Transcript of the Press Conference on the Release of the April 2018 Fiscal Monitor

April 18, 2018


Vitor Gaspar, Director, Fiscal Affairs Department
Abdel Senhadji, Deputy Director, Fiscal Affairs Department
Cathy Pattillo, Assistant Director, Fiscal Affairs Department
Wiktor Krzyzanowski, Senior Communications Officer, Communications Department

Mr. Krzyzanowski: Good morning. Thank you very much for joining us this morning for the presentation of the Spring 2018 Fiscal Monitor. My name is Wiktor Krzyzanowski, and I am with the IMF's Communications Department.

Let me present the speakers. Vitor Gaspar is the Director of the Fiscal Affairs Department at the IMF. Cathy Pattillo is the Assistant Director, and Abdel Senhadji is the Deputy Director at the IMF's Fiscal Affairs Department.

You have seen the Fiscal Monitor, which has now been released to you. There is also a blog authored by Vitor, which is available to you as well.

As usual, I will first ask Vitor to say a few words about the main findings of the Fiscal Monitor. And then we will be open to your questions, both in the room ‑‑ and we appreciate that you are joining us this morning ‑‑ and also online on

Vitor, the floor is yours.

Mr. Gaspar: Thank you, Wiktor. Good morning, and welcome. Thanks for your interest in our work on fiscal policy in the world.

As you learned from the World Economic Outlook, global growth is strong and broad-based. The economic upswing should be used to accumulate fiscal buffers for difficult times that will eventually come. Countries are advised to avoid procyclical fiscal policies that exacerbate economic fluctuations and ratchet up public debt.

Financial stability and financial risks are, as you have listened to, the focus of the Global Financial Stability Report. Countries will be better placed to tackle looming risks if they build strong public finances in good times.

At $164 trillion, or almost 225 percent of GDP, global debt hit a new record high in 2016. Most of this debt is in advanced economies. Nevertheless, in the last 10 years, emerging market economies have been responsible for most of the increase. China alone has contributed 43 percent to the increase since 2007. In contrast, the contribution from low‑income developing countries is barely visible on the slide.

Public debt is currently at historic highs in advanced and emerging market economies. Average debt‑to‑GDP ratios, at more than 105 percent of GDP in advanced economies, are at levels not seen since World War II. In emerging market economies, debt at almost 50 percent of GDP on average is at levels that in the past have been associated with fiscal crisis. In contrast, for low‑income developing countries, average debt‑to‑GDP ratios at 44 percent of GDP are well below historical peaks, but it is important to recall that these peaks involve debt levels that countries were unable to service and were eventually tackled through debt relief initiatives by the international community.

Since the completion of the HIPC/MDRI initiatives, debt levels have been picking up on average. The increase has been about 13 percent of GDP in the last five years. Our debt sustainability analysis indicates that 40 percent of low‑income countries are currently at high risk of or are already in debt distress. This ratio doubled in five years.

Furthermore, debt service has also been rising rapidly, particularly in countries with high inflation rates. The interest burden has also doubled in the past 10 years to 20 percent of taxes. The escalating cost reflects in part the increasing reliance on market instruments. Almost half is now non-concessional debt, up from a quarter in 2007.

It is imperative that low‑income developing countries strengthen their tax capacity. This will allow them to meet their debt service obligations. It will also allow them to finance spending priorities, such as health, education, and public infrastructure, to attain the 2030 Sustainable Development Goals.

Overall, our forecasts do indicate that public debt‑to‑GDP ratios will come down over the next five years in about two‑thirds of countries, but that is conditional on countries delivering on their fiscal plans.

There is no room for complacency. For the period 2018 to 2023, debt ratios will be declining in three‑fifths of low‑income developing countries and in about two‑thirds of emerging market economies. As for advanced economies, debt ratios will be declining in almost all countries, but one country stands out as an exception.

In the United States, the revised tax code and the two‑year budget agreement provide additional fiscal stimulus to the economy. These measures will give rise to overall deficit above $1 trillion over the next three years, and that corresponds to more than 5 percent of U.S. GDP. Debt is projected to increase from 108 percent in 2017 to 117 percent of GDP in 2023. If tax cuts with sunset provisions are not allowed to lapse, public debt would climb even higher.

And now allow me to conclude, repeating what I said right at the beginning:

In the Fiscal Monitor, we urge policymakers to avoid procyclical policy actions that provide unnecessary stimulus when economic activity is already pacing up. Instead, most countries should deliver on their fiscal plans and put deficits and debt firmly on a downward path.

As I said, there is no room for complacency. No one can predict with precision the ebbs and flows of countries’ economies. However, experience shows that successful governments are those that prepare ahead for storms looming on the horizon.

I thank you for your attention. My colleagues and myself are eager to answer your questions.

Mr. Krzyzanowski: Thank you very much, Vitor.

Questioner: Your report reminds me of Reinhart and Rogoff's book, which was required reading after the financial crisis. And it points out the link between run‑ups in debt, in particular sovereign debt, and the financial crises. I mean, $164 trillion is a very big number. Why should people think it is going to be any different this time?

Mr. Gaspar: Thank you for reminding us of the title of the best‑selling book by Reinhart and Rogoff, “This Time Is Different.”

Indeed, in the Fiscal Monitor, our emphasis is on debt. We have put out an update of the data that we released first in the fall of 2016. And now we are in a position to show that global debt is at a new record high. That is something that I very much emphasized in the opening statement, and I think it is a very important finding from the Fiscal Monitor.

Very high levels of debt ‑‑ in particular, if associated with rapidly increasing debt ‑‑ have been shown to bring risks to financial stability and risks to broad economic activity. That is one of the reasons why we emphasized that now in these good times, in this cyclical upswing, it is timely for countries to rebuild fiscal buffers, to build solid foundations of public finance, so that they are prepared for harder times that eventually will come. That is the central message of the Fiscal Monitor, and thanks for giving me the opportunity to emphasize it.

Questioner: The U.S. administration rejects your analysis of its fiscal outlook and suggests that its tax cuts will so galvanize the U.S. economy that they will pay for themselves. What is your message? And why are you right and they are wrong?

Mr. Gaspar: Thank you. Our message on the U.S. is predicated on the various scenarios that we included in the Fiscal Monitor. We regard the tax reform in the U.S. as a complex policy reform that should be looked at from various perspectives: the impact on the business cycle in the United States, tax policy as structural reform, and implications for spillovers. And we use different analytical instruments to look at these various aspects. So the message is necessary, subtle, and multifaceted.

The point that I emphasize as the primary message of this Fiscal Monitor is that countries should use the business cycle upswing to conduct countercyclical policies and build fiscal buffers.

In the case of the United States, it is in a strong business cycle position. The recovery started in the United States a long time ago. Our chief economist emphasized yesterday that levels of unemployment are low in the United States. And in our forecast, they are deemed to go even lower.

In that context, we would not recommend an easing of fiscal policy. And in our baseline, we do have quite substantial deficits in the U.S., and we have an accumulation of public debt. In making this forecast, we are actually in line with U.S. organizations, like the Congressional Budget Office.

The point that I also want to stress is that, in line with the recommendations that we have been making to the U.S. in the context of Article IV consultations, we do recommend that the U.S. adopts a medium‑term framework which will not only help in the points that we have been discussing but also help the U.S. tackle the long‑term challenges associated with the demographic change and population ageing, as they are reflected in future pension liabilities and the dynamics of health spending.

Questioner: What concerns are there, if any, around excessive bond issuance? We have seen elevated levels in recent times. Do you think there are any concerns around that? The Nigerian authorities are balancing debt structure in favor of external borrowing. They said this should be cheaper than domestic borrowing. Do you think this is a better option? Or how do you think we could handle this?

Ms. Pattillo: The first point to make on the borrowing in Africa and Nigeria, in particular, is that we can all agree for Sub‑Saharan African countries that sustained development and increasing per capita income growth, which is built on macro stability, is the main priority. And the Fund has been working with African countries to help build tax capacity so that countries can sustain levels of public debt and so that they can mobilize spending for health, education, and infrastructure.

The composition of borrowing in countries is changing, as you mention; and those rising public debt levels and the change in composition is creating some vulnerabilities and risks. Borrowing by countries can create benefits if it is used for productive investment and the returns are captured. However, evidence suggests that it is not the case in some countries. So rising debt creates these vulnerabilities ‑‑ there can be interest rate risk, market risk, and large interest burdens that can squeeze out then spending on other priorities.

With high debt, countries need to deliver on their fiscal plans for adjustment and use borrowed funds for a high‑return investment.

The choice between external debt and domestic debt, as you say, reflects the levels and the costs, but the main point is that countries need to use all borrowed funds for high‑return investment and to deliver on their fiscal plans and to build tax capacity.

Questioner: You delivered the projections for the deficit in Portugal, which are more negative than the projections by the Portuguese Government. Could you clarify the difference between one and the other?

Mr. Senhadji: First, I think it is important to mention that the economic outlook for Portugal has improved significantly since last year. I think growth has picked up quite a bit in line with the upswing in Europe. Inflation is moving toward target. And I think consolidation is progressing relatively well.

Of course, as Vitor said, there is no room for complacency in all countries and particularly in Portugal, where the debt ratio still remains very high. At 126 percent of GDP, it is still the third highest in Europe. Therefore, sustained progress in terms of fiscal consolidation and structural reforms that would put firmly the debt ratio on a downward path is important.

Regarding the specific question that you mentioned, I think the numbers that were publicized recently came after our forecast in the World Economic Outlook. Therefore, as you know, we revise these forecasts on a regular basis, and we will do so in the context of the upcoming Article IV mission, which is planned for late May.

Questioner: Could you please walk us through your decision to revise upwards the primary surplus numbers for Greece? I mean, what led you there? And what has changed in the last six months? Thank you.

Mr. Gaspar: Thank you. Let me be very brief and refer you to the briefing by the European Department on Friday. But I want to repeat a couple of things:

The recent trends in the Greek economy have been favorable. The situation and prospects have improved in Greece. The position of the IMF concerning policies in Greece going forward has not changed, as emphasized yesterday, by the chief economist. We insist on the necessary balance between policy in Greece and debt relief. And a combination of fiscal adjustment, structural reforms, and debt relief are fundamental, in our view, to put Greece on a sustainable growth path.

Questioner: In the Fiscal Monitor, the projections show that Brazil is going to postpone by a little the primary surplus. Instead of 2021, it is going to be 2022, with 0.1 percent of GDP. On the other hand, the IMF says in the report that Brazil is supposed to take advantage of the momentum of the economy at this time to speed up the fiscal adjustments. The question is this, if you could elaborate a little bit. And in your projections, IMF considered some social security reform happening next year or in a couple of years or not? Thank you.

Mr. Gaspar: Brazil is a very good example because, as you have learned by now, our main emphasis is on debt, private and public debt. And in the case of Brazil, what we do see is that going forward, the public debt‑to‑GDP ratio under the policy assumptions in the World Economic Outlook and the Fiscal Monitor will be pacing up.

By the end of the forecast horizon, which is 2023, the debt‑to‑GDP ratio in Brazil would stand at about 96 percent of GDP, and that level is very high in the context of emerging market economies. It would be a very high debt level. Moreover, if you look at changes in the debt‑to‑GDP ratio around the world and in emerging market economies, you see again that Brazil stands out. The increase that is forecast for the public debt‑to‑GDP ratio in Brazil is substantially more pronounced than the increase in the U.S. public debt‑to‑GDP ratio that I emphasized a moment ago.

So this is, in a sense, to emphasize that the issue of tackling public debt in Brazil, adopting a medium‑term plan to bring it down and to bring it under control is crucial.

Our understanding is that under current plans, the government of Brazil is of the view that public debt‑to‑GDP would be stabilizing in 2024, which is one year after our forecasting horizon. Our recommendation would be to try to tackle the issue of public debt accumulation in Brazil earlier on and to try to bring forward the adjustment.

Now, the timing of these policy actions is, of course, predicated on the political evolution in Brazil that you, of course, know much better than I do.

Mr. Krzyzanowski: Let me quickly turn to our colleagues online. El Economista in Spain is asking: What kind of measures does the government need to take to achieve its deficit reduction goal of 0.5 percent of GDP by 2020? Is it too ambitious?

Mr. Gaspar: No. We do not think that the goal of the government is too ambitious. We we do support adjustment in Spain.

Spain is a part of a group of economies in Europe that we would characterize as high debt. And in those, we do recommend not only that the countries avoid procyclical fiscal policies but also that they continue to adjust in order to control and bring down high debt levels, which we have emphasized are a source of vulnerability.

We insist that this should be done in a growth‑friendly way, but apart from that, the exact combination of policies, which better serves these goals, is something that the country authorities are responsible for.

Mr. Krzyzanowski: Thank you very much, Vitor. We are looking forward to other questions on

Questioner: The Chinese Government has lowered its deficit target from 3 percent to 2.6 percent of its GDP, along with other measures. Do you think China has a good policy mix to rein in its debt challenge? Thanks.

Mr. Gaspar: If we look at China, the main concern has to do with the level and pace of accumulation of overall debt, private and public. So the control over the debt level ‑‑ in particular, the rhythm of debt accumulation ‑‑ is a major challenge for the Chinese economy.

In terms of public finances, the official numbers for the debt and deficit are modest. The issue is that China does carry out quite a substantial share of its public expenditures at subnational levels; specifically, the proportion is 85 percent. And in the context of the 2014 budget law, there was an assumption of debt associated with the financial vehicles that are linked to local governments. In a substantial amount, it exceeded 20 percent of GDP.

That means that in the Fiscal Monitor and the World Economic Outlook, we monitor a set of aggregates that go beyond the official definition of debt. And if you focus on that, you do see that there is a projected accumulation of debt which is sizable in the period 2018 to 2023.

Again, to put it in perspective ‑‑ I just commented on the debt accumulation in Brazil ‑‑ the increase in debt in China, according to this concept, would be faster and more important in terms of percentage points of GDP than the increase in Brazil.

There are two challenges that China has to tackle. One, how can the government, in terms of its decisions on public finance, best support the overall rebalancing of the Chinese economy, including the slowdown and the increase in the level of debt? So that is the first challenge.

Second, as recognized by the State Council in 2016, there is an issue of vertical imbalance in the public finances in China, and in order for China to be able to organize itself efficiently in the provision of public services and ensure fiscal discipline at all levels of government, it is necessary to rethink the sources of revenues for subnational governments. That reform process, as you know better than me, is ongoing, and it is an issue which is recognized and is being tackled by the Chinese authorities.

Questioner: Where is India placed in your debt‑to‑GDP ratio? Is it an issue of concern for the IMF? And do you think the Indian Government is taking enough steps to address that? Secondly, on China's BRI initiative, how is it adding to the debt‑to‑GDP ratio and are there any concerns to the developing and developed third‑world countries?

Mr. Gaspar: On the Belt and Road Initiative, it is a very ambitious one that promises to increase public investment in an ample set of countries. Increasing public investment, if it is productive, is very important in many countries. So that is something that deserves to be supported. But you are absolutely right in asking about levels of debt. Public investment contributes to fiscal sustainability in case the investment is efficient and effective, in case the investment is productive. And in order to have that, it is very important ‑‑ in many countries ‑‑ to upgrade their public investment management systems. And the IMF has been engaging over the years in capacity development in many countries, precisely to contribute to have the right conditions in place.

Moreover, when it comes to debt, it is extremely important that the debt commitments be transparent and transparently assumed so that they can be appropriately reflected in the medium‑ and long‑term programming of public finances.

Mr. Senhadji: For India, the outlook for both the short and medium term remains quite favorable. Growth has picked up to about 7.5 percent in 2017 ‑‑ it is planned, actually, or projected to pick up in 2018. And over the medium term, it is projected to reach above 8 percent, one of the highest growth rates in the world.

Of course, debt remains relatively high, you are right, at 70 percent of GDP in 2017, but the authorities are well aware of the problem. And, of course, in terms of their fiscal consolidation plan, in fiscal year 2017‑18, they are planning to continue with the consolidation in the current fiscal year and over the medium term.

They are, in fact, targeting their federal deficit of 3 percent over the medium term, and they are targeting also a debt ratio of 40 percent over the medium term at the federal level, which corresponds to about 60 percent at the general government level. And we believe that those targets are appropriate.

So I think you are right. The debt level is relatively high, but the authorities are planning to bring it down over the medium term with the right policies.

Questioner: Could you please talk more about Africa and give us some specifics about the debt and the challenges and what the African continent has to do. And finally, last year you made similar forecasts and projections. Do you have the feeling that African leaders listen to you? Are they implementing all these forecasts or recommendations that you make here at the IMF?

Ms. Pattillo: For Africa as a whole, in terms of the fiscal policy priorities, I will mention three.

First, prudent fiscal policy is needed in most countries to rein in the buildup in public debt. And when you look at Sub‑Saharan Africa, of course, there is a lot of variety. There are many countries. Africa is not a block. And it is important, in particular, to look at the different experiences and policy priorities for oil‑exporting countries and other commodity‑exporting countries and then also for the non-commodity‑exporting countries.

In terms of this first priority for oil exporters in particular, there is a need to adjust their fiscal positions, taking advantage of the uptick in commodity prices. And a high priority is building up the capacity for more non‑oil revenues, as well as enhancing the efficiency of public spending. So that is oil.

For non-commodity exporters, some of them have accumulated high levels of debt associated with public investment. So they will need to make spending more efficient. And in some cases where there has been large public investment, it might be time for the governments to hand over the reins of investment to the private sector. So that is the first point.

The second point is that overall for Sub‑Saharan Africa, domestic revenue mobilization is really one of the most pressing challenges. Countries have very low levels of tax‑to‑GDP, but there is great potential there. Over the next several years, countries could mobilize on average 3 to 5 percent of GDP in additional tax revenues by strengthening VAT systems, reducing exemptions, expanding income tax coverage, and harnessing new technologies, which is the subject of our Fiscal Monitor chapter on digitalization. So that is a second priority.

And, of course, fiscal policies should strike the appropriate balance between debt sustainability and addressing important development needs. The revenue mobilization that I talked about can give countries the ability to spend on pressing development needs, human capital, physical capital, and protect social spending, even during fiscal consolidation.

Questioner: I had asked you if you made a similar projection last year, do you have the feeling that African leaders implement your recommendations?

Ms. Pattillo: The emphasis that we put is that exactly as you say, countries are very much planning strong policies, fiscal consolidation, recognizing that the time is now. The key is implementation, delivering on those plans. And we work very closely with countries ‑‑ both countries that are involved in IMF‑supported programs and other countries ‑‑ through our policy advice and technical assistance, to help them then with the push for implementing their plans.

Mr. Gaspar: Allow me one example.

I was, myself, recently in Côte d'Ivoire. And in Côte d'Ivoire, we organized a hackathon, which is a session that brings together people who deal with public policy, people who are representing civil society, corporations, people who are IT experts. And in this specific case of the Côte d'Ivoire hackathon, we were trying to challenge this crowd to solve longstanding problems in tax administration.

This was a very creative process that took about two days. And at the end of the two days, we had 10 competing ideas, 10 competing projects. We, together with those responsible from the tax administration, from the Ministry of Budget, picked up the three winning proposals. And those are now being worked on to be implemented in Côte d'Ivoire.

So I do not think that your question allows, as Cathy was emphasizing, a blanket type of answer. It is about bilateral engagement with countries. And often, as it was the case for the Côte d'Ivoire hackathon, it is a very worthy and useful experience for, I believe, the authorities of the country and for us as well.

Questioner: Some emerging and especially low‑income countries increase public debt trying to move out of financial crisis circumstances. For example, Ukraine directs external borrowing at trying to maintain national currency rate, central bank reserves, infrastructure reforms. Could you concretize which fiscal buffers or fiscal stimulus could be implemented for the countries that have the same situation as my country?

Mr. Senhadji: I think Ukraine has made remarkable progress in the first years of the program with the Fund. Particularly in 2014 and 2015, there was significant progress that was made. Unfortunately, in subsequent years, progress has been slow, and the Fund is trying to re‑engage with the authorities on the issue of continuing with the program and its objectives.

In terms of priorities, obviously, one of the main priorities to continue with the reform of the mechanism for gas pricing. As you know, there was a formula, an automatic formula for the evolution of prices, and we would like the authorities to go back to that formula. We would like them more so to tackle the problem of corruption and governance, which is quite important. And we would like them also, of course, to continue with the consolidation program that they have agreed upon at the beginning of the program.

I think this would certainly put the program again on track, and we hope that the discussion going forward will reach an agreement very soon.

Questioner: Forty percent of low‑income countries are in debt distress or will soon be in debt distress. A lot of them have borrowed from the capital markets, and global interest rates are going up. How close are we to a new developing country debt crisis?

Ms. Pattillo: Specifically for Sub‑Saharan Africa, debt vulnerabilities have risen in some countries in the region, and six low‑income countries in Sub‑Saharan Africa are in debt distress. The causes are country‑specific, but most of the countries are in fragile situations or they are facing adjustment to the price of their major export commodity.

Our projections show that if countries fully implement their fiscal consolidation plans, debt levels will stabilize and remain sustainable. There is variation. The projections show that in two‑thirds of countries in the medium term debt would be going down; that means another third not. The average public debt levels are projected to stabilize, but the forecasts are predicated on strong fiscal adjustment and/or an acceleration in growth.

As Vitor said at the beginning, there is no room for complacency. Also in the case of Sub‑Saharan Africa and low‑income countries more generally, they have to deliver on their planned adjustment. And to do this in the most growth‑friendly way, countries have to strengthen their tax capacity. So those are the priorities for addressing the debt.

Mr. Krzyzanowski: Vitor, why don't you say a few words to conclude?

Mr. Gaspar: The first thing that I want to say is to amplify what Cathy has just said. When we insist that low‑income countries should be improving, increasing their tax revenue mobilization, we see that as an instrument for sustainable development. In that context, higher tax capacity will also help sustain debt service, but that is not an end in itself. The end in itself is sustainable development, which is served by state capacity and the ability to spend on priority areas that Cathy has already emphasized: health, education, public infrastructure, and much else.

I will just beg your indulgence for 30 seconds more to insist that our main topic in this Fiscal Monitor was debt. Very high debt levels, public and private, in the context of a very favorable upswing, in the context of good times. Governments are well advised to build fiscal buffers so that they are ready to tackle the challenges that will inevitably come.

Thank you for your attention.

IMF Communications Department

PRESS OFFICER: Wiktor Krzyzanowski

Phone: +1 202 623-7100Email: