On 23 October 2024 the IMF held a press briefing on the launch of the latest issue of the Fiscal Monitor. On the panel for the press briefing were Vítor Gaspar, Director of the IMF Fiscal Affairs Department; Era Dabla-Norris, Deputy Director of the IMF Fiscal Affairs Department; and Davide Furceri, also of the IMF Fiscal Affairs Department. The moderator was Tatiana Mossot, IMF Senior Communications Officer
The participants noted that global public debt is very high. It is expected to exceed USD 100 trillion (93% of global GDP) in 2024 and to keep rising through the end of the decade (approaching 100% of GDP by 2030). Although debt is projected to stabilize or decline in about two-thirds of countries, it will remain well above the levels projected before the pandemic. Countries where debt is not projected to stabilize account for more than half of global debt and about two-thirds of global GDP.
The political discourse on fiscal issues has tended to favour higher government spending in recent decades. Fiscal policy uncertainty has increased, and there are growing spending pressures in relation to the green transition, population aging, security concerns and development challenges. Projections tend to systematically underestimate debt levels, by around six percentage points of GDP when predicting debt to-GDP ratios three years ahead. Risks to the debt outlook are tilted towards the upside and much larger fiscal adjustments are required than are currently planned.
Rebuilding fiscal buffers in a growth-friendly manner and containing debt is essential. Currently, with inflation moderating and central banks expected to ease monetary policy, many economies are better placed to cope with the economic effects of fiscal tightening. In countries where debt is projected to increase further, delaying the required action will make the necessary adjustment even larger.
Countries need to identify the size of the required fiscal adjustment. On average a cumulative fiscal adjustment of 3.0% to 4.5% of GDP is needed to stabilize or reduce debt. For countries where the debt outlook is less harsh, the priority should be to optimize fiscal space while maintaining debt sustainability.
By carefully designing the fiscal adjustment, countries can improve outcomes. The key elements of the fiscal adjustment vary across countries. Advanced economies should reprioritize expenditures, increase revenues through indirect taxes and remove inefficient tax incentives. Emerging market and developing economies have greater potential to increase tax revenues by upgrading tax systems; broadening tax bases; reducing informality; and enhancing revenue administration capacity.
Measures required would vary according to an economy’s tax structure. Countries with low tax-to-GDP ratios should assess existing tax rates and thresholds, in particular those relating to value-added taxes and personal income taxes. Increasing value-added tax rates, and rationalizing tax expenditures or tax exemptions can help to mobilize revenues to finance development needs and poverty alleviation.
Gradual fiscal adjustment can contain debt vulnerabilities and maintain the strength of private demand. However, economies with high risk of debt distress and countries that have lost market access need a well-designed front-loaded adjustment.
Governments need deliberate fiscal plans, supported by credible medium-term fiscal frameworks and modern public financial management systems. Fiscal governance must be strengthened. Strengthening expenditure controls and more active cash management can limit the tendency to overspend. Governments should provide the public with more timely information on debt, the composition of creditors and instruments, and exposure to risks. For countries facing debt distress or unsustainable debt, timely restructuring is needed, with fiscal adjustments to ensure debt sustainability.
