential public services such as education, basic healthcare, and public utilities, will only weaken governance.

World Average Pillar Scores (Year‑on‑Year Change Since 2021)

Growth is Foundational to Fiscal Stability and Social Compact

Beyond spending discipline, the only way for governments to enhance public services is to increase capacity for economic growth. Otherwise, recurring fiscal deficits to meet growing public needs will snowball into high debt and debt‑servicing costs. Governments eventually face harder trade‑offs between higher taxes or reduced services.

Instead, after providing for basic public services, sufficient resources should be set aside to build economic capital, imbue workers with useful skills, and attract capital to create jobs.

Singapore, for example, requires the government to balance its budget over each term of office and reserves are constitutionally protected. Because of this discipline, the government generates an additional revenue stream in the form of Net Investment Returns Contribution from its accumulated surpluses, which are reinvested to strengthen infrastructure, deepen technological capabilities, and upgrade workforce skills through continuous education and training. Its fiscal discipline, strong institutions, and competitive tax policies help attract global capital. This approach ensures that public spending not only meets immediate social needs but also expands economic capital, equips workers with relevant skills, and sustains job creation over the long term.

The IMF estimates that channelling 1 percentage point of GDP from public expenditure towards developing human capital would boost the GDP of advanced economies by over 3% by 2050, and almost twice as much for the rest. Accompanied by a higher contribution to GDP from tax revenues, double‑digit growth could be attained over the long term.

However, economic growth is not an end in itself. It must serve citizens through broad‑based jobs creation and real wage increases.  This in turn will enlarge the tax base in a durable and socially acceptable way, strengthen revenues, boost competitiveness and reduce reliance on government handouts to maintain living standards.

Citizens empowered by relevant skills in a growing economy would be equipped to pay their fair share of taxes, provide for their families, own their own homes, and build savings to buffer for individual contingencies such as job transitions and old age, while self‑insuring against illnesses. Reduced reliance on government support would permit channelling fiscal savings towards creating safety nets to buffer the population against risks such as recessions, natural disasters, and geopolitical shocks.

After providing for basic public services, sufficient resources should be set aside to build economic capital, imbue workers with useful skills, and attract capital to create jobs.

Growth, Trust, and Governance Capability

Citizens experience fiscal policy not through abstract metrics but by whether it supports steady employment, upward mobility, and protection against shocks. When growth fails to translate into jobs or real wage gains, trust in institutions erodes—even if public finances appear sound.

Strong governance is ultimately about improving citizens’ wellbeing over the long term. The CGGI shows that governments with capable institutions and long‑term orientation achieve better outcomes. Prudent fiscal management, broad‑based growth, and social investment can reinforce one another when guided by clear principles and credible leadership. 

As governments confront a more uncertain global environment, the imperative is clear: align fiscal discipline with growth that expands employment, raises wages through enhanced skills and productivity, and renews the social compact. 

Only by doing so can nations secure resilient public finances, inclusive prosperity, and enduring legitimacy in the decades ahead.

Endnotes

1. International Monetary Fund, 2025. Debt is Higher and Rising Faster in 80 Percent of Global Economy. IMF Blog. https://www.imf.org/en/blogs/articles/2025/05/29/debt-is-higher-and-rising-faster-in-80-percent-of-global-economy.
2. International Monetary Fund, 2025. Fiscal Monitor October 2025. International Monetary Fund. https://www.imf.org/-/media/files/publications/fiscal-monitor/2025/october/english/text.pdf.

LEE KOK FATT

Managing Director of RySense and
Advisory Council Member of the
Chandler Governance Group