Countries face tough choices as they grapple with the impact of rising inflation, the persistent pandemic and historically high debt levels, the IMF said in April with the release of the Fiscal Monitor report.
The unusually high degree of uncertainty affects all countries differently. Emerging markets and low-income developing countries that act as net energy and food importers will be particularly affected by high international prices, putting pressure on both growth and public finances.
“The world is facing a food crisis, an energy crisis right now. Prices were already high and rising at the end of 2021. The Russian invasion of Ukraine pushed prices even higher. The fiscal monitor recommends that policymakers focus on the most vulnerable, the most vulnerable people, the most vulnerable countries,” said Vitor Gaspar, Director of the IMF’s Fiscal Affairs Department.
This release of the report expects average public debt in advanced economies to decline to 113 percent of GDP by 2024, reflecting recovery from the pandemic-related recession. Debt is projected to continue to rise in emerging markets, reaching 72% of GDP by 2024.
Among low-income developing countries, debt is expected to decline gradually to 48% of GDP by 2024. Public debt is expected to decline faster in commodity exporters thanks to positive shocks to the terms of exchange.
“The Fiscal Monitor approaches the risks of sovereign debt. At this point, international bond markets are doing well, but some non-systemic emerging markets are already facing high yield spreads. Nearly 60 percent of low-income developing countries are over-indebted or at high risk of over-indebtedness,” added Gaspar.
In countries where economic growth is less exposed to conflict and central banks are raising rates to combat high inflation. Fiscal policy needs to move away from the exceptional support provided during the pandemic towards normalization. In many emerging markets and low-income developing countries, trade-offs are tougher.
“In the fiscal monitor, we focus on two policy recommendations. At the national level, prioritize spending. Preventing hunger is imperative. On a global level, there are urgent problems that require immediate attention.
Policymakers from around the world need to come together and agree on how to address pressing issues like pandemics, climate change, food insecurity, energy insecurity, debt and development,” said Gaspar.