Fiscal deficits and debts to remain high over medium term – IMF

The International Monetary Fund (IMF) is warning that fiscal deficits and debts are projected to remain higher over the medium term than was expected before the pandemic.

Without decisive fiscal efforts, it said in its April 2024 Fiscal Monitor that the post-pandemic fiscal policy normalisation may remain incomplete in the years to come.

“Global public debt is projected to approach 99% of Gross Domestic Product by 2029, driven by China and the United States where, under current policies, public debt is projected to continue rising beyond historical peaks”.

“Spending pressures to address structural challenges, including demographic and green transitions, are becoming more pressing. At the same time, slowing growth prospects and still-high interest rates are likely to further constrain fiscal space in most economies.”

Therefore, it said fiscal consolidation is needed in most countries to strengthen debt sustainability and financial stability, adding, while the pace of fiscal consolidation should be calibrated to strike a balance between fiscal risks and the strength of private demand, up-front actions are needed in many cases, especially where sovereign risks are elevated and a credible medium-term framework is lacking.

The report further said a well-designed fiscal policy mix that supports innovation in the sectors with the largest spillovers and emphasises public funding for fundamental research could substantially boost long-term growth for economies at the technology frontier.

Again, tax revenues should keep up with spending over time, adding, emerging market and developing economies have a significant scope to increase tax revenues by upgrading tax systems, expanding tax bases, and enhancing institutional capacity.

This it said could also help pay for strategic public investments needed to facilitate the diffusion of green and digital technologies.