The IMF’s Fiscal Monitor report warns that fiscal risks are rising, with debt increasing, interest rates higher, and spending pressures persisting across countries.
“The big picture is clear. Fiscal risks are rising, and a proper reaction is largely absent in many countries. Debt is very high and increasing. Interest rates have risen, and spending pressures are persistent across the board. And in major advanced economies, the effects of fiscal indiscipline does not stop at the border. It travels to the rest of the world,” said Rodrigo Valdes, Director of the Fiscal Affairs Department at the IMF.
The report calls for action where fiscal risks are higher, before markets force a more painful adjustment. It also examines how better taxation can support stronger growth without sacrificing revenues.
“Act now. Where? Where fiscal risks are higher, and before markets force an adjustment which is more painful. Today, there is no general need for additional fiscal support. Separately, our Fiscal Monitor Analytical Report for these Annual Meetings has focused on how to tax better to support stronger growth without sacrificing revenues. Removing tax distortions that make the economy less efficient helps with more activity and that helps to ease the fiscal problems,” explained Valdes.
The IMF says support should reach those who need it most and that measures should be limited, targeted, temporary, and transparent.
“Prices should reflect scarcity, and support should reach those who need it most. Measures are limited and targeted, and temporary and transparent can achieve that. Broad, open-ended support that weakens price signals have important negative consequences. It delays the adjustment and strains fiscal space. If demand does not adjust when supply falls, prices will force the adjustment, and that cost will be felt by all countries,” added Valdes.
To read the full report, click here: Taxing Better to Boost Growth
