The global economy is slowing amid continued tight financing conditions, announced Vitor Gaspar, Director of the Fiscal Affairs Department at the IMF today (Wednesday, October 12, 2022) in Washington, DC.
A sharp downturn would further accentuate tradeoffs among competing priorities of demand management, debt stabilization, protection of vulnerable populations, and investment for the future the IMF reported in its Fiscal Monitor publication.
“The managing director has explained that we live in a fragile and shock prone world. The Fiscal Monitor does a deep dive on how fiscal policy can contribute to a resilient society where people are able to bounce back,” said Gaspar.
Global government debt is projected to be 91 percent of GDP in 2022, which is 7½ percentage points above the pre-pandemic levels, despite the recent reduction in the ratio for many countries. Debt decreased because of deficit reduction, economic recovery, and inflation shocks.
“The biggest risk emphasized in the Fiscal Monitor is debt. Recent market developments show increased sensitivity to weak or deteriorating fundamental. That raises the specter of frequent or widespread fiscal crisis,” added Gaspar.
Defining a consistent medium-term policy framework for the post- pandemic world is crucial. Relying on repeated inflation surprises to reduce public debt is not a viable strategy and will lead to spending pressures (for example, wages and cost of services). Reducing deficits, as many advanced and emerging markets are projected to do, is necessary to help tackle inflation and address debt vulnerabilities.
“The Fiscal Monitor recommends a broad based and fair taxation. A scalable and comprehensive social security system, building fiscal buffers, and a return to fiscal rules,” exclaimed Gaspar.
To read the full report, click here.