IMF urges governments to develop fiscal plans to bring pandemic debt under control

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By David Lawder

WASHINGTON (Reuters) – Governments should start planning a return to more sustainable budgets with policies that gain investor confidence, after an unprecedented fiscal stimulus to fight the COVID-19 pandemic, the Monetary Fund said on Thursday international.

But each country must determine the appropriate timing and pace of fiscal consolidation based on its own circumstances, the IMF said in its Fiscal Monitor report.

Fiscal plans had to take into account the stage of the pandemic, existing fiscal vulnerabilities, the risk of economic scars, the pressures of an aging population, development needs and historical difficulties in collecting income.

“There are countries where the pandemic is still raging and therefore the priority remains the health emergency,” IMF deputy director of fiscal affairs Paulo Mauro told Reuters.

Other countries where economic activity is picking up “may start to think about also gradually reducing the degree of budget support they are providing to the economy,” he said.

A chapter in the Fiscal Monitor titled “Strengthening the Credibility of Public Finances” stated that countries that commit to medium-term fiscal sustainability with credible fiscal frameworks are rewarded with lower borrowing costs and greater capacity. of refinancing their debts.

“What we find in the report is that governments can credibly commit to fiscal sustainability, it saves them time, and it buys them flexibility at this very difficult time of the crisis. pandemic, ”Mauro said.

The report says IMF research has shown that countries with credible fiscal framework plans could reverse steep debt increases faster, with the potential to reverse a 15 percent increase in debt in a decade, by the absence of additional shocks.

The Fund recommended that countries commit to broad fiscal targets with underlying fiscal and expenditure policies for the next three to five years, with specific policies, such as increasing taxes or raising the tax base. age of obtaining retirement benefits.

Fiscal rules, such as keeping budget deficits within a certain percentage of gross domestic product, or independent fiscal advice within governments could add credibility, he said, adding that easily communicated targets help. .

But the IMF said fiscal plans should be flexible to allow economies to stabilize and avoid cuts in key public investment.

“Changes in taxes or spending can be pre-legislative and can be contingent on recovery,” the IMF said.

He cited Britain’s announcement that corporate rates would rise in April 2023, and Israel’s adoption of a sunset on extended unemployment benefits tied to lower unemployment rates. .

(Reporting by David Lawder; Editing by Edmund Blair and Jan Harvey)


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