## Foreword

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**Canonical URL:** [Foreword](https://www.imf.org/-/media/files/publications/fiscal-monitor/2022/october/english/foreword.pdf)

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### Global context and macroeconomic stance
- The global economy is being buffeted by a sequence of disturbances.
- After unprecedented expansion in 2020, monetary and fiscal policy have pivoted together from expansion to tightening.
- Debt and deficits fell in 2021 and 2022 but remain above prepandemic levels and projections.
- In the context of high inflation, high debt, rising interest rates, and elevated uncertainty, consistency between monetary and fiscal policy is paramount.
- In most countries, this means keeping the budget on its tightening course.

### Inflation dynamics and policy trade-offs
- Inflation surprises are contributing to the reduction of debt and deficits.
- Inflation surprises cannot endure; if inflation becomes broad-based and persistent, it will eventually be reflected in inflation expectations.
- High and volatile inflation makes credit more expensive and unreliable.
- There is a trade-off between short-run expediency and macroeconomic stability.
- With inflation elevated and financing conditions tightening, policymakers should prioritize macroeconomic and financial stability above all else.
- Recent developments in bond markets show increased market sensitivity to deteriorating fundamentals, raising the prospect of more frequent and more disruptive fiscal crises across the world.

### Cost-of-living, food, and energy crises — measures and targeting
- Very high inflation, together with surging food and energy prices, translates into a politically salient cost-of-living crisis.
- Governments are adopting hundreds of policy actions in 2022 in response to surging food and energy prices.
- Food spending is proportionately much greater in poorer countries (and poorer households); hence, in these economies, food is the dominant driver of policy action.
- In advanced economies energy dominates.
- The report includes results of a survey of 174 countries covering about 750 measures enacted in the first half of 2022 to counter the food and energy crisis.
- The most common measures aim at dulling price pass-through and include reductions in consumption taxes, customs duties, and energy price subsidies.
- Most measures have not been targeted at those most in need.

### Impacts on poverty, emergency financing, and global actions
- The rise of extreme poverty and food insecurity that began even before the pandemic is very concerning.
- Emergency support is necessary.
- The food crisis should be addressed, at the global level, by a broad set of initiatives including the lifting of restrictions on exports of food and fertilizers.
- Some emergency financing will be available through the new Food Shock Window under the IMF emergency financing toolkit.
- More is needed, including through the voluntary rechanneling of wealthier countries’ allocations of the IMF’s special drawing right (SDR) to poorer countries.
- At the national level, countries must prioritize food security.
- In many cases, binding financing constraints make the trade-offs very painful for countries.
- Coordinated global action is thus urgent.

### Energy shock, policy design, and adjustment
- The energy crisis—especially in Europe—is proving to be profound, protracted, and is likely to persist.
- Given the size of the shock, many households and firms require support that facilitates adjustment.
- It is critical to design the policy response to navigate difficult trade-offs.
- The price mechanism must play a key role in the allocation of scarce energy resources.
- Targeted measures help reconcile support for the vulnerable with maintaining the budget deficit on a downward path.

### Social protection, preparedness, and fiscal resilience
- This Fiscal Monitor takes a deep dive into how fiscal policy can build a resilient society that helps people bounce back from significant adversity.
- The pandemic has shown that fiscal measures can be swift and impactful in protecting people and firms in difficult times.
- Governments have used novel and innovative tools, often leveraging digital technology.
- These measures can be more efficient if building on a sound pre-existing social protection system when crises strike.
- The Fiscal Monitor stresses the importance of:
  - preparing a strategy,
  - making social support readily scalable and better targeted,
  - building fiscal buffers in normal times.
- These actions would allow governments to respond promptly and flexibly to deliver support to those who really need it.
- Information, transparency, and institutional capacity will be key—as will managing risks and exiting support measures.
- This is particularly challenging when facing shocks that are both far-reaching and persistent.

*Vitor Gaspar, Director of the Fiscal Affairs Department*

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_Source: https://www.imf.org/-/media/files/publications/fiscal-monitor/2022/october/english/foreword.pdf_