Over the past two decades, public finances in many OECD countries have come under mounting strain. Three global shocks – the global financial crisis (GFC), the COVID-19 pandemic, and recent inflation surges and geopolitical instability – and the related policy responses have helped to push government debt ratios to historic highs. The average gross debt-to-GDP ratio in the OECD rose sharply between 2007 and 2012, before stabilising between 2012-2019, and then rising sharply during COVID. While the OECD average has fallen since the pandemic, it remains higher than in 2019. Notably, there has been little reduction in the average level of public indebtedness in the OECD since before the GFC (see Figure 1 below).
Sustainability of public finances in OECD countries
From fiscal consolidation to state redesign?
% of GDP
Note: Weighted OECD average comprising all OECD Member States except for Colombia and Mexico.
While the COVID-19 pandemic served as the major catalyst for this fiscal deterioration, prompting unprecedented government responses worldwide, the current fiscal challenges extend beyond pandemic-related spending and reflects deeper structural issues: declining economic growth rates and persistent deficits following economic crises (Rawdanowicz et al., 2021[2]).
Rigidity of government spending patterns compounds these challenges. Research analysing COFOG distribution data reveals limited reallocation of government spending across programmes in some OECD countries (Barnes, Cournède and Pascal, 2023[3]). This means that not only do spending levels tend to remain high across the board due to some conjunctural and structural factors, but governments do not always develop the ability to reallocate resources toward emerging priorities.
Finally, governments are faced with new pressures – including spending needs of unprecedented scale. These include population ageing pressures on pensions and healthcare systems, rising defence expenditures, climate transition costs and the need to maintain fiscal buffers for future crises (OECD, 2025[4]). Although some of these burdens may not fall solely on the public sector – with private provision possible in the case of pensions and healthcare and the private sector being involved in the financing of the climate transition – fiscal burdens will still rise substantially.
Against this background, this paper first examines key lessons from past consolidation episodes through a literature review (Section 2). Then, looking at the broad picture emerging in OECD countries post-COVID, it looks at what has emerged as a key challenge in restoring fiscal sustainability, which we call the “dual pressure challenge”, whereby governments are tasked with simultaneously improving public finances and responding to immediate and future pressures (Section 3). The paper follows this discussion with a narrower focus, discussing current approaches to fiscal consolidation based on selected case studies and exploring if and how consolidation strategies have begun adapting to this era of dual demands on governments (Section 4). Following the focus of current fiscal consolidation efforts, this paper focuses primarily on expenditure-side measures.1
In conclusion, this paper argues that emphasising “savings” alone inadequately addresses contemporary fiscal sustainability challenges. In implementing fiscal consolidations, countries must complement debt reduction with reforms that enable understanding of not only savings but trade-offs and that allow regular reallocation of resources to current policy priorities (Section 5).
This paper was prepared as part of the Korea-OECD Multi-Year Research Programme on Budgeting and Public Expenditures Issues. It builds on previous work of the SBO, including the OECD Spending Better Framework and workstreams on medium-term budgeting, spending reviews, and independent fiscal institutions.
← 1. Moreover, throughout the analysis, the paper focuses on announced measures based on budget documents – it should be noted that these measures ultimately may not have been fully implemented as intended.