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IMF says governments must protect vulnerable ‘when things fall apart’ to avoid unrest

IMF says governments must protect vulnerable ‘when things fall apart’ to avoid unrest

The International Monetary Fund (IMF) affirmed that governments must direct their fiscal support to the vulnerable populations most affected by the rise in the price of energy and food, and who now face growing food insecurity due to Russia’s war in Ukraine.

Rising food and energy prices have increased the risks of social unrest, particularly in low-income countries already struggling with high levels of debt following the COVID-19 pandemic, and now facing higher borrowing costs amid rising interest rates, the IMF said in its latest report on global fiscal developments.

Government acting in its special role of protecting the vulnerable when things fall apart goes a long way towards maintaining social cohesion”, declared the director of Fiscal Affairs of the IMF, Vitor Gaspar.

Gaspar commented that there is plenty of evidence that financial crises, pandemics, and price volatility or surges can exacerbate divisions and strife, and that fiscal policy has an important role to play in addressing these concerns.

It is an absolute imperative for public policies around the world to provide food security for all”, he indicated, arguing in favor of specific and temporary measures such as cash transfers instead of broader and more generalized subsidies that could be costly.

Measures taken by many countries to limit the rise in domestic prices could also exacerbate global mismatches between supply and demand, driving prices higher still.

Gaspar said poor households spend up to 60% of their budget on food, compared to just 10% for the average household in advanced economies.

However, many countries lack the spending capacity to deal with the latest crisis, after unprecedented outlays during the height of the COVID pandemic, which pushed global debt to $226 billion in 2020, the largest increase in debt in one year since World War II.

We believe that the risks of global debt are quite significant. Affect some countries in all country groups”, Gaspar said, pointing to the high yield spreads on some emerging market debt, reflecting the market’s growing perception of risk.

The IMF said it expects global public debt to fall to 94.4% of Gross Domestic Product (GDP) in 2022, after peaking at 99.2% in 2020, and to stabilize around 95% in the medium term. However, that level is 11 percentage points higher than it was before the pandemic.

Source: Gestion

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