## Foreword

## Source details

**Canonical URL:** [Foreword](https://www.imf.org/-/media/files/publications/fiscal-monitor/2024/october/english/foreword.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/fiscal-monitor/2024/october/english/foreword.pdf.md)
- [Structured JSON version](/-/media/files/publications/fiscal-monitor/2024/october/english/foreword.pdf.json)

---

### Global context and call for a strategic pivot
- After COVID-19, the most vigorous fiscal and monetary response ever seen, regional wars, turbulence in energy and food markets, and the largest surge of inflation in decades, the world economy seems on its way to a soft landing (October 2024 World Economic Outlook).
- Inflation is approaching its target in major economies and is close to prepandemic levels.
- Monetary policy has already moved past its pivot, and policy easing is projected to continue.
- Financing conditions are generally easy (October 2024 Global Financial Stability Report).
- The time is ripe to take a medium- to long-term view on public finances.
- The October 2024 Fiscal Monitor offers important insights on public debt and deficits in the world economy and focuses on medium-term prospects and risks.
- Bottom line: now is the time for a strategic pivot in fiscal policy.

### Current debt and deficit findings
- Deficits are high, and global public debt is very high and rising, projected to go above $100 trillion at the end of 2024.
- If it continues at the current pace, the global debt-to-GDP ratio will approach 100 percent by the end of the decade, rising above the pandemic peak.
- Public debt is higher and projected to grow faster in about one-third of the countries covered by World Economic Outlook projections, but they represent more than 70 percent of world GDP.
- Countries where debt is expected to rise faster than in the prepandemic period include China, the United States, Brazil, France, Italy, South Africa, and the United Kingdom.
- If we simply take out China and the United States, the global public debt-to-GDP ratio would be about 20 percentage points lower.

### Risks making debt worse than it looks
- The Fiscal Monitor identifies three reasons why public debt may be worse than it looks:
  - (1) Spending pressures from underlying trends—technological change and economic transformation, climate, and demographics—and challenging politics at national, continental, and global levels.
  - (2) Optimism bias in debt projections.
  - (3) Intrinsic uncertainty associated with economic, financial, and political developments.
- The Fiscal Monitor presents a novel framework—debt-at-risk—that provides a summary of risks around the most likely debt projection over one to five years ahead.
- Quantification of risks allows policymakers to grasp the likelihood of relevant alternatives, particularly in a severely adverse scenario.
- According to estimates, the difference between the baseline and a severe adverse scenario corresponding to the projection for the 95th percentile in the public debt-to-GDP ratio, at a three-year horizon, opens a gap of 20 percentage points.

### Assessment of current fiscal adjustments
- In most countries, fiscal adjustments currently in the pipeline are insufficient to deliver, with confidence, stable or declining public debt ratios.
- Additional efforts are necessary.
- Delays are costly and risky, and it matters how it is done.
- Countries that are sufficiently away from debt distress should adjust in a sustained and gradual way to ensure debt declines without unnecessary adverse effects on growth and employment.
- The Fiscal Monitor quantifies the relative effects of different fiscal instruments and finds, for example, that cuts in public investment have severe effects on growth.
- Earlier work shows that countries with strong fiscal institutions are able to protect public investment even in crises.

### The fiscal policy trilemma
- Many aspects relevant for policymakers can be summarized in a fiscal policy trilemma.
- In an environment of high deficits and high and rising debt, governments face a choice involving three incompatible imperatives:
  - (1) Irresistible pressures to spend more in areas such as defense, climate change, competitiveness, growth, education, health, and infrastructure.
  - (2) An absolute political resistance to taxation.
  - (3) The objective of macroeconomic stability encompassing public debt sustainability, monetary stability, and financial stability.
- If a country caves to spending pressures without raising taxes, deficits and debt will continue to rise, which will eventually prove unsustainable and cause instability.

### Special focus: low-income and sub-Saharan African countries
- The trilemma is more dramatic in poor countries in sub-Saharan Africa.
- Tax capacity is weaker, debt-carrying capacity is lower, and financing is tighter in these countries.
- IMF staff estimate spending pressures in these countries amount to 17.5 percent of GDP between 2023 and 2030.
- Spending is necessary to eliminate extreme poverty and hunger and to invest in people and infrastructure.

### Policy directions and recommendations
- Fiscal and other structural policies can help deliver sustainable and inclusive growth thereby alleviating the trilemma.
- Key policy priorities highlighted:
  - Protect public investment and avoid cuts that severely harm growth.
  - Strengthen fiscal institutions and governance to preserve public investment even in crises.
  - Promote innovation and research.
  - Promote good governance and eliminate vulnerabilities to corruption.
  - Improve the tax system.
  - Prioritize education and health.
- The trilemma is a test; it does not need to be a trap.

*Foreword. International Monetary Fund | October 2024*

---


_Source: https://www.imf.org/-/media/files/publications/fiscal-monitor/2024/october/english/foreword.pdf_