Transcript of Fiscal Monitor October 2024 Press Briefing
IMF News, October 23, 2024
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- Published: October 23, 2024
Global debt levels and projections
- Global public debt is projected to go above $100 trillion this year.
- At the current pace, the global debt‑to‑GDP ratio will approach 100 percent by the end of the decade, rising above the pandemic peak.
- The Fiscal Monitor emphasizes that "public debt is very high, rising, and risky."
Country groupings and heterogeneity
- Three groups distinguished:
- About one third of countries: public debt is higher and projected to grow faster than pre‑pandemic (includes China, the United States, Brazil, France, Italy, South Africa, and the United Kingdom; together about 70 percent of global GDP).
- About one third of countries: public debt is higher but projected to grow slower or decline compared with pre‑pandemic.
- The rest of the world: debt is lower than pre‑pandemic.
Debt‑at‑risk framework and scenarios
- The Fiscal Monitor presents a novel "debt at risk" framework linking macroeconomic, financial, and political conditions to the spectrum of future debt outcomes; the framework covers 70 countries.
- Key quantified risks:
- In a severe adverse scenario but plausible, debt‑to‑GDP could be 20 percentage points higher in the next 3 years than currently projected.
- Advanced economies: estimated debt risk about 135 percent to GDP by 2026.
- Emerging market economies: estimated debt risk about 88 percentage points of GDP.
- Main sources of upside risk highlighted: weaker growth, tighter financial conditions, economic and political uncertainty.
Major findings for specific large economies and regions
- United States:
- Debt is considerably above pre‑pandemic and "is growing at about 2 percentage points of GDP every year."
- The U.S. is important for global financial conditions; adjustment in the United States is "not only good for the United States, it is good also for the rest of the world."
- China:
- Debt is growing rapidly; China has "ample policy space" and means to put public debt under control.
- Four policy priorities noted: (1) fiscal policy to rebalance demand toward domestic consumption; (2) end financial misallocations tied to the property sector crisis; (3) address sub‑national public finance imbalances and constraints; (4) use fiscal policy to promote technological innovation and the green transition.
- United Kingdom:
- Debt is substantially higher than pre‑pandemic and projected to increase over time (albeit at a declining pace).
- Concern emphasized about the combination of high debt and low growth; public investment has trended down and should be protected.
- France:
- Debt‑to‑GDP ratio projected to increase by about 2 percentage points every year in the IMF projections; recommendation for appropriately frontloaded fiscal adjustment to credibly put public debt under control.
- Western Balkans:
- Growth picked up since 2023 with differences across countries; North Macedonia projected growth 2.2 percent in 2024, down from 2.7 percent in 2023.
- Headline inflation easing but core inflation stubborn in some countries; interest‑growth differential projected to remain negative over the medium term but is narrowing.
- Tunisia:
- Specific country numbers deferred to regional press briefs; concern noted about untargeted subsidies and importance of protecting public investment while targeting transfers to the vulnerable.
- Ukraine:
- Outlook "exceptionally uncertain"; priorities are to complete external commercial debt restructuring in line with program commitments and to redouble domestic revenue mobilization and accelerate implementation of the national revenue strategy.
- Sub‑Saharan Africa and Nigeria:
- Building fiscal space is crucial for development and to enable the state to play its role.
- Typical challenges: low revenue‑to‑GDP ratios (Nigeria cited as "about 10 percentage points") and rising debt service obligations relative to revenue.
- For the average low‑income country, the ratio of debt service to revenue is about 15 percent.
Spending and financing needs in developing countries
- Previous Fiscal Monitor estimate: the envelope of spending needs for sustained development and climate goals could be "as much as high as 16 percent of GDP."
- Policy actions emphasized:
- Revenue mobilization: broaden tax base, reduce informality, increase efficiency in revenue collection, and improve progressivity.
- Spending-side reforms: improve quality, composition, and efficiency of spending; protect public investment; target transfers to the vulnerable.
- Strengthen fiscal institutions and public finance management to build public trust and support for reforms.
- IMF support cited: over the past 4 years, about $60 billion of funding has been provided to African economies; IMF also provides policy advice and capacity development in taxation, revenue mobilization, public finance management, and climate-related areas.
Policy recommendations and design principles
- Timing and magnitude:
- "Delaying adjustment is costly and risky." The time to act is now.
- Where countries are sufficiently away from debt distress: adjust in a sustained and gradual way to contain debt vulnerabilities without unnecessary adverse effects on growth and employment.
- In countries in debt distress or at high risk: timely and frontloaded decisive action, including possible debt restructuring, may be necessary.
- Composition and distribution:
- Avoid cuts in public investment; protect public investment within a framework of rules and budgetary procedures that foster sound macroeconomic performance.
- Design "people‑focused" fiscal adjustment to balance impacts on growth and inequality; prioritize preserving social spending and improving spending efficiency and composition.
- Use progressive taxes and broad‑based, fair tax systems where possible; reduce untargeted subsidies and reallocate toward targeted transfers.
- Governance and transparency:
- Strengthen fiscal governance, transparency, and accountability to build trust and public support for reforms.
- Leverage technology to promote transparency, build trust, and increase tax compliance ("three Ts": technology → transparency → trust).
- Role of fiscal policy:
- Fiscal policy should act as a structural policy that contributes to growth, jobs, rebalancing demand, and the green transition.
Risks emphasized
- Upside tilt to risks around debt projections; many governments’ fiscal plans are "insufficient to deliver stable or declining public debt ratios with a high degree of confidence."
- Political pressures and election-related fiscal pledges can complicate fiscal consolidation efforts; both left and right political platforms have tended toward fiscal support and expansion.
- For countries with limited fiscal space and high debt, exchange rate depreciation can amplify public debt burdens denominated in foreign currency.
Source: Transcript of Fiscal Monitor October 2024 Press Briefing, October 23, 2024.