The IMF reminds governments that they should support vulnerable households but not raise aggregate demand

MADRID, 12 Oct. (EUROPA PRESS) -

The International Monetary Fund (IMF) has prescribed to governments that they must support vulnerable households in the current situation of high inflation, but that they must avoid fiscal measures that increase aggregate demand because that would go against monetary policy.

"Policymakers must protect low-income families from large real income losses and ensure their access to food and energy. But they must also reduce the vulnerabilities of large public debts and, in response to high inflation, maintain tight fiscal policy." so that it does not intersect with monetary policy," the agency said on Wednesday.

Given the high levels of public debt, which will reach 91% of global GDP this year, 7.5 points above pre-pandemic levels, governments must prioritize support for vulnerable citizens through social safety nets.

However, the Fund believes that energy prices should be allowed to adjust to preserve incentives to limit use and increase demand. In the current environment, the agency considers that subsidies, tax cuts or price limits to cut energy bills will be costly and ineffective measures at the budget level.

"Policies to cut food and energy prices should not add to aggregate demand. Demand pressures would force central banks to further raise interest rates, making public debt more expensive," the IMF has warned.