Transcript of April 2022 Fiscal Monitor Press Briefing

April 20, 2022


Vitor Gaspar, Director, Fiscal Affairs Department

Paulo Medas, Division Chief, Fiscal Affairs Department

Paolo Mauro, Deputy Director, Fiscal Affairs Department

Nicolas Mombrial, Moderator, Communications Department

Mr. Mombrial ‑ Good morning. Good afternoon and even good evening for some of you. Thank you for joining us for this press conference on the IMF Fiscal Monitor: “Fiscal Policy from Pandemic to War”. I am Nico Mombrial with the IMF Communications Department. And I am so pleased to introduce this morning the Director of the IMF Fiscal Affairs Department, Vitor Gaspar. Good morning, Vitor. He is joined by Paolo Mauro, the Deputy Director of the Fiscal Affairs Department—welcome, Paolo—and Paulo Medas, who is Division Chief in the Fiscal Affairs Department.

Before taking your question, let me quickly start by turning to you, Vitor. So, Vitor, this Global Monitor has been written against the backdrop of a very fast‑changing global landscape. This landscape includes the pandemic, inflation, climate change, and Russia’s invasion of Ukraine. In this context, what are the main findings and the main recommendations on fiscal policy from your report?

Mr. Gaspar ‑ Good morning, everybody. Thanks, Nico, for the introduction and your question. I want to start by emphasizing debt, food security and energy security. Global debt was already elevated before the pandemic. In the first year of the pandemic, it increased by 28 percentage points of GDP, and that is the highest one‑year jump on record. Half of that, slightly over half of that was public debt. Now, in 2021, given economic recovery, inflation surprises, and the narrowing in deficits, the public debt‑to‑GDP ratio has fallen in most countries of the world, but going forward with the horizon of 2024, public debt will stay above what was projected before the pandemic.

Now, that leads to one very important theme in the Fiscal Monitor, and that theme is debt risks that apply to all country groups, although in a way which is sharply differentiated across countries.

As you said in your question, Nico, another very important trend in the world is inflation. Inflation increased over 2021. Inflation surprises accumulated and, in our forecast, inflation in advanced economies is projected to be at 5.7 percent this year coming from a down of .7 in 2020. In emerging market economies, inflation is higher, but the increase in inflation was smaller. In 2020, we had 5.2, and we project 8.7 for this year. As monetary policy pivots towards inflation fighting, fiscal space shrinks, and budget constraints are back in a quite binding way. That leaves us to the issue of food security and energy security.

At the end of 2021, energy prices, food prices were already high and rising. Russia’s invasion of Ukraine added fuel to the fire. At this point in time, the situation can be labeled a food crisis, an energy crisis. If I would focus on food and low‑income developing countries, the fact that is really remarkable is how much food is important in the budget of vulnerable households, how food is important in the budget of households in poor countries. The fact that I want to highlight is that for poor countries and in the budget of households, the share of food can go up to 60 percent in some countries. That compares with 10 percent in advanced economies.

Now, low‑income countries are among those that have the most constraining fiscal space, which highlights the urgency of the situation of food security in these countries. That requires decisive action on the part of national authorities but also the global community.

These would be the topics that I would want to highlight at the start, Nico thank you.

Mr. Mombrial ‑ Thank you, Vitor. So we now take your questions, which you can send us online either on the IMF Connect Center or for chose who are on WebEx, on WebEx. If you are on WebEx, please raise your hands. When you speak, please turn on your camera. I think I will go first with Delphine from AFP. Delphine, do you want to come in. Delphine, can you hear us?

Question ‑ Yes, I can hear you properly.

Mr. Mombrial ‑ OK. Do you want to come in and ask your question?

Question ‑ Yes, sure. Sorry, I did not hear anything before you were speaking, so...

Mr. Mombrial ‑ My apologies. It is really hard to hear you so we will move on. I think I have Maoling from Xinhua. Maoling, do you want to come in?

Question ‑ Hi. I just heard the sound. Do you have like an opening that I missed? I did not hear before.

Mr. Mombrial ‑ I am sorry.

Question ‑ Can you hear me?

Mr. Mombrial ‑ I can.

Question ‑ You can hear me? OK. I have a question about China. So basically this year is going to be all of it a lot of pressure on the Chinese economy, so the fiscal authorities is probably going to step up the fiscal support for the Chinese economy, but at the same time, it has this long‑term goal of deleveraging. There might be some setback on that front. What is the IMF’s suggestion for the Chinese policymakers? Thank you.

Mr. Gaspar ‑ Thanks for your question on China. We have revised down our economic prospects for China for this year. We do find that budget support in China is appropriate to try to maintain the growth momentum. We have been recommending for a while that the composition of fiscal support in China should move from the traditional expansion of infrastructure investment into support for households, in particular, support for vulnerable households, and we are of the view that that would also contribute to a positive transition in the growth model of China from investment to consumption. The theme of growth transition in China is ongoing, and we have recommended over the years that fiscal policy has a very important role to play in that transition. In the context of deleveraging, it is very important that China continues to aim at financial stability and continues to tackle the challenges associated, for example, with the property sector that has been a question mark for a while. I would stop here.

Mr. Mombrial ‑ I am just learning from the studio that I think there was an issue at the beginning when WebEx was muted so I think we will try to come back on some the points that Vitor made during the Q&A, and at the end, Vitor will give some concluding remarks. Maybe, Vitor, you can also come back on some of your points because it looks like journalists missed some of your points. I think the next person I have is Andrea Shalal from Reuters. Andrea, go ahead.

Question ‑ Good morning, Vitor. Good morning. Thanks for doing this. In the Fiscal Monitor, you called for countries to take targeted, temporary measures instead of broader, more generalized issues. Can you expound on that a little bit and maybe say what countries should do that really do not have the fiscal space and how can they act to address these concerns, including the heightened threat of social unrest?

Mr. Gaspar ‑ Andrea, let me separate between food and energy. Let me start with food and repeat the example that I have used in my answer to Nico’s question and apparently was not heard on WebEx.

The point that I was making in that answer used the example of low‑income developing countries. And the point that I was stressing is that food prices are particularly important for the most vulnerable people, for the most vulnerable countries, for the poorest people, for the poorest countries. And the fact that I like to use to illustrate this is that in the poorest countries, the share of food in the budget of households is up to 60 percent in some countries. And that compares with a rough average of about 10 percent for advanced economies. So you have an idea of how important food is in the budget of these households.

Now, governments have a special role to play to protect the most vulnerable, and food security is an imperative. Therefore, it is important that countries all over the world act decisively to protect the most vulnerable. In case countries are under very dramatic fiscal space constraints, it is very important that the global community steps up and supports these countries.

In general, we are in favor of targeted, temporary, and direct transfers to people because that enables people to have access to food while at the same time allowing the market mechanism to work to foster supply and give signals about relative scarcity, which is quite important.

We in the Fiscal Monitor give granular policy advice for countries that do not have the social safety nets or the information systems necessary to deploy these targeted and temporary cash transfers, and we discuss a multiplicity of alternative policy options that can be taken into account.

Now, energy is different from food in particular because the current energy crisis has to be managed again in a way that protects the most vulnerable people, the most vulnerable firms, but is also compatible with our climate priorities with the horizon of 2030. The Fiscal Monitor, both in Chapter 1 and Chapter 2, goes through quite an amount of detail of how that can be done.

Mr. Mombrial ‑ Thank you, Vitor.

Mr. Mauro ‑ Maybe if I can add on the issue of social unrest which was just raised? Very briefly, to recognize social unrest is something which is very much on policymakers’ minds. Of course, even prior to the pandemic, we had episodes of social unrest in countries at all levels of economic development.

During the pandemic, there was a little bit less because, of course, people could not gather as easily, but we have already seen in Peru, for example, that social unrest is coming back. And with the rising food prices and energy prices, historically we know that this is more likely to happen.

So, again, what policymakers can do is, on the global front, as you know, the heads of the IMF and other IFIs have already called for global action on food and financing, and domestically all of the measures that Vitor just mentioned are ways in which governments can try to avoid a negative spiral of social unrest, weakening economic performance, and then even more discontent.

Mr. Mombrial ‑ Thank you, Paolo. I think I am going to turn to Lalit from Press Trust of India. Lalit, do you want to come in? You are muted. Lalit?

Question ‑ Thank you. I also missed the opening remarks, but still, I have a question.: many economies around the world have been impacted by the uncertainty, first, by the pandemic and now by the Ukrainian war? How do you think India has handled the situation? Is there something that worries you the most about India’s fiscal outlook?

Mr. Mombrial ‑ Thank you, Lalit.

Mr. Mauro ‑ Maybe on India I will take this question. India is starting out with a relatively high debt‑to‑GDP ratio compared with other emerging economies. I guess the good news is that most of that debt is in domestic currency. But obviously the challenges coming from the economic consequences of Russia’s invasion of Ukraine are quite severe.

So we also know that inflation in India is somewhat elevated. It is a little bit above the comfort zone for the Central Bank, which is already addressing that issue. On the fiscal front, the budget is approximately neutral, which seems to be sensible at this time. But given the rise in food prices, given the rise in energy prices, clearly this is a situation in which households are feeling the pain of the situation. So what we recommend here is to prioritize food security first and foremost, expand transfers to the vulnerable. India has an effective history of in‑kind transfers and also cash transfers to the population. We certainly would want that to continue and to be expanded.

Beyond that, in the budget, one good part of that is that public investment is being prioritized. Of course, the country has major infrastructure needs, and we would certainly encourage that that investment on infrastructure be directed in some part to renewables because it is so important for India to transition away from coal and move toward more renewable sources of energy that creates jobs, but also reduces local pollution, which has so many adverse effects on health.

Mr. Mombrial ‑ Thank you, Paolo. I think we are now going to Eric Martin from Bloomberg. Eric.

Question ‑ Thank you very much. Can you hear me?

Mr. Mombrial ‑ Loud and clear.

Question ‑ Perfect. I wanted to ask you on this issue of food security, how much you expect to feature in the discussion of the G‑20 today; and what can be done by the G‑20 and other local forums of the market economy in terms of support and lending to address these vulnerabilities?

Mr. Gaspar ‑ Thanks, Eric, for your question. So this week, during the Spring Meetings, the issue of food security is something which is very much at the top level consideration by policymakers. We, at the Fund, together with the World Bank and other international organizations have called for financing to be available for vulnerable countries in this context.

For example, if a country already has a program with the Fund, additional financing associated with food security priorities can be considered. And in case such a program does not exist or for whatever reason the country does not want to use that channel, the possibility of emergency financing is also open to this type of situation. So clearly the issue of food security is one of the most important priorities right now, and it is going to be present in several important fora taking place in Washington during the course of this week.

Mr. Mombrial ‑ Thank you, Vitor.

Mr. Medas ‑ If I can add on this, I think also it is important to mention that for some countries, especially the low‑income countries, these food pressures are coming on top of debt pressures. For these countries, we are also working with our international partners to try to provide grants and debt relief. One of the aspects, we are really pushing our partners in the context of the G‑20 initiative is the Common Framework, to try to make it work faster to the countries that need it, are coming for help. This is really also a key priority to help these countries.

Mr. Mombrial ‑ Thank you, Paulo. You both talk about debt, and I got a question online from Dooa from Ahram online which I think would be for you on MENA. Which procedures MENA’s countries need to take for debt management amid the ongoing challenges that are expected to push the debt up?

Mr. Medas ‑ Thank you. Yes, the MENA region to some degree has many of the challenges that Vitor already mentioned, but there are some important differences. In terms of our projections, what we see is that after public debt reached a high of around 54 percent in 2020, it is now projected to decline and stabilize around 44, 43 percent of GDP. But this is just the average for the region, which masks major differences across countries.

For example, you have commodity exporters. Those countries are actually benefiting from a revenue windfall. In those cases, what we advise is take the opportunity to rebuild buffers if you need, especially the ones who had already used some of them before, and invest in areas like physical infrastructure, human capital, and follow up on strategies for diversification, so take advantage of these windfalls.

Then we have the other groups, the commodity importers. They are facing many of the challenges we have been discussing here. Here is going to be really give priority to address the most urgent needs, especially on food, but also come up with medium‑term strategies to ensure that you are converging to more sustainable debt levels over time. This medium‑term strategy should include things like improving efficiency of spending, increasing tax revenues through modernization of the tax systems, expanding of the tax base. And also one important area that this successive crisis has shown is really the importance of making these economies more resilient and the need to strengthen safety nets.

Then, just to briefly mention, which has already been discussed here, is really the very serious crisis some of the low‑income and fragile states are facing in the region but also other parts of the world, especially on food insecurity. Really action is needed. Here, international cooperation and support is absolutely critical. Thank you.

Mr. Mombrial ‑ Thank you. Let me stay with Ahram online question. There was also a question I think for you, Paolo, on Egypt. She was asking what our estimation for Egypt’s debt‑to‑GDP ratio and how can the government deal with that?

Mr. Mauro ‑ Egypt starts with a high debt ratio. I was just looking at the number. It is about 90 percent. It is about 94, 95 percent. We project in our baseline that it will decline over time into the medium term, but that decline assumes two things that are very important. One is a primary surplus that rises to 2 percent of GDP, and the other is healthy growth, as well as a continued ability to finance government borrowing at reasonable cost. That is a challenge because, of course, it is important to preserve the confidence of the investors. That is really what makes it possible for the government to keep financing itself.

So clearly for Egypt, the increase in food prices is a major challenge. We know that a lot of the wheat imports come from Russia and Ukraine traditionally, so it is a major challenge for Egypt in that regard. The way to go is with cash transfers and in‑kind transfers. Egypt has a tradition of providing support through food staples and rations to the population, to millions of people. That clearly has to be prioritized. Food security is a major priority for Egypt right now. Egypt has requested support from the IMF. There is a statement that has been issued in late March that provides the details on the discussions that are ongoing.

Mr. Mombrial ‑ Thank you, Paolo. I am going turn back now to WebEx. I think I have Kosuke Takami from Nikkei. Kosuke, do you want to take the floor? We cannot hear you, Kosuke.

Question ‑ Can you hear me?

Mr. Mombrial ‑ Better now. Go ahead and we will try.

Question ‑ Thank you for taking my question. My question is about Japan. Japan’s government plans to spend more to add oil companies to stabilize oil prices. Many economies in Japan could size up. Oil price control is not what governments should do. It is not the government’s role. What are your thoughts on that?

Mr. Gaspar ‑ If you allow me, the most impressive feature of Japan from a viewpoint of an external observer is how low inflation is despite the fact that energy prices and food prices have increased in Japan quite sharply. Japan still has one of the lowest inflation rates in the world. That is in line was an inflation rate that has averaged about zero in the last 25 years or so.

So recently inflation in Japan has picked up, but it has picked up much less than elsewhere. A country like Japan, a very advanced economy with very good information systems, with developed social safety nets can tackle the energy challenge and the food challenge with targeted temporary and direct cash transfers, allowing the market mechanism to work. But if the authorities’ view is that the volatility in prices is excessive, it is possible that other considerations justify a price smoothing action on the part of the authorities and that direct support to firms in the most affected sectors is extended as well.

In terms of the fiscal prospects for Japan, we have been insisting for many years that an upgrade in Japan’s medium‑term fiscal framework would be advisable given that Japan is facing long‑term challenges associated with the demographic transition ahead of the remainder of advanced economies in the rest of the world.

Mr. Mombrial ‑ Thank you, Vitor. Now I am going to turn to Simon from Today’s News Africa. Simon, please, go ahead.

Question ‑ Yes. Thank you for taking my question. I do not know if someone has asked this before because WebEx has been like having some problems. I wanted you to talk a little bit more about the situation in Sub‑Saharan Africa. We have a war in Ukraine, which is dire, people are dying, but at the same time we have oil prices going up. If you can talk a little bit about how the war in Ukraine is having an effect on oil‑producing nations such as Nigeria, Angola, Cameroon and Chad ij Africa. And also if you can talk a little bit about Ethiopia. It seems we do not really know what is going on there. Thank you.

Mr. Mombrial ‑ Thank you, Simon. Also, to note we also got a very similar question from Reed Kramer in All Africa who was also asking what Sub can‑Saharan Africa do to mitigate the negative impacts. I think I am going to turn this one to Paulo Medas.

Mr. Medas ‑ Thank you very much. Indeed Sub‑Saharan Africa has been hit very hard, first by the pandemic, and we expect significant long‑term scarring effects so that GDP is not going to go back to the pre‑pandemic trends before, so Africa was already having to deal with this, and at the same time you have now additional shocks. Of course, a key spillover from the war in Ukraine has been an intensification of the rise in food prices and energy prices, which have major impacts on Africa. I think one key aspect here is—it is a bit related to what Vitor already mentioned—is that in many countries in Africa, a very large share of the families’ budget calls for food. So these large increases in prices we have seen and, for example, accordance to UN Food Index, we have seen more than 30 percent increase on average on food prices, can have a massive impact on the budget of African families, for example. Some countries, they are spending more than 50 percent, even up to 60 percent of their budget in food. So this is a massive, massive shock.

At the same time, many of these countries are already also with very high debt vulnerabilities and very tight budget constraints, so there is very limited space to help households. So what we are saying is for governments is really you have to make tough choices, and here it would be really re‑prioritize spending toward helping the most vulnerable, ensure as much as possible that everyone has access to food. And at the same time, you are going to have to also cut in other areas, try to improve the efficiency of spending and raise revenues where needed, first, to address these more urgent needs, but also to address the long‑term considerations, for example, reducing debt, but also pursuing the development goals.

So this has to be—we have to be thinking about the more urgent needs but also a bit of a planned medium term. But for many of the countries, it is also going to be that international cooperation is absolutely critical, as we already mentioned. We really need the international community to come in and help both on the food side but also on the debt side, on helping these countries with debt relief and, in some cases, debt restructuring to help address not only the food crisis but the debt crisis.

I will mention for the oil exporters like Nigeria and others, yes, some of them are benefiting to some degree from these higher commodity prices and windfalls, but in some cases the impact on the budgets is not significant because they have in place energy subsidies. So we would also ask these countries to think about the strategy to try to reorient these resources to really the key priorities, to strengthen the safety nets, plus on education and health, really to think about how to best prioritize these additional revenues. Of course, for some of them, it is going to be helping reduce a bit the debt pressures they have been facing. I will stop here.

Mr. Gaspar ‑ I would like to emphasize two points that you made. The first one is the distinction between commodity importers and commodity exporters. Commodity importers are clearly at this point in time more vulnerable to increase in food and energy prices. As you have just said, commodity exporters may even have net gains, and that is reflected in our revised forecast.

The second point, which I believe is also worth amplifying, is that the countries that have the constrained fiscal space that face the debt challenges that you, Paulo, have emphasized, are hit hardest by this succession of shocks that has been hitting the global economy, be it food security, energy security, financial disturbances, climate change, and much else. So these shocks always hit the most vulnerable the hardest.

Mr. Mombrial ‑ Thank you, Vitor. I am going to go back now to WebEx and ask Stephanie Johnston from Tax Analysts, do you want to come?

Question ‑ Yes. Thank you so much for taking my question, and as you might guess, my question is on tax. I noticed that Chapter 2 of the report was released early. I wondered what the motivation was for releasing that chapter in particular.

Also, I noticed in your estimate for the particular goal tax agreement, Pillar 1 will yield broadly as much as digital services taxes. What does that finding look like when you take into account other kinds of measures like withholding taxes in the significant economic presence. As you know, Nigeria is one of the countries that did not agree to the plan because they were concerned about their significant economic presence measure, and they do not want to give that up.

So given this finding, should developing countries, including the four that did not agree, Kenya, Nigeria, Pakistan, and Sri Lanka, should they join this agreement given that maybe they have more gains under Pillar 2? What are your thoughts on that? Thank you.

Mr. Mombrial ‑ Thanks, Stephanie.

Mr. Mauro ‑ Maybe I can begin regarding Chapter 2. We always release our analytical chapters ahead of the main chapter. That is because the material is somewhat more technical, and so it just gives people time to absorb it a little bit more. But to the substance of Chapter 2 of the Fiscal Monitor, what it does is it takes the case for coordinating taxes across borders. It looks at three themes. The first is the one that you mentioned, which is coordination on corporate taxation. Of course, we have a landmark agreement there, which you mentioned. The second aspect is exchange of information between revenue authorities in different countries. That is very important because it reduces the scope for tax evasion. The third aspect is coordination on carbon pricing. That is probably the most important one because, of course, we are facing an existential crisis with climate. All of those require global cooperation.

Now, coming to your question on the global agreement on corporate tax, what we do in the report is, first, analyze it and provide some estimates, but primarily make the case for implementing this agreement because, of course, there is an agreement, but it has to be implemented. So that is a key priority for the global community right now.

Indeed, there are concerns on the part of particularly some developing and emerging markets. What we do in the report is we make a case for actually giving a perspective, refining the agreement and implementing it. We do want the global community to pay more attention to the perspective of developing countries. That is important to have everybody on board and make sure that this is effectively implemented.

Mr. Mombrial ‑ Thank you. I think we are going to try to go back to Delphine now. Delphine, do you want to try to come in? OK, we cannot hear you, Delphine. I think I have your question. One second. I am going to ask Delphine’s question. Delphine’s question was a follow‑up on food security. She said the needs are immediate. Could we expect concrete announcement in terms of financing this week?

Mr. Mauro ‑ Well, I think there has been a clear call from the heads of the IMF and other IFIs for action on food and financing. I do not want to preempt what is going to come out of those discussions. Vitor has already explained that we have two planks of action here. One is global and the other is domestic. And in the Fiscal Monitor, we provide recommendations on what governments can do themselves.

I want to remind us that the Fund has already taken major action over the past couple of years through emergency financing, through the issuance of SDRs for $650 billion. So clearly action is taking place. And we are very hopeful that more is to come.

Mr. Mombrial ‑ Thank you. Maybe I have time for one last question that we got online, and then I think we have to close. Tom Reese from the Telegraph Media Group in the U.K. was asking, “Are countries in Europe providing too much support to households for the cost-of-living crisis, given the risk of pushing up demand, as highlighted in your report today?

Mr. Gaspar ‑ So, the priority is to protect vulnerable households. The priority is to provide support to vulnerable firms. That support should be targeted and temporary. And at this point in time, with inflation elevated and risks to inflation on the upside, we have sharply revised our inflation projections up for most countries around the world. Russia’s invasion of Ukraine has pushed this dynamic even further up. So at this point in time, there is no macroeconomic case for additional fiscal support. But fiscal policy does have a very important role to play for allocation and for distribution, and that is our understanding of the priorities in Europe right now.

Mr. Mombrial ‑ Thank you, Vitor. I think we are running toward the end of the press conference. For the questions we have not been able to answer, please email us and we will try to do our best. Before we conclude, I would ask you, Vitor, for two minutes, could you give some concluding remarks, three key messages taking into account that some of them could not hear the beginning.

Mr. Gaspar ‑ Something that did not come up in the questions is the issue of debt and sovereign debt risks in the world. We emphasize in the Fiscal Monitor that there are debt risks for all country groups, and there is very sharp differentiation across countries within all country groups.

When it comes to advanced economies, one very important risk to bond markets has to do with inflation dynamics, and it is extremely important for the stability of bond markets that central banks act decisively to deliver price stability over the medium term.

When we look at emerging markets, we do see that international bond markets are working in an orderly way, but there are some non‑systemic emerging markets that have already very high yield spreads in territory that we would consider distressed.

A point that we have made several times during this press conference is when we focus on low‑income and developing countries, we see that 60 percent of these countries are already at debt distress or at high risk of debt distress. That makes global sovereign debt risk a very salient theme in the Fiscal Monitor.

But I want to close by making a very strong case for global cooperation. Clearly the most pressing priority for the global community is the restoration of peace. But on top of that, there is need for pragmatic progress in some absolutely key areas right now. The first one that I would list is the end of the COVID‑19 pandemic and the putting into place a cooperative process for pandemic prevention and pandemic management. Then we have food security and energy security. Related, we have climate change, and we have a looming climate change crisis. To close, debt and development. I stop here.

Mr. Mombrial ‑ Thank you, Vitor. That is all the time we have for this press conference on the Fiscal Monitor today. I would like to thank Vitor, Paolo and Paulo for their time, but also all of you for joining us today. For more information on the Fiscal Monitor, you can visit our website at We hope you can all stay tuned with us for the Managing Director’s Press Conference at 8:30 a.m. Have a good day, good afternoon, probably a good night for some of you. Thank you.

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