## Foreword

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### Global fiscal pressures and debt dynamics
- Public finances are increasingly hard to balance due to:
  - ever-growing demand for public spending, associated with high expectations about what the state can and should do;
  - elevated debts;
  - high-for-long interest rates; and
  - political red lines on taxes.
- The government budget constraint binds differently across countries:
  - In some small and poor countries the government has insufficient resources to pay urgent bills and no access to market financing; in many low-income countries interest expenses represent a large and growing fraction of tax revenues.
  - In many large and rich countries immediate financial pressures are absent, but perpetuation of current policies entails an unsustainable fiscal path.
- Global public debt outlook:
  - Global public debt is expected to turn up in 2023.
  - World debt is projected to increase by about 1 percentage point of GDP per year over the medium term.
  - Excluding the United States and China, the ratio would instead decline by about ½ percentage point annually.
  - At the projected pace, the global public debt ratio would be approaching 100 percent of GDP by the end of the decade.
- Tighter fiscal policies are often needed to reconstitute buffers, contain public finance risks, and contribute to central banks’ efforts for a timely return to inflation targets.

### Climate transition: baseline, ambition gaps, and fiscal implications
- The Fiscal Monitor examines fiscal implications from the green transition using a baseline of “business-as-usual.”
- Definitions:
  - Ambition gaps: the difference between countries’ own nationally defined contributions and what is required to deliver on the Paris Agreement goals.
  - Policy gaps: the difference between the national targets and the outcomes achievable under “business-as-usual” conditions.
- Baseline findings:
  - The baseline scenario fails to deliver net zero, with catastrophic consequences.
  - Scaling up the current policy mix—heavy on subsidies and other components of public spending—to deliver net zero leads to an accumulation of public debt by 40–50 percentage points of GDP for a representative advanced economy and for a representative emerging market economy by 2050.
- Illustrative alternative:
  - The report presents illustrative combinations of policies that limit the increase in the public debt ratio to the range of 10–15 percentage points of GDP by 2050.

### Policy mix: instruments and distributional support
- Carbon pricing:
  - Carbon pricing is described as a necessary component of the policy mix, but not sufficient on its own.
- Complementary instruments:
  - Policies aimed at correcting remaining market failures must complement carbon pricing.
- Fiscal support:
  - Fiscal support is necessary to facilitate costly adjustments for vulnerable households, workers, communities, and corporations.
- The report argues that a smart policy mix can map a way out of the three-way policy trade-off—or policy trilemma—between fiscal sustainability, redistribution, and climate action.

### Priorities for countries with limited fiscal space
- Challenges:
  - Countries with limited fiscal space, low tax capacity, and expensive or nonexistent access to market financing face large adaptation costs and financial difficulties in pursuing sustainable, inclusive, and resilient development.
- Recommended priorities:
  - Prioritize and target spending (for example, eliminating fuel subsidies).
  - Intensify efforts to improve tax capacity with special emphasis on institutional building and enlarging tax bases (see IMF Staff Discussion Note “Building Tax Capacity in Developing Countries”).

### Private sector, international cooperation, and IMF role
- Private sector:
  - The private sector has a crucial role; public policies should provide a framework that favors private sector participation in investment and financing.
- IMF support:
  - In 2021 and 2022, the IMF supported efforts in more than 150 member states to upgrade tax capacity and to strengthen the market for Treasury liabilities.
  - The October 2023 Global Financial Stability Report provides an overview on climate finance.
- International pragmatic side agreement:
  - Ahead of COP28, a global pragmatic side agreement among large players—such as the United States, China, India, the European Union, and the African Union—could make a decisive contribution.
  - Incorporating a carbon price floor would provide the most effective and efficient policy instrument to become a focal point for policy action in the world.
  - Including financial and technological transfers and revenue-sharing mechanisms could ease the financial divide and contribute to the achievement of the United Nation’s Sustainable Development Goals, including the eradication of poverty and hunger.
- IMF institutional needs:
  - Urgent support from members is necessary to increase quota resources and secure funding for the concessional Poverty Reduction and Growth Trust and the Resilience and Sustainability Trust.
  - The IMF is described as an essential piece of the global safety net and important at the center of the international monetary system to help preserve sound public finances and financial stability.

*Foreword, FISCAL MONITOR: CLIMATE CROSSROADS: FISCAL POLICIES IN A WARMING WORLD, International Monetary Fund | October 2023*

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_Source: https://www.imf.org/-/media/files/publications/fiscal-monitor/2023/october/english/foreword.pdf_