IMF calls for investing in future to reduce impact of high budget deficits

12 April 2024 08:30 (UTC+04:00)  Qabil Ashirov

The global economies are anticipated to face excessively high budget deficits, posing challenges in stabilizing public debt, said Kristalina Georgieva, Managing Director of the IMF.

She made the remark during the event held by the Atlantic Council as a part of the IMF’s World Economic Outlook publication.

“Our forecasts show deficits will still be too high to stabilize debt in over one third of advanced and emerging economies, and in more than one quarter of low-income countries. This is why we advocate for adopting credible medium-term fiscal frameworks as the ultimate ‘good policy’ choice for countries,” she said.

The managing director also pointed out that the IMF suggests increasing efforts to close tax loopholes, enhance tax collection, and the efficiency of public spending, as strong fiscal policies enable nations to aid the most vulnerable segments of society and invest in future.

“Now, we are in an era of far higher interest rates. This is pushing up the cost of servicing debt. In advanced economies, excluding the US, interest payments on public debt will average about 5 percent of government revenues this year. But the cost of servicing debt is most painful in low-income countries. Their interest payments are set to average about 14 percent of government revenue – roughly double the level from 15 years ago. For most countries, prospects of a soft landing and strong labor markets mean there is no better time to act: to reach sustainable debt levels and build stronger buffers to cope with future shocks. For some, delay is simply not an option: consolidation must start now to avoid tipping into debt distress,” Georgieva explained.

At the same time, she noted that for the few nations already grappling with debt distress restructuring may become imperative, and the G20 Common Framework stands as a potential aid in this regard.

“Zambia recently finalized its agreement with bondholders, complementing the restructuring with official bilateral creditors. We must build on lessons learned to improve the debt restructuring process. During the Spring Meetings, we will again convene our Global Sovereign Debt Roundtable. Our goal is to bring further clarity on “comparability of treatment” among different creditor groups and to establish clear and predictable timelines for debt restructuring. For all countries, rich and poor, fiscal prudence is hard. This is especially true in a year with a record number of elections and at a time of high anxiety due to exceptional uncertainty and years of shocks,” she added.