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The IMF warned that government debt levels could be impacted by the sheer number of elections happening this year – Copyright AFP MANDEL NGAN<\/small><\/em><\/p>\nThe path towards sustainable government debt levels around the world is under threat this year from the sheer number of elections taking place, the IMF said Wednesday in a new report.<\/p>\n
\u201cHistory suggests, and empirical evidence confirms, that governments tend to spend more and or tax less in election year,\u201d Vitor Gaspar, the head of the International Monetary Fund\u2019s Fiscal Affairs told AFP, ahead of the publication of the Fiscal Monitor report. \u00a0<\/p>\n
He added that the situation this year is particularly complicated because, \u201cthe political discourse is dominated by references to fiscal expansion and calls for fiscal support or public spending \u2014 or both.\u201d<\/p>\n
The Fiscal Monitor report found that global public debt \u201cedged up again\u201d last year, reversing a couple of years of decline,\u00a0due largely to a fall in revenues \u201cas windfall revenues from inflation waned.\u201d<\/p>\n
\u201cFiscal tightening is projected for 2024, but it is subject to considerable uncertainty,\u201d the IMF report continued.\u00a0<\/p>\n
Much of this uncertainty, the IMF said, is down to the fact that 2024 is the \u201cGreat Election Year,\u201d when 88 economies or economic areas representing more than half of the world\u2019s population have held, or are due to hold, elections.\u00a0<\/p>\n
\u201cClearly, given the stronger link between fiscal policy and politics, it is perfectly reasonable to think that political factors and political discourse will play an added role right now,\u201d Gaspar told AFP.\u00a0<\/p>\n
\u2013 Medium-term concerns \u2013<\/p>\n
The IMF predicts that current spending and taxation levels have put global public debt on track to rise from just over 93 percent of economic output last year to 99 percent by 2029.\u00a0<\/p>\n
This trend is \u201cdriven by the world\u2019s two largest economies, China and the United States, where under current policies public debt is projected to continue increasing beyond historical highs,\u201d the IMF report said.\u00a0<\/p>\n
The US experienced \u201cremarkably large fiscal slippages,\u201d last year, the IMF said, citing a steep decline in income tax revenues due to lower capital gains taxes and \u201cdelayed tax payment deadlines.\u201d<\/p>\n
While the IMF expects the US fiscal deficit to remain stuck above six percent over the next five years, the country\u2019s strong economic position makes it a \u201cvery strong outlier in fiscal development around the world,\u201d Gaspar said.\u00a0<\/p>\n
\u201cThe United States has ample fiscal space,\u201d he continued. \u201cThere are many measures that can be taken on the spending side and the revenue side.\u201d\u00a0<\/p>\n
\u2013 China\u2019s \u2018room for maneuver\u2019 \u2013<\/p>\n
Like the US, China\u2019s fiscal deficit is projected to remain at elevated levels over the next five years, rising from more than seven percent of GDP last year to around eight percent by 2029.\u00a0<\/p>\n
\u201cChina stands out as a country where the deficit as stayed elevated throughout,\u201d Gaspar said.<\/p>\n
However, \u201cChina, as the United States, has policy room to correct the situation and can do it from a public finance viewpoint,\u201d he continued, adding: \u201cChina does have room to maneuver.\u201d<\/p>\n
\u201cThey should act quickly in guaranteeing the credibility of their local government finances, in particular in cases where they are in danger given real estate and property development,\u201d Gaspar said.<\/p>\n
Given China\u2019s role as a leading bilateral lender to many of the world\u2019s developing economies, its fiscal position carries consequences for countries around the world.\u00a0<\/p>\n
\u201cChina is one of the largest economies in the world,\u201d Gaspar said.<\/p>\n
\u201cIt\u2019s extremely important in some sectors, and therefore the relevance of spillovers is very pressing,\u201d he added.<\/p>\n
\u2013 Policy prescriptions \u2013<\/p>\n
The Fiscal Monitor report called\u00a0for countries to make a \u201crenewed push\u201d toward consolidating their fiscal positions \u2014 especially given the expected loosening of tight monetary policy in many places through interest rate cuts later this year.\u00a0<\/p>\n
To do this, the IMF recommended that countries should start by \u201cimmediately\u201d phasing out pandemic-era support measures, scaling back fuel and energy subsidies, and enacting entitlement reforms in advanced economies with ageing populations.\u00a0<\/p>\n
In emerging market and developing economies, governments should \u201crenew efforts to rationalize large government wage bills, and reform social safety nets,\u201d the IMF said.\u00a0<\/p>\n<\/p><\/div>\n
IMF says global debt levels face ‘Great Election Year’ risk
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