## Fiscal Monitor Press Briefing 2022 Annual Meetings

_IMF News, October 12, 2022_

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## Bibliographic details
- Published: October 12, 2022

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### Overview and context
- Date: October 12, 2022
- Speakers: Vitor Gaspar (Director, Fiscal Affairs Department); Paolo Mauro (Deputy Director, Fiscal Affairs Department); Paulo Medas (Division Chief, Fiscal Affairs Department); Nicolas Mombrial (Moderator, Communications Department)
- IMF Communications contact: MEDIA RELATIONS, PRESS OFFICER: Nico Mombrial, Phone: +1 202 623-7100, Email: MEDIA@IMF.org

### Global fiscal outlook and recent dynamics
- After an unprecedented expansion in 2020, monetary and fiscal policies have been "pivoting towards simultaneous tightening in 2022."
- Deficits: "deficits falling from 9.7 percent of GDP in 2021 to 4.7 percent of GDP in 2022."
- Drivers of recent fiscal changes: economic recovery, unwinding of pandemic‑related measures, and "inflation surprises".
- Cautions about inflation: "Once inflation becomes broad‑based and persistent, inflation expectations catch up. High and volatile inflation makes credit more expensive and its costs less predictable."
- Market sensitivity: "recent developments in bond markets show increased market sensitivity to deteriorating or weak fundamentals."  
- Vulnerabilities: "Debt raises the specter of more frequent and widespread fiscal crisis."

### Crisis responses: survey findings and policy shortcomings
- Survey coverage: measures taken in the first half of the year across "174 countries" with "about 750 measures."
- Composition by motive:
  - Advanced economies: actions motivated by the energy surge dominate.
  - Developing economies: food is "relatively much more relevant."
- Common policy measures: reductions in consumption taxes, custom duties, and energy subsidies aimed at dulling price pass‑through.
- Assessment of measures:
  - Some measures were necessary for urgency, but "most have not been targeted enough."
  - Risks of broad energy support: maintaining domestic demand at pre‑crisis levels is "not economically viable" and reduces available energy resources globally.
- Recommendation: use targeted measures or expand existing social safety nets to reconcile support for the most vulnerable with efficient resource allocation.

### Poverty, food insecurity, and emergency financing
- Reversal of progress: "after decades of reduction in extreme poverty, extreme poverty has increased in the world, and it is projected to stay well above the pre‑pandemic expected path going forward."
- Food insecurity and nutrition: "food insecurity has increased significantly, as has the number of people that suffer from under‑nourishment."
- Africa specifics:
  - "Some estimates indicate that more than 120 million people in Africa alone are suffering from food insecurity."
  - World Bank estimate cited: "11 million more people will enter extreme poverty now than what would have been expected under pre‑pandemic trends."
  - Debt distress: "19 out of 35 low‑income countries in Africa are already in debt distress or at high risk of debt distress."
- IMF tools and calls for collective action:
  - Emergency financing: "some emergency financing will be available through the new Food Shock Window under the IMF's emergency financing toolkit."
  - Additional measures needed: "lifting restrictions on food and fertilizer exports" and "rechanneling of wealthier countries' allocations of the IMF's Special Drawing Rights to poorer countries."
  - Orderly debt treatment: need for "an orderly debt restructuring mechanism and forms of debt relief."
  - IMF support since 2020: "the Fund has provided about 50 billion in financial support in different ways, through financing instruments, through debt relief, and through the expansion of SDRs."

### Fiscal policy priorities and policy mix
- Fiscal policy priorities recommended:
  - "a fair and broad‑based tax system"
  - "a comprehensive and scalable social protection system"
  - "building fiscal buffers and a return to fiscal rules"
- On policy mix and coordination with monetary policy:
  - In the context of "high inflation, high debt, rising interest rates and elevated uncertainty," "consistency between monetary and fiscal policy is paramount for economic and financial stability."
  - When inflation is the dominant priority, alignment of fiscal and monetary policy "is beneficial for the credibility of the disinflation policy stance, and it reduces the costs of disinflation."
  - Mechanism for recent debt-to-GDP dynamics: in many advanced economies, with central banks at the effective lower bound, increased inflation reduced real interest rates and helped lower debt ratios via a denominator effect on nominal GDP.

### Governance, social contract, and political economy
- Fiscal policy is intrinsically political; the Fiscal Monitor emphasizes that fiscal action in crises should be part of the social contract: governments that provide insurance in bad times should "build buffers and participating in the upside in good times."
- Suggestions to reduce social unrest risks:
  - Strengthen fiscal transparency and governance so taxpayers "have the feeling that, when they are taxed, their money is well used."
  - Consider more progressive taxation, including "taxation of rents, taxation of excess profits," especially in crises.
  - Prioritize targeted food support over broad energy subsidies given political sensitivity of food and the high fiscal cost of universal energy subsidies.

### Digitalization, social protection, and GovTech
- Digital delivery of cash transfers: India cited as an "impressive" example leveraging Aadhaar and mobile banking to reach hundreds of millions efficiently.
- IMF Fiscal Affairs Department (FAD) has a "gov tech" program to apply new technologies and digitalization to public administration and is collaborating with India and other countries.
- Recommendation: countries can learn from diverse international examples to improve targeting and scalability of social programs.

### Regional and country notes (selected)
- Nigeria and similar cases:
  - Countries with double‑digit inflation and high deficits should align fiscal policy to help monetary authorities ensure price stability.
  - Commodity windfalls: oil exporters should consider saving part of higher commodity revenues to reduce debt and address emergencies.
  - Low tax ratios: "tax revenues are really low" in some countries, undermining capacity to respond; domestic revenue mobilization is essential.
- Italy:
  - Italy's debt‑to‑GDP rose considerably in 2020; IMF's "latest estimate" indicates a public debt‑to‑GDP path "below what we were forecasting one year ago" with a forecasted slow decline.
  - Primary deficit in 2023 and 2024 "is already very close to the pre‑pandemic projected path." Emphasis on growth, sustainable growth, and structural reforms seen as a prudent strategy for a shock‑prone world.

### Key policy recommendations (summary)
- Prioritize macroeconomic and financial stability by staying the budget on a tightening course in most countries.
- Target support to the most vulnerable (especially for food) and avoid untargeted, broad energy subsidies.
- Scale up domestic revenue mobilization and improve spending quality to create fiscal space.
- Strengthen social protection systems that are comprehensive, scalable, and digitally enabled.
- Pursue coordinated global action on food exports, fertilizer restrictions, SDR rechanneling, and debt relief/restructuring.
- Ensure consistency between fiscal and monetary policy to reduce the costs of disinflation and preserve market confidence.
- Accelerate climate transition financing and close ambition/implementation gaps at multilateral fora (COP27 referenced).

*Transcript: Fiscal Monitor Press Briefing, October 12, 2022 — IMF Communications Department*

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## References

- [India and the IMF](http://www.imf.org/external/country/IND/index.htm)
- [Italy and the IMF](http://www.imf.org/external/country/ITA/index.htm)
- [Nigeria and the IMF](http://www.imf.org/external/country/NGA/index.htm)
- [Transcripts](https://www.imf.org/en/news/searchnews)
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_Source: https://www.imf.org/en/news/articles/2022/10/12/tr101222-fiscal-monitor-transcript_