Fiscal Dominance Meter
Formula
FD Score = (Net Interest / Federal Revenue) × 100 + (Deficit / GDP) × 50
- Net Interest – Annual federal interest payments (FRED: A091RC1Q027SBEA)
- Federal Revenue – Total federal receipts excluding intragovernmental transfers
- Deficit – Unified budget deficit as reported by US Treasury FiscalData
- GDP – Nominal US GDP (FRED: GDP)
Why It Matters
Fiscal dominance occurs when debt service obligations constrain monetary policy — the central bank cannot raise rates without materially increasing sovereign financing costs. This composite score operationalises that constraint. When net interest exceeds ~25% of revenue, independent monetary policy becomes structurally compromised. The GDP deficit ratio adds a sustainability dimension: deficits exceeding 5% of GDP during non-recessionary periods signal that primary fiscal adjustment is required, not just cyclical normalisation.
Institutional Use
Used by IMF fiscal surveillance teams and sovereign credit analysts at rating agencies (Moody's, Fitch, S&P) as a key input in Debt Sustainability Analysis (DSA) frameworks. BIS Working Papers since 2021 specifically cite the interest-to-revenue ratio as the cleanest single-variable predictor of sovereign stress events.