Global economists warn of fiscal crisis amid rising debt and election year spending

Global economists warn of fiscal crisis amid rising debt and election year spending

Top economists from the International Monetary Fund (IMF) have urged governments worldwide to exercise fiscal restraint and prioritize debt reduction amid a record number of national elections in 2024.

The call comes as global public debt edges up to 93% of GDP, with many countries struggling to stabilize their finances.

“Fiscal policy shifted to be more expansionary last year, but we need to avoid slippages and focus on rebuilding buffers and safeguarding fiscal sustainability over the medium term,” said Era Dabla-Norris, Deputy Director of the IMF’s Fiscal Affairs Department.

Vitor Gaspar, Director of the IMF’s Fiscal Affairs Department, emphasized, “Governments should stay the course on fiscal consolidation amid mounting debt. We project modest fiscal tightening over the medium term, but it will be insufficient to stabilize public debt in many countries.”

The IMF’s latest Fiscal Monitor report highlights that many countries continue to grapple with high public debt and fiscal deficits, exacerbated by high real interest rates and dimming medium-term growth prospects.

Marcos Poplawski-Ribeiro, an IMF economist, warned, “Deficits in election years tend to exceed forecasts by 0.4 percentage points of GDP, compared to non-election years. In this great election year, governments should exercise fiscal restraint to preserve sound public finances.”

The report stresses that decisive efforts are needed to safeguard sustainable public finances and rebuild fiscal buffers. “Countries need to act resolutely in cases where sovereign risks are elevated and fiscal credibility is lacking,” said Jiae Yoo, another IMF economist.

The IMF recommends phasing out legacy crisis-era fiscal policies, pursuing reforms to curb rising spending, and boosting revenue through measures like broadening tax bases and improving tax system design.

By: Bright Yao Dzakah | | Ghana

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