By Gbenga Oyebode Falana
Fiscal sustainability connotes the ability of governments to manage public finances over the medium and long term without excessive borrowing, debilitating debt, or fiscal crises – has emerged as a central pillar for economic resilience in today’s interconnected global economy. Yet, while the technical dimensions of fiscal sustainability (such as debt-to-GDP ratios, budget deficits, and revenue mobilisation) dominate policy discourse, an equally critical but less discussed driver is trust – trust between citizens and the state, investors and institutions, and among public stakeholders themselves. In emerging economies, where structural challenges abound, elevating trust from a peripheral consideration to a core strategic asset can transform fiscal outcomes and accelerate sustainable development.
At its core, trust is the belief that institutions will act predictably, fairly, and in the public interest. When citizens trust their government, they are more willing to comply with fiscal obligations such as taxation; when investors trust the policy environment, they commit capital for the long term; and when civil society trusts public institutions, collaborative solutions to complex socioeconomic problems become possible.
This trust – social, political, and economic is not measured solely by sentiment surveys, but by observable behaviours that influence fiscal performance:
• Tax compliance: Trust in the integrity and fairness of tax systems increases voluntary compliance, reducing reliance on costly enforcement mechanisms.
• Public spending efficiency: When citizens believe that public funds are managed transparently and responsibly, there is greater acceptance of necessary fiscal adjustments.
•Domestic resource mobilisation: A trusted government is more likely to unlock domestic savings and channel them into productive investments.
•Policy certainty: Investors both domestic and foreign are more inclined to commit to long-term projects when policy frameworks are credible and stable.
In emerging economies, where tax bases are often narrow and public debt vulnerable to external shocks, trust becomes an indispensable asset in achieving fiscal sustainability.
Fiscal trust in emerging economies: The current reality
Emerging economies face multiple hurdles that erode trust:
1. Perceptions of corruption and rent-seeking: Where public funds are perceived as being diverted for private gain, citizens become reluctant taxpayers.
2. Weak institutional capacity: Inadequate administrative infrastructure undermines service delivery and weakens confidence in fiscal policy.
3. Opaque budget processes: Lack of transparency breeds suspicion and fuels the belief that budgets serve special interests rather than the common good.
4. Volatile policy regimes: Frequent, unpredictable changes in tax and regulatory frameworks discourage long-term investment.
These challenges are not mere theoretical constructs they manifest in persistent fiscal deficits, high debt service burdens, limited public investment in infrastructure and human capital, and episodic financial crises. While emerging economies vary widely, a common denominator remains without trust, even the most technically sound fiscal strategy risks failure at implementation.
Lessons from developed climes
Developed economies, though not immune to trust deficits, offer instructive contrasts. Consider, for example, the Nordic countries of Finland, Sweden, Norway, and Denmark where high levels of tax compliance coexist with generous welfare states. What explains this paradox to outsiders is a deep-rooted trust that taxes are fair, public services are effective, and officials are accountable.
In Germany, for instance, the Federal Constitutional Court’s “debt brake” (Schuldenbremse) is more than a fiscal rule; it reflects broad societal consensus about intergenerational equity and sustainable public finances. The rule’s legitimacy is anchored in processes that involve public debate, legal clarity, and predictable enforcement.
In Canada, the Parliamentary Budget Officer – an independent fiscal authority provides non-partisan analysis on fiscal and economic trends, enhancing credibility and informing public debate. These mechanisms foster trust, which in turn reinforces fiscal discipline and resilience.
Pathways for emerging economies: A trust-first agenda
Emerging economies can harness similar principles, adapted to their specific contexts, to strengthen fiscal sustainability. The pursuit of trust must be deliberate, coordinated, and embedded in both policy design and implementation.
1. Strengthen revenue institutions and tax justice. Tax compliance is the lifeblood of sustainable public finances. However, simply increasing tax rates is neither equitable nor effective if taxpayers do not believe in the fairness of the system. Introduce progressive tax policies that align burden with ability to pay. Modernise tax administration through digitalization, reducing points of discretion that invite corruption. Publicise tax expenditures and rationalise exemptions to ensure fiscal fairness and accountability.
Empirical evidence from across Africa and Latin America suggests that reforms improving procedural fairness such as dispute resolution mechanisms and taxpayer service charters yield significant gains in voluntary compliance.
2. Enhance transparency and open budgets. Trust thrives where information is reliable and accessible. Publish timely, comprehensive budget documents, including medium-term fiscal frameworks. Use open-data platforms to allow citizens, journalists, and researchers to track public spending. Institutionalise participatory budgeting at local and national levels so stakeholders can influence priorities.
Countries like South Africa have made strides through “Open Budget” initiatives, which invite public engagement and strengthen fiscal legitimacy.
3. Institutionalise independent fiscal oversight. Independent fiscal institutions (IFIs) serve as trusted arbiters in complex economic environments. Establish non-partisan budget offices, fiscal councils, and supreme audit institutions with statutory authority. Protect these bodies from political meddling through legislative safeguards. Require regular reporting to legislatures and the public.
In Brazil, the Federal Court of Accounts (TCU) has been pivotal in audit enforcement, exposing fiscal irregularities and promoting evidence-based governance.
4. Foster policy consistency and predictability. Emerging economies often experience abrupt policy swings in response to political cycles or economic shocks. While flexibility is necessary, unpredictability undermines credibility. Anchor fiscal rules in law with clear triggers and escape clauses for emergencies. Engage stakeholders in policy formulation to build broad consensus. Communicate policy changes proactively, with impact assessments.
Malaysia’s medium-term fiscal framework and India’s Fiscal Responsibility and Budget Management (FRBM) Act are examples of efforts to bring discipline and predictability to public finances.
5. Invest in civic education and trust building. Ultimately, trust is social and cultural as much as institutional. Promote civic education to deepen public understanding of fiscal policy and its implications. Support community forums where citizens can voice concerns and co-create solutions. Recognise and address historical grievances that contribute to scepticism and disengagement.
In Thailand, civic education campaigns around the national budget have helped ordinary citizens demystify public finance and engage more confidently in fiscal discourse.
Comparative reflections: emerging vs. developed
It is tempting to assume that developed countries enjoy trust by default. Yet, events such as the Eurozone sovereign debt crises, Brexit, and rising populism across Europe and North America reveal that trust is neither static nor guaranteed. These episodes underscore the fragility of trust even in mature democracies and the dangers of complacency.
However, developed economies generally possess stronger institutional scaffolding robust judiciaries, independent media, entrenched civil society organisations, sophisticated data systems, and diversified economies that help sustain trust even under strain. Emerging economies, while less endowed in these respects, are not without agency. By strategically investing in trust as a fiscal asset, they can unlock significant developmental dividends.
Fiscal sustainability cannot be divorced from the social contract that underpins it. Technical solutions like expenditure rationalisation, debt restructuring, and revenue optimisation are necessary but insufficient in the absence of trust. Emerging economies that embed trust in their fiscal architecture will not only stabilise their public finances but will also strengthen democratic legitimacy, catalyse investment, and enhance resilience in an uncertain global environment.
In a world where economic shocks are frequent and citizen expectations are rising; trust is not a luxury it is a strategic imperative. Emerging economies that recognise and act on this insight will be better positioned to deliver prosperity for their citizens and contribute to a more equitable global economic order.
•Falana, PhD, FCA, is Commissioner, Tax Appeal Tribunal, Abuja.
