Transcript

Transcript of October 2023 Fiscal Monitor Press Briefing

October 11, 2023

Speakers:
Vitor Gaspar, Director, Fiscal Affairs Department
Ruud De Mooij, Deputy Director, Fiscal Affairs Department
Era Dabla‑Norris, Assistant Director, Fiscal Affairs Department

Moderator: Ting Yan, Senior Communications Officer

Ms. YAN: Good morning, everyone. Welcome to this IMF press briefing on the Fiscal Monitor. It’s great to see all of you here in person in Marrakech. And thanks to those who are joining us online from all over the world.

My name is Ting Yan. I am from the Communications Department at the IMF. I am pleased to be joined today by three speakers from the Fiscal Affairs Department. We have Vitor Gaspar, director of the Fiscal Affairs Department of the IMF. And we also have Ruud De Mooij, Deputy Director of the Fiscal Affairs Department, and also Era Dabla‑Norris, Assistant Director of the Fiscal Affairs Department.

Earlier this month, we published our October 2023 Fiscal Monitor report, Climate Crossroads: Fiscal Policies in a Warming World. I would encourage you to read the report, if you have not had the chance.

Today Vitor will start with some opening remarks, and we will be happy to take your questions, both in the room and also online on WebEx or from our IMF Press Center.

As a reminder, Vitor will try to keep his opening remarks relatively short, so he could take as many questions as he can. For more details and the accompanying charts, please refer to the longer remarks we just released on IMF.org.

With that, Vitor, the floor is yours.

Mr. GASPAR: Thanks so much, Ting.

Good morning, everyone. Many thanks for your interest on fiscal policy around the world and on our work, as reflected in the Fiscal Monitor.

For all countries, balancing public finances has become increasingly difficult. Difficulties are created by growing demands for public spending, rising interest rates, high debts and deficits, and political resistance to taxes. But there are sharp differences across countries. On the one extreme, some countries lack the cash to pay for urgent spending and lack access to credit. On the other extreme, there are countries that do not face any immediate financing constraints but where unchanged policies would lead to ever‑rising debt. Moreover, many countries need tighter fiscal policy, not just to rebuild fiscal buffers to respond to future shocks but also to help central banks bring inflation down to target.

Worldwide, debt levels are generally elevated, and borrowing costs are climbing. Global public debt is expected to increase to more than 93 percent of GDP in 2023 and to rise onwards, mainly due to major economies, like the United States and China. The increase is projected to be about one percent of global GDP annually over the medium term. Public debt is higher and growing faster than pre-pandemic projections. Excluding these two economies, the ratio would decrease by approximately half percent annually. Slower economic growth, higher interest rates, and pressures on primary deficits also help explain why global public debt would go above 100 percent of GDP by the end of the decade.

Against this backdrop, the Fiscal Monitor dives into the fiscal implications of the green transition. Current national objectives and policies will fail to deliver net zero, with catastrophic consequences. In other words, large ambition gaps, the difference between countries’ nationally defined contributions and what’s required for Paris Agreement goals, and policy gaps (the difference between national targets and outcomes achievable under current policies) remain.

The option of scaling up the present policy mix that relies on subsidies and public investment to attain net zero is projected to increase public debt by 45 to 50 percentage points of GDP for both advanced and emerging economies by 2050, compared with business as usual. The Fiscal Monitor shows that the combination of policy instruments can attenuate this most unpleasant trade‑off. Carbon pricing is a central piece but must be supplemented with measures to address other market failures and distributional concerns. Fiscal support is needed to help vulnerable households, workers, communities, and businesses to adapt. The Climate Crossroads report offers policy options to limit the accumulation of additional debt to 10 to 15 percent of GDP by 2050. This brings the scale of the problem down to a size that can be addressed by other fiscal measures.

Often, countries with limited fiscal capacity, low tax revenues, and restricted access to market financing face substantial adaptation costs. They should prioritize and increase the quality of public spending, for example, by eliminating fuel subsidies. They should also strengthen tax capacity by improving institutions and broadening the tax base. The private sector is key to a successful green transition, so authorities should put in place a policy framework, favoring private investment and private financing.

In 2021 and 2022, the IMF backed tax capacity of treasury market development in over 150 member states. Chapter 3 of the Global Financial Stability Report covers climate finance in greater detail. As COP28 nears, a global cooperative approach, led by major players -- including China, India, the United States, the African Union, and the European Union -- would make a significant difference. A central element would be a carbon price floor or equivalent measures. Other important elements are technology and financial transfers and/or revenue sharing. The latter could bridge financial divergences across countries and contribute to achieving the United Nations Sustainable Development Goals, starting with the elimination of poverty and hunger.

The IMF has a vital role at the center of the international monetary system. It supports sound public finances and financial stability as part of the global financial safety net. Urgent member support is needed to increase quota resources and secure funding for the concessional Poverty Reduction and Growth Trust and the Resilience and Sustainability Trust.

I conclude. The three‑way policy trade‑off described in the Fiscal Monitor is not limited to climate. Countries everywhere are faced with multiple spending pressures. Under such conditions, political red lines limited taxation at an insufficient level translate directly into larger deficits that push debt to ever‑rising heights. Something must give. Policy ambitions must be scaled down or political red lines on taxation moved if public debt sustainability and financial stability are to prevail. The Fiscal Monitor shows that a smart policy mix is the way out of this trilemma.

Thank you for your attention. My colleagues and I are now ready to answer any questions that you may have.

Ms. YAN: Thank you so much, Vitor.

Now we are happy to take your questions. For those in the room, please keep -- try to identify yourself and keep your questions brief, as we will try to take as many questions as we can. And for those on WebEx, please stay muted until later, and I will call on you.

So, let’s start with the lady in the front row here. Thank you.

QUESTIONER: Hi. My name is Claire from AFP.

My question is, how would you convince a reluctant government to adopt a carbon taxation, considering the political price it can represent? And are there specific parameters to ensure its effectiveness? Thank you.

Ms. DABLA‑NORRIS: So, our latest Fiscal Monitor, Climate Crossroads, highlights the importance of carbon pricing as an important part of the climate mitigation toolkit. And this is for two reasons. Well, first, carbon taxation, like other measures of carbon pricing, relies on the polluter‑pays principle. In other words, those who pollute more pay more. So as such, it can be an effective instrument to encourage energy preservation, to incentivize a shift toward clean energy, to catalyze private adoption, innovation of clean technologies. Second, carbon pricing -- carbon taxation, in particular, can be particularly easy to administer because many countries already have fuel taxes; so, this is essentially a top‑up.

That said, carbon taxes, like any other taxes, can be unpopular. And this is because it raises energy prices. But an important thing that needs to be borne in mind is that carbon taxation also raises revenues. And these revenues then, in turn, can be used to compensate vulnerable households, vulnerable individuals from the higher energy prices. In fact, our own research at the IMF finds that when you survey people and ask them about their perceptions about carbon taxation, when they are made aware that the revenues can be recycled to protect them from the higher energy prices and to alleviate the distributional concerns, that actually leads to greater acceptability, political acceptability of carbon taxation.

That said, carbon taxation alone is not enough because it may not necessarily be the optimal policy in hard‑to‑abate sectors, such as buildings, where other types of incentives may be required. And it’s also important to note that a range of complementary policies, sectoral mitigation policies -- such as feebates, public subsidies for incentivizing private investment -- may be needed. So, the Fiscal Monitor emphasizes a mix of policies that can be used to manage the climate transition. Thank you.

Ms. YAN: Thank you, Era. The gentleman in the second row here.

QUESTIONER: Thank you. I am from CCTV China.

So, the IMF suggested to address the debt increase resulting from public climate investments, nations should take carbon pricing to generate revenue and stimulate the increased private investments. So, my question is, what alternative measures should be taken in countries where implementing carbon pricing is not feasible? Thank you.

Ms. DABLA‑NORRIS: So, the Fiscal Monitor shows that carbon pricing can be very effective in addressing climate change, for all the reasons that I have just mentioned. If countries, instead, were to rely on just public subsidies or green subsidies and public investment to address climate change and to achieve their net zero targets, this can be fiscally very costly. And our analysis shows that this could lead potentially to higher debt -- could increase debt by 45 to 50 percent of GDP. And not all countries can afford such a route.

That said, it is possible to put in place carbon price equivalent policies, such as regulations, feebates, tradable performance standards, and a mixture of public subsidies and public investment, in order to achieve net zero goals. But I should -- but I should emphasize that it will be costly if we don’t have carbon pricing as part of the policy mix.

Ms. YAN: Thank you. Let’s go to this side of the room. Thank you.

QUESTIONER: Thank you. Godfrey Mutizwa, CNBC Africa. We are based in Johannesburg.

My question is on the issue of taxation, especially the African context. I think we all know about the high unemployment rates on the continent. We also know about the low growth on the continent. We know about the high poverty levels. So, in that environment, my question is, how do you increase taxes? And how do you use taxes as a tool to try to address the issues that you are talking about?

Ms. YAN: Thank you.

Mr. DE MOOIJ: Thank you very much for that question because the revenue mobilization agenda for Africa is really critical going forward. There are so many needs for spending in terms of development needs, investments in infrastructure, in education, in healthcare. Countries need to invest in adaptation, in mitigation. So, there are huge needs for revenue mobilization because many countries are also facing high debt levels.

And the question is, how much can countries generate in terms of revenue? And we released a study two weeks ago that looks into that. So, it explores: What is the revenue potential, given the circumstances in countries? So how much can they maximally raise? And what the study finds is that by reform of policies, reform of administrations, they can generate 7 percent more of GDP as their potential. And in addition to that, if they would also be able to change their institutions -- so the quality of the state’s capacity, if low‑income countries could move to the average level of emerging markets, they could generate another 2 percent. So, we arrive at a revenue potential of all these reforms that could generate 9 percent of GDP in revenue.

And, of course, the big question is: How can you do that? So, what are the measures that can contribute to that? And we find that many countries have a huge number of tax concessions. They have an income tax. They have a VAT, but they provide so many tax concessions, exemptions for certain industries, certain commodities. And the revenue foregone from these measures is between 2 and 5 percent of GDP, so there’s a lot of potential there.

There’s a lot of tax evasion. There are studies on the VAT of tax evasion which relate to failure to register, failure to remit tax, underreporting of income, false claims for refunds. All these issues together add up to 2 to 4 percent of GDP. And this is a matter of good enforcement. Good revenue administration can go a long way in mobilizing more revenue. And as Era just said, there are opportunities for, for instance, new taxes, like a carbon tax. A carbon tax is relatively easy to administer, especially interesting for countries that have limited capacity, administrative capacity to generate revenue, because you levy the tax from just a number -- a small number of sources, usually large companies. So, there are many opportunities. There are many more, but these are big ones.

And the question is often: How do you get it done? How do you manage politically to increase taxes? I think what is very important is to link it to the development agenda. You don’t raise taxes just for the sake of raising taxes; you do it for supporting the development agenda. And there are many examples also in Africa that have managed to increase tax revenue, over a relatively short period of time, quite significantly, by multiple percentages of GDP. And I think we can learn from these examples.

On Friday, there will be the fiscal forum, where we have a number of countries explaining their experience in mobilizing more revenue.

Ms. YAN: Thank you. Can we go to the gentleman in the fifth row here. Thank you.

QUESTIONER: Thank you. Thank you for doing this. I am Gianluca Di Donfrancesco from Italy’s Il Sole 24 Ore. I have two questions, if I may.

Mostly, in advanced economies, post‑pandemic recovery and the energy shock and now the climate change have required and are requiring significant fiscal easing. Is now the time to go back to fiscal austerity?

And the second question is Italy‑specific. What’s your assessment on Italian public debt? It is very high. Thank you.

Mr. GASPAR: Thanks for your two questions. I would frame the issue of return as a return to fiscal rules, a return to a situation where the normal rules for the conduct of fiscal policy apply, in a context where increasing demands for public support and high inflation make a strong case for fiscal tightening, for most countries.

In the case of the euro area, in the case of the European Union, we are very much in favor of a return to rules. We are in favor of the return to fiscal governance procedures in the European Union. And we believe that the commission has put on a proposal that includes very important and constructive elements, like a country‑specific approach based on a risk‑based Debt Sustainability Analysis and also the emphasis on a public spending path as the operational target. Those aspects were elements that we put forward in a paper, joint by the Fiscal Affairs Department and the European Department of the Fund, about a year ago. And we’re welcoming that these elements were taken by the European Commission proposal. We hope that the member states of the European Union will be able to reach a consensus soon because I think that that would very much contribute to stability in the European Union.

When it comes to debt in Italy, in the projections that we have just put out, we have a profile where the public debt‑to‑GDP ratio does decline; but it declines very slowly; and it stays well above the pre-pandemic level of debt. We are of the view that in order to bring the public debt‑to‑GDP ratio down in Italy, there are two elements that are crucial. One, structural reforms that will increase potential growth in Italy. That’s extremely important to dilute public debt gradually over time; but also additional ambition in terms of a fiscal adjustment in the context of a strengthening of the goals that the Italian government has in this area.

Ms. YAN: Thank you. The gentleman in the second row here.

QUESTIONER: Hi, Vitor. Thanks for taking my question. David Lawder with Reuters news service in Washington, DC.

I was just wondering if you could, first, just give us a word about the conflict in the Middle East. There’s a lot of attention on this this week. It’s already pushing up energy prices for countries. It’s another shock on top of shock after shock after shock. What sort of fiscal impact might this have? And what are the things you are going to look out for in that?

Also, if you could give us a word on kind of the convergence of China and the U.S. in terms of their debt‑to‑GDP ratios in your Fiscal Monitor and your Global Debt Database. They’re kind of converging at the same time. So just very briefly, on the fiscal challenges by the two largest economies in the world. Thanks.

Mr. GASPAR: Thanks, David, for both your questions.

On the situation in the Middle East, you may recall, David, that the chief economist at the IMF, Pierre‑Olivier Gourinchas, commented on possible implications associated with market developments and, in particular, developments in oil markets; but at this point in time, as he has also emphasized, it’s premature to make conjectures about that. We don’t know enough. And, of course, the conflict has not been reflected in the projections, in the numbers that we can deploy at this particular point in time. We are following developments very closely. They are developments of global relevance.

When it comes to China and the U.S., the two largest economies in the world are also dominant in terms of global public debt developments. I emphasized in my introductory remarks.

So global public debt is projected to increase by about 1 percentage point per year until the end of our projection period, in 2028. And if one would continue at this pace until the end of the decade, one would have global public debt above 100 percent of GDP. Without the U.S. and China, the trend would actually be declining by about half a percentage point per year. So, the two largest economies are really very important.

Something that the U.S. and China have also in common, that I want to emphasize, is ample policy space. Both in the case of the U.S. and in the case of China, the authorities have multiple policy options. They have multiple policy levers that they can use, ample policy space. It’s very important to bear that in mind. But the challenges that both economies face are quite substantial. In both cases, we have very high deficits in our projections. In both cases, we have rapidly growing debt.

And in the case of the United States, if one uses, for example, the Congressional Budget Office’s projection, one has the public debt increasing until 2050 to very high levels; and the path of debt is pushed by high deficits, in part, determined by rising interest payments on the debt. So, the U.S. has ample policy instruments to control these developments and will have to choose to use them. And the U.S. can also introduce a stronger set of budget rules and procedures, doing away with the debt ceiling brinkmanship that creates uncertainty and volatility, without contributing much to fiscal discipline in the U.S.

When it comes to China, I would not put the emphasis on public debt per se. I would say that the challenge for China is growth, stability, and innovation. And I don’t think that in this press conference, we have time, David, to speak on this at depth, but I am quite happy to explore that bilaterally.

Ms. YAN: Thank you. Let me take the lady in the fourth row here. Yes. Thank you.

QUESTIONER: Thank you. This is Deepshikha from The Economic Times, India.

When we are talking about transition policies, what kind of policies can countries like India sort of put in place, especially because they have large developmental needs and given the public debt that they have right now?

Mr. DE MOOIJ: Thanks for that question. I think this is a general issue for many countries, that there are so many development needs. And the priorities are really related to these developments. Reducing poverty. On the climate side, there’s the priority for climate adaptation. And what is often not the first priority is climate mitigation, contributing to climate mitigation. So, I think what is really important is that we link the development agenda to climate mitigation.

And just to give you an example, if a country gets more people connected to the electricity grids and there’s more need for electricity generation, we should make sure that this electricity generation is based on renewables. Or if people get more ownership of cars, we should make sure that these cars are electric vehicles, and not combustion engine vehicles.

So, there’s really a need for linking these two, but that also requires good policies. It requires policies that do provide these incentives for decarbonization. As Era just said, carbon pricing is particularly attractive for emerging markets and developing countries because it is easy to collect, and you can use the proceeds for other policies.

So, you need the incentives, right. But we also need to have support from other countries. Many countries do not have access to the technologies that are required. And we need to make sure that there is the technology transfer from advanced economies to low‑income countries. We know that 90 percent of the technologies that we need to achieve our 2030 objectives are known technologies. This is related to solar power, wind power, electric vehicles that I just mentioned. But the countries need to have access to the knowledge. So, we need to make sure to mobilize the knowledge transfer to the developing countries. We need to have open trade, no trade barriers. And what we currently see is that there are a lot of barriers to this diffusion of technologies.

And the last point is, of course, climate finance. These countries need the funding to do these investments. These investments often take high up‑front investments. And then the operational cost is usually very small because you benefit from solar, from the sun, or from the wind, which comes free; whereas fossil fuels is often lower initial costs, but then you have higher operating costs. But the initial costs need to be covered, and that requires good climate finance. And there are several ways and discussions now on ways to mobilize climate finance for these investments. I think that is the essence because we need to developing countries onboard for the climate transition. These countries are, in 2030, responsible for 70 percent of global emissions. So, if they’re not onboard, we’re not going to solve the climate problem.

Ms. YAN: Thank you. I know we still have many questions in the room, but let me go to WebEx. I know we have a couple of journalists online who have been patiently waiting. Let me take Doaa from Al‑Ahram in Egypt. Doaa, please go ahead and turn on your camera. Thank you.

QUESTIONER: Can you hear me?

Ms. YAN: Yes, we can hear you.

QUESTIONER: Thank you so much for taking my questions. Actually, I have two questions.

The report briefing shows Egypt will have the highest level of debt (audio distortion). I want to know, what are the key drivers behind this issue?

My second question is How the ongoing US dollar shortage crunch could affect Egypt’s fiscal conditions in the current FY23/24? And how it is expected to impact the country’s debt levels. Thank you.

Ms. YAN: Thank you.

Mr. DE MOOIJ: Thanks for that question. It was a bit sketchy. But what I understand is that you want to understand the public debt situation in Egypt. So let me give you a brief take on the numbers from the Fiscal Monitor.

So, Egypt, right before the pandemic, had a debt‑to‑GDP ratio of 80 percent. That ratio has increased to 93 percent today. Like many countries, there was an increase during the pandemic, and so it is now 13 percentage points higher.

In Egypt, there are very high expenditures on interest on their debt. So total expenditures on interest is 7 percent. And it’s projected to increase rapidly over the next few years, which leads to a high deficit, which is a concern; but fortunately, Egypt has also now a surplus on the primary balance. So, excluding interest, the balance is positive. And this is important going forward.

So, there is now a program, an Extended Fund Facility (EFF) with Egypt. And projections in that program are that there remains this surplus on the primary balance, which is really important to put debt on a sustainable footing and to regain confidence in Egypt’s public finances. And there are several measures that need to be taken to achieve this primary surplus. For instance, an important challenge with respect to revenue mobilization -- so thinking about tax measures that can contribute to this. There are opportunities; in the value‑added tax, for instance, there are many opportunities. Egypt gives also a lot of these tax exemptions that I mentioned earlier that can be rationalized. And there can also be administrative improvements. On the spending side, there are opportunities related to fossil fuel subsidies, which are also very important to phase out, in light of the climate transition. And in Egypt, there’s also a discussion about divestment, so the sale of equity stakes in state‑owned enterprises to the markets. And there’s a process going on, and the proceeds can be used also to reduce the debt level. So this is kind of the scenario that is sketched for the coming five years under the EFF.

Ms. YAN: Thank you. Let me take one more on WebEx from El Economista, Carlos. Carlos, please go ahead.

QUESTIONER: Hello. Good morning. Can you hear me?

Ms. YAN: Yes, we can hear you clearly.

QUESTIONER: OK. Thanks for having me here.

My question is about Europe. The Economist recommends a return to the fiscal discipline and the elimination of the short [aid] because the war of Ukraine. So how do you think that can affect the most vulnerable people on the continent?

On the other hand, are you going to make any revisions after the outbreak of war in Israel? Thank you so much.

Mr. GASPAR: So, thanks for your questions.

On the war, I’ve already emphasized that it’s premature to look at the consequences. We’ll have to work out those. We are following the situation closely. And, of course, we do regret the loss of life that is involved. But in terms of numbers and projections, we don’t have anything that we can report on.

On your first question, concerning the issue of the impact of fiscal measures on the most vulnerable, the IMF always emphasizes the importance of fiscal policy in the protection of the most vulnerable in society, the importance of social safety nets. And we believe it is completely possible to reconcile fiscal discipline, public finance soundness, and financial stability with generous social safety nets. And there are many examples of countries around the world that have been able to attain such a balance. Just think, for example, of the countries in the north of Europe.

Ms. YAN: Thank you. Now I am coming back to the room. The gentleman in the first row here. Thank you.

QUESTIONER: Thank you. This is Huo Jing from Xinhua news agency in China. I have two questions about China.

The first is, in the World Economic Outlook released yesterday, the IMF just revised China’s growth to 5 percent this year and 4.2 in 2024. So, do you think China has good fiscal space to boost the recovery? And what’s your advice for China’s fiscal policy?

My second question is, how do you think about the concept of “debt trap diplomacy,” coined by some observers to criticize China? Thank you.

Mr. GASPAR: Thanks a lot for your questions.

The second is very easy to answer. I will not comment on it.

The first, I am really grateful that you put it because it allows me to make some elaboration on the earlier question by David, that I did not dare to elaborate more on, because it would take too long.

The way I would put it is, number one, China has ample policy space. China has multiple options. China needs to decide the course that it wants to take.

Now, in our view, the course that China has to take should be informed by considerations of growth, stability, and innovation. Why growth, stability, and innovation?

Growth because China has been extremely successful in terms of its growth model, which has delivered a run of growth for more than 40 years, which is one of the best runs of growth on economic record. But in that context, China has become a very large economy in the world. It has become one of the two largest economies in the world. And so, the IMF has been saying for many years that the growth model in China has to change. It has to change from exports to domestic demand. It has to pivot from investment to consumption. And very importantly, it has to pivot from investment in infrastructure and real estate to investment in innovation.

Why stability? Everybody knows it has been making headlines, that there are real estate and property challenges in China that call for a very significant restructuring. From the viewpoint of public finances, that affects local public finances. And so a reconsideration of the fiscal relations inside China’s public administration is a very important priority -- which leads me to mention, just in passing, that another very important structural contribution from fiscal policy in China could be the widening and increase in generosity of the social safety net that would decrease the need for precautionary savings by households; therefore, supporting the pivot that I was talking about.

When it comes to innovation, the magnitude of the challenge is very large. It encompasses the need for innovation in services. You can think about health. You can think about education. You can think about the spreading of digital technology in the Chinese society. But there are some areas where China can already post quite significant success. And those areas of success have to do with green technologies. Just think about solar panels and electric vehicles. So, if these two examples can be generalized, China can find a successful path from public investment in infrastructure and real estate investment into innovation, as required by a new China playbook.

Ms. YAN: Thank you. I think we’re almost out of time. Let me take two last questions. One gentleman here. Yes.

QUESTIONER: Thank you very much. Ramah Nyang from Bloomberg, based in Nairobi. Two questions, if I may.

With respect to the questions around carbon pricing, you’ve made arguments, right, for -- we need a carbon price floor, perhaps at COP28. The EU has a carbon border adjustment tax that is essentially due to come into effect I believe sometime next year; but for economies in Africa who export a lot of their primary produce into European economies, have you modeled how this might actually affect their trade flows into the EU? Because it’s not the first time we’ve had run‑ins around the questions around carbon taxes. Back in 2007, Kenya, for example, had one on the horticultural sector.

Second, with respect to debt‑for‑nature swaps, payment for environmental services, where do they fit into the wider funding matrix that we need to pay for? We need to raise funds, obviously, for a lot of these energy transitions that we have to have across Africa. Thank you.

Ms. YAN: Thank you. Let me also take this gentleman in the middle. And then we have to wrap up. Thank you.

QUESTION: Thank you. Zulfick Farzan from News First MTV MNBC Sri Lanka. Two questions.

The first is, on the path to recovery, what is the expectation from countries that are struggling to settle debt, including countries like Sri Lanka, with limited revenue sources, including taxation? And also, a debt slashing is something that is being discussed right now that will help many countries. So, what is the position on countries that are asking for more relief by moving out of the existing frameworks? Thank you.

Ms. YAN: Thank you.

Mr. DE MOOIJ: OK. So maybe on the carbon border adjustment, so that is -- the payments are going to start in 2027. So, it starts now with the collection about information about carbon contents in order to implement the system in 2026.

I think what is really important for the implications for African countries is also what African countries themselves do because the EU is going to impose these border carbon adjustments in order to level the playing field on the European markets. So, they want to increase the carbon price. They have, as a consequence, a deterioration of their competitive position. So, they say, we’re going to level the playing field also for imports.

But other countries can, of course, respond by saying, well, we’re also going to increase our carbon price -- in which case, the European Union would no longer levy these carbon border adjustments. So, I think it is rational for other countries to rethink their, quote, “domestic policies” because then they collect the money themselves and also make this part of the decarbonization strategy of countries.

Ms. DABLA‑NORRIS: Regarding your question on Sri Lanka and more broadly on countries, what they can do. So essentially, for many developing countries, I mean, an ambitious revenue‑based fiscal consolidation will be important because the tax‑to‑GDP ratios are very low. And there is scope. As Ruud mentioned, there is scope to raise revenues. So, this is necessary for restoring fiscal and debt sustainability, while protecting the poor and the most vulnerable.

At the same time, for many countries, expenditure rationalization measures will also be needed. So, a strategic approach toward spending will be needed to support the primary balance path that has been agreed to and consistent with the program targets. So that’s on the domestic side.

On the external side, close collaboration with external creditors is absolutely essential to expedite debt treatments so that debt relief can be provided in an expeditious manner and in an efficient and a timely manner so that both sides of the picture are equally important.

On your second question, this question of burden sharing is one that is negotiated between the countries and creditors. And this is something that the countries will have to negotiate with their creditors. And whatever the outcomes are, they have to be consistent with the IMF program targets. Thank you.

Ms. YAN: Thank you very much.

I know we still have many questions unanswered. We have our Managing Director’s press briefing tomorrow and also regional press briefings, starting on Thursday and also Friday. So, if you have more questions, you can ask during these press briefings.

So, thank you all for joining us today. I hope you have a great day. Thank you.