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The IMF warns that fiscal deficits in the world have increased to 5% of wealth

Warns of a world public debt close to 100%.

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The IMF warns that fiscal deficits in the world have increased to 5% of wealth

Warns of a world public debt close to 100%

MADRID, 12 Abr. (EUROPA PRESS) -

The International Monetary Fund (IMF) has warned this Tuesday that in 2023 fiscal deficits will grow "slightly" to 5% of world GDP on average due to higher interest payments from governments and due to pressure to revalue pensions and salaries of according to inflation rates.

The short-term situation remains "complex," the agency said, although the "risks are clearly on the downside." However, if financial instability intensifies, public accounts could be affected by having to intervene with rescue packages. If so, fiscal policy will need to intervene quickly to "minimize costs while mitigating moral hazard."

Conversely, where inflation is under control and there is room for fiscal policy, governments should allow "automatic stabilizers to kick in."

In addition, the IMF has referred to the historic rise in public debt in the world economy as a whole, which has almost reached 100% of GDP due to the combined effect of the economic contraction caused by Covid and the massive public aid package deployed . However, the multilateral entity has indicated that fiscal deficits have been reduced by a notable increase in nominal GDP, boosted by "atypical growth and inflation dynamics", but has also warned that debt levels were in 92% at the end of 2022, 8% above those recorded at the end of 2019.

Of these, the primary balance deficit is falling "rapidly" to levels similar to pre-pandemic levels "in many countries", but the total deficits have moderated less sharply due to the increase in interest payments. Even so, public finances received on average an extra 3.1% of income over GDP in developed countries, 0.6% more than that registered by developing and emerging nations. The IMF has pointed out that these incomes "fallen from heaven" were higher in oil-exporting countries.

Despite this, the IMF has explained that "debt dynamics" in emerging and low-income countries with high foreign currency debt ratios have been worsened by currency depreciation and interest rate hikes.

As for the medium term, fiscal deficits will be above pre-pandemic levels. On his side, "considerable uncertainty" will persist in fiscal matters. The IMF has estimated that neither nominal GDP growth, which will slow down, nor the "gradual and moderate" tightening of fiscal policy will be enough to contain the rise in public debt ratios. "We still do not know what the new normality in public finances will be like," Vitor Gaspar, director of the IMF's Department of Fiscal Affairs, summed up at a press conference.

Gaspar has referred to the US deficit, which will be above 5% of GDP during the period from 2023 to 2028. The debt contracted by the first world power will grow at a rate of 3% from 2023. "Approximately double speed than pre-pandemic estimates," he explained. The IMF has predicted that the debt will exceed 135% of GDP. On the other hand, China's debt will double compared to pre-pandemic figures, and, in 2028, "it will practically exceed 100%."

The IMF has urged restrictive fiscal policies to complement the efforts of central banks to return inflation to around 2%, but also to protect the most vulnerable population.

The IMF has also recalled that both monetary and fiscal policy have tightened in almost 75% of the countries in 2022 in a context of high inflation and after the end of the economic stimuli implemented during the pandemic. "This reversal has occurred in a highly volatile environment," he said. Added to this was a "cost of living crisis", the war in Ukraine and instability in the financial sector.

Thus, despite the fact that households and national economies have resisted after being supported by their governments, these events have "reversed the progress in poverty reduction", pushing the world goal of eliminating extreme poverty beyond 2030. In addition, less room for maneuver to implement fiscal policies and high financing costs for developing countries have hampered progress on other Sustainable Development Goals.

The IMF has stressed that other challenges persist, such as climate change and the aging of the population. Challenges, says the IMF, "that have intensified" and that will be analyzed in the future by the institution.

Keywords:
PensionesFMI