Transcript of the 2023 Fiscal Monitor Press Briefing
IMF News, April 12, 2023
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- Published: April 12, 2023
Opening remarks — “The Path to Policy Normalization”
- Fiscal policy has moved "a long way towards normalization" three years after the pandemic.
- Debt and deficits fell rapidly in 2021 and 2022 from record levels reached in 2020, driven by the expiry of extraordinary pandemic support and fiscal corrections.
- Despite the decline, global public debt remains elevated and is projected to resume rising:
- Projected to start going up again by "about one and a fourth percentage point per year" into the medium term.
- By the end of the projection horizon, "2028, public debt in the world is expected to reach almost 100 percent of GDP."
Key global debt projections and country examples
- Primary deficits are predicted to "stop declining, and to stay above pre-pandemic levels over the medium term."
- Countries projected to see increases in public debt ratios in excess of five percentage points of GDP over 2023 to 2028: Brazil, China, Japan, South Africa, Turkey, the U.K., and the U.S.
- United States:
- Public debt to GDP is projected to increase "by three percentage points of GDP per year from 2023."
- By 2028, U.S. public debt to GDP ratio is expected to "exceed 135 percent of GDP."
- China:
- Debt to GDP ratio "has increased continuously after the jump up in 2020" with "no decline in China in 2021 or 2022."
- In 2028, it "will have almost doubled pre-pandemic levels and surpassed 100 percent of GDP."
- Excluding China and the U.S., world public debt ratios would be "slowly declining over the medium term."
- Heterogeneity emphasized: "one size does not fit all" — policy recommendations must be country-specific.
Why fiscal tightening is advocated (four arguments)
- Fiscal policy can and should support monetary policy in bringing inflation back to target:
- Stronger fiscal balances slow aggregate demand and moderate required increases in monetary policy rates.
- A more balanced policy mix moderates sharp increases in policy rates and contributes to financial stability.
- Sound overall balances limit public finance risks and build fiscal space to respond to adverse macroeconomic or financial developments:
- Empirical evidence: countries with insufficient buffers that enter a financial crisis "suffer deeper and longer recessions," particularly emerging markets.
- Stronger balances contribute to long-term debt sustainability amid demographic trends, digitalization, and the green transformation.
Fiscal policy, inflation, and distributional impacts
- Analytical chapter findings:
- When monetary policy acts alone, low-income households "bear the brunt cost of this inflation."
- Fiscal tightening accompanied by targeted transfers:
- Moderates interest rate increases required to achieve inflation targets.
- Limits the decline in consumption for most households.
- By construction, yields "no fall at all in the consumption levels for the poorest households."
Low-income countries, tax capacity, and debt distress
- Low-income countries have insufficient fiscal space; tax-to-GDP ratios are "too low to support the state’s economic policy roll."
- Improving tax capacity is crucial for:
- Public credit,
- Financial development,
- Safe integration in world capital markets,
- Creating room to respond to shocks (e.g., food price surge, extreme weather).
- Debt and funding squeeze concerns:
- Some low-income countries are "in debt distress already, or at high risk of debt distress."
- The IMF calls for timely debt resolution and more expeditious use of the G20 common framework.
- IMF priority: replenish the financial capacity of the PRGT, with the aim "to be completed in the next six months or so."
- Statistic: "more than 130 million people in Africa alone are living under extreme food insecurity."
Policy recommendations and practical measures
- Fiscal tightening should be implemented in ways that protect the vulnerable:
- Make widespread energy-price support more targeted to those who truly need it—"one quick way of reducing the overall fiscal deficit."
- Restructure untargeted subsidies (e.g., energy) to increase efficiency and free resources for priority spending.
- Design of fiscal rules and governance when returning to rules:
- Pillar 1: Solid medium-term fiscal frameworks with flexibility to shocks and a medium-term anchor to build buffers.
- Pillar 2: Stronger assessment of fiscal risks so calibration of rules is commensurate with country vulnerabilities.
- Pillar 3: Strengthen fiscal institutions—transparency and fiscal councils to increase accountability and governance.
- For commodity exporters (e.g., some African countries): pursue countercyclical fiscal policies by saving part of commodity windfalls to reduce inflationary pressures and build buffers.
- For China: fiscal policy should support structural rebalancing (investment to consumption; exports to domestic demand; goods to services); expand social safety nets to reduce high household saving; fiscal support has been used to accelerate renewable energy deployment and emission trading.
Risk assessment and scenarios
- WEO adverse scenario probability: "about 15 percent" — a severe scenario but not a generalized sovereign-debt-crisis outcome.
- Higher real interest rates and tighter global financing conditions:
- Increase borrowing costs and borrowing pressures for countries dependent on foreign-currency debt and prone to exchange rate depreciation.
- May complicate financial stability, as illustrated by recent financial turbulence in the U.S. and Europe.
- No "magical numbers" for safe debt levels; context and country-specific capacity matter.
Selected country-specific highlights from Q&A
- India:
- Debt ratio reported as "83 percent."
- Positives: largely in domestic currency, held domestically, and "at fairly long maturity."
- Projected stable debt ratio in medium term due to strong economic growth.
- Recent budget reduced the deficit partly by eliminating certain subsidies.
- United Kingdom:
- IMF notes differences between national and IMF accounting (public sector vs. general government; fiscal year vs. calendar year).
- U.K. budget includes two fiscal rules applied with a "5-year delay": a limit on the deficit of "3 percent of GDP" and that public debt to GDP has to be falling by the end of the projection period.
- Egypt:
- Debt forecast: expected to be highest among developing countries in 2023 and 2024 before cooling and "reaching a level under the 18 percent, 80 percent in 2028" (note: source text associates Egypt's projected path with a medium-term decline).
- Path to debt reduction: achieve and maintain "primary surpluses above 2-1/2 percent of GDP" via more revenues and spending reductions that "preserve support for the vulnerable."
- South Africa:
- Electricity sector problems ("load shedding") affect the budget and debt both indirectly (slower growth and tax revenues) and directly (government support to the electricity company).
- Addressing structural problems in the sector is required to increase growth and reduce future government support needs.
- Russia:
- Russia-specific dynamics discussed; IMF regional teams to provide further details in subsequent releases.
Press-conference operational notes and outreach
- IMF emphasized forthcoming and related events:
- Managing Director press conference scheduled "tomorrow morning at 8:30 a.m."
- Regional press briefings to cover country-specific IMF program questions.
- Contact and media coordination handled by the IMF Communications Department.
Transcript of the 2023 Fiscal Monitor Press Briefing, April 12, 2023 — IMF Communications Department