IMF urges countries to “calibrate” their spending in the face of high debt

The International Monetary Fund (IMF) urged countries to “calibrate” their spending after debt burdens soared last year amid the pandemic.

World debt in 2020, including public and private loans, “jumped 14%, to a record US $ 226 trillion,” according to the report “Fiscal Monitor” of the IMF.

“A significant number of countries are in debt problems, or at high risk of over-indebtedness,” Vitor Gaspar, director of the IMF’s Public Finance Department, said at a press conference.

It is “urgent” to advance a framework to help countries at risk, he said, reiterating the call of the IMF and the World Bank to take measures before the end of the year the initiative to suspend debt service agreed by the Group of 20 industrialized and emerging countries (G20).

“While it is recognized that the international community provided critical support to alleviate fiscal vulnerabilities in low-income countries, more is needed,” Gaspar said.

The public debt of all countries amounts to US $ 88 trillion, close to 100% of the world’s Gross Domestic Product (GDP), and is expected to decline only gradually, according to the report, but there is a risk that excess private debt becomes public debt.

“Countries will need to calibrate fiscal policies to their own unique circumstances,” Gaspar said.

Massive public support helped soften the hit of the pandemic on the economy, as well as the impact on health.

The huge aid packages in USA and Europe “could add a cumulative US $ 4.6 trillion to world GDP between 2021 and 2026 if fully implemented,” Gaspar said.

In advanced economies, with progress in containing the virus, spending is shifting from the immediate crisis towards green and digital policies and the effort to “make economies more inclusive”.

For example, the US budget proposals “aim to reduce inequality and could reduce the poverty by almost a third, ”said Gaspar.

But emerging markets and low-income developing countries “face a more challenging outlook” and “lasting negative impacts,” as falling tax revenues due to the current crisis will leave little room for investment in development, he warned.

The IMF published its report “Fiscal Monitor” in the framework of its joint semi-annual meetings with the World Bank, which take place this week in Washington.