Source: International Monetary Fund
October 23, 2024
SPEAKERS:
Vitor Gaspar, Director, Fiscal Affairs Department
Era Dabla‑Norris, Deputy Director, Fiscal Affairs Department
Davide Furceri, Division Chief, Fiscal Affairs Department
Tatiana Mossot, Moderator, Senior Communications Officer
The Moderator (Ms. Mossot): Good morning, good afternoon, and good evening to our viewers around the world. I am Tatiana Mossot, the IMF Communications Department, and I will be your host for today’s press briefing on the Annual Meetings 2024 Fiscal Monitor, “Putting a Lead on Public Debt.” I am pleased to introduce this morning the Director of the Fiscal Affairs Department, Vitor Gaspar. He is joined by Era Dabla‑Norris, Deputy Director of the Fiscal Affairs Department, and Davide Furceri, who is the Division Chief of the Fiscal Affairs Department. Good morning, Vitor, Era, Davide.
Before taking your questions, let me kick‑start our briefing by turning to you, Vitor, for your opening remarks. Vitor, the floor is yours.
Mr. Gaspar: Thank you so much, Tatiana. Good morning, everybody. Thank you all for your interest in the Fiscal Monitor, covering fiscal policies all around the world. Deficits are high and global public debt is very high, rising, and risky. Global public debt is projected to go above $100 trillion this year. At the current pace, the global debt‑to‑GDP ratio will approach 100 percent by the end of the decade, rising above the pandemic peak. But the message of high and rising debt masks considerable diversity across countries. I will distinguish three groups.
Public debt is higher and projected to grow faster than pre‑pandemic in about one third of the countries. This includes not only the largest economies, China and the United States, but also other large countries such as Brazil, France, Italy, South Africa, and the United Kingdom, representing in total about 70 percent of global GDP.
In another one third of the countries, public debt is higher but projected to grow slower or decline compared with pre‑pandemic.
In the rest of the world, debt is lower than pre‑pandemic. The Fiscal Monitor makes the case that public debt risks are elevated, and prospects are worse than they look. The Fiscal Monitor presents a novel framework, debt at risk, that illustrates risks around the most likely debt projection at various time horizons. Here we concentrate on the next 3 years.
Our analysis shows that risks to public debt projections are tilted to the upside. In a severe adverse scenario, public debt would be 20 percentage points of GDP above the baseline projection. In most countries, fiscal plans that governments have put in place are insufficient to deliver stable or declining public debt ratios with a high degree of confidence. Additional efforts are necessary. Delaying adjustment is costly and risky. Kicking the can down the road will not do. The time to act is now. The likelihood of a soft landing has increased. Monetary policy has already started to ease in major economies. Unemployment is low in many countries. And, therefore, given these circumstances, most economies are well‑positioned to deal with fiscal adjustment.
But it does matter how it is done. While the specific circumstances depend on—while specifics depend on country circumstances, the Fiscal Monitor and earlier IMF work provide useful pointers. For example, countries should avoid cuts in public investment. This can have severe effects on growth. Good governance and transparency improve the prospects of public understanding and social acceptance of fiscal reforms.
Countries that are sufficiently away from debt distress should adjust in a sustained and gradual way to contain debt vulnerabilities without unnecessary adverse effect on growth and employment. However, in countries in debt distress or at high risk of debt distress, timely and frontloaded decisive action to control public debt or even debt restructuring may be necessary. Everywhere, fiscal policy, as structural policy, can make a substantial contribution to growth and jobs.
What is the bottom line? Public debt is very high, rising, and risky. The time is now to pivot towards a gradual, sustained, and people‑focused fiscal adjustment.
My colleagues and I are ready to answer your questions. Thank you for your attention and interest.
The Moderator (Ms. Mossot): Thank you, Vitor. So, we will open the floor for questions. Thank you.
Question: Good morning, given your findings on the increasing trend of spending across the political spectrum, how do governments then plan to balance the urgent need, as you stated, for investment in critical areas like healthcare and climate adaptation with the risks of what you also stated, overly optimistic debt projections?
Ms. Dabla‑Norris: Thank you, global debt is very high, 100 trillion this year and rising. And debt risks, all the ones you mentioned, are also very elevated. So, policymakers are now facing a fundamental policy trilemma, to maintain debt sustainability, amid very high levels of debt in some countries, to accommodate the spending pressures for climate adaptation, for development goals, for population aging, and at the same time to garner support that is needed for reforms. This is why we are calling for a strategic pivot in public finances for countries to put their public finances in order. And why is this important? Because this can help create room that is needed for the priority spending. It can create fiscal space to combat future shocks that will surely come. And it can also help sustain long‑term growth.
What this means is that for some countries, a very decisive implementation of reforms is needed now, under current plans. For many others, an additional adjustment is required that needs to be gradual but sustained. And yet for others with very high debt levels that are rising, a more frontloaded adjustment will be needed.
These efforts, these fiscal efforts need to be people‑focused, because you want to balance the trade‑off between these measures adversely impacting growth and inequality. So, here it is important to seek to preserve public spending. It is important to seek to preserve social spending. And improving the quality, the composition, the efficiency of government spending can ensure that every dollar that is spent has maximum impact. It creates room for other types of spending without adding to debt pressures.
Mobilizing revenues, setting up broad‑based and fair tax systems can allow countries to collect revenues to meet their spending needs. And this is particularly important in the case of emerging market and developing economies, which have considerable untapped tax potential.
But I think it is also important to note that policymakers need to build the trust that taxpayer’s resources that are being collected will be well‑spent. This is why we are emphasizing strengthening governance, improving fiscal frameworks to build that trust that is needed for reforms.
Ms. Mossot: We will go to this side of the room. The gentleman in the fourth row.
Question: Thank you for doing this. I was wondering if you could please drive us a bit further to the debt‑at‑risk framework. Thank you.
Mr. Furceri: Thank you. The debt risk is a framework that links current macroeconomic, financial, and political conditions to the entire spectrum of the future debt outcomes. So, in some sense it goes beyond the point focus that we typically provide, and it enables economic policymakers to first quantify what are the risks surrounding the debt projections and, second, what are the sources of this risk.
The current framework estimates that in a severely adverse scenario but plausible, debt to GDP could be 20 percentage points higher in the next 3 years than currently projected. Why is this the case? This is because there are risks related to weaker growth, tighter financial conditions, as well as economic and political uncertainty.
Another point that the Fiscal Monitor makes is that beyond this global level, the debt to risk associated to the global level, there is significant heterogeneities across countries. For example, in the case of advanced economies, our estimates of data risk are about 135 percent to GDP by 2026. This is a high level. It is lower than what we observed during the peak of the pandemic, but it is high, and it indeed is even higher than what we observed during the Global Financial Crisis.
In the case of emerging market economies, what we see is that debt risk is increasing even compared to the pandemic and our estimate is about 88 percentage points of GDP.
Summarizing, we think that this is a framework that could be useful to quantify a risk, identify the sources, and then make a response to this risk.
Ms. Mossot: We will take another question in the room before going online.
Question: Thank very much. I would like to know, Vitor, how can fiscal governance be strengthened to ensure long‑term fiscal adjustments, and while at it, what are the risks if fiscal adjustments are delayed, and how would that affect global financial markets? My second question, what lessons can be learned from countries that have successfully managed high debt levels in the past and how can transparency and accountability in public finance be improved to build trust and ensure effective debt management?
Mr. Gaspar: Thank you so much. I will start with the timing. So I have already emphasized that delaying adjustment is costly and risky. You come from Ghana. If you allow me to place your question in the context of the sub‑Saharan Africa more broadly. I would argue that building fiscal space is not only crucial to limit public debt risks, but in many countries in sub‑Saharan Africa, it is key to enable this state to play its full role in development, which is, of course, a very important priority in the region.
You asked about lessons from experience. I would say that fiscal adjustment should be timely. It should be decisive. It should be well‑designed. And it should be effectively communicated. And you have pointers on all of this in the Fiscal Monitor.
You asked a very important question on governance. I would put it together with transparency and accountability. Era has already commented on why it is so important from a political viewpoint, but we have been working in this area for many years. For example, the IMF has a code on fiscal transparency that is extremely interesting. Something that also came up in a seminar that I participated in yesterday is the opportunities afforded by technology to make progress on governance. One of the speakers from India introduced this idea of three Ts that I found very inspiring. The three Ts are technology that is used to promote transparency. And if you have technology and transparency, you should expect to gain trust. And if you have trust, you have the citizens behind the government and, therefore, even willing to pay taxes, not necessarily happily, but in a quasi-voluntary way.
Ms. Mossot: Thank you, Vitor. We have a question from Forbes, Mexico.” I have a question in countries like Mexico where fiscal consolidation is necessary. What are the biggest risks of this consolidation and how could it boost economic growth?” This is a question for Era.
Ms. Dabla‑Norris: So, as we have said more generally, the design of fiscal adjustment is what really matters. And there is a right way to do it, and there are many wrong ways to do it.
In the Fiscal Monitor, we illustrate how countries can undertake fiscal adjustment in a way that is what we call people focused. By that I mean, we want to trade off the negative impacts of the adjustment on growth and on inequality. And we do this by looking at different types of fiscal instruments. And different instruments have very different impacts. So, for example, progressive taxes have a very different impact on consumption and incentives to work and save as compared to other types of taxation.
Similarly, cutting public investment has both negative short‑run effects on growth and wages, as well as more medium‑term impacts on growth. Cutting regressive energy subsidies similarly have much less of a deleterious impact on income and the consumption of the poor.
So depending upon the country context, depending upon whether there is scope to raise revenues in non‑distortionary ways, depending upon the nature and the composition of public spending, there are ways for countries to do fiscal adjustment in a manner that is growth‑friendly and people‑friendly.
Ms. Mossot: So, the last one we have from online is for you, Davide. “The report suggests that low‑income development countries should build tax capacity and improve spending efficiency. Given the high levels of debt and limited resources in these countries, how realistic are these recommendations without substantial international financial support?”
Mr. Furceri: Indeed, many developing countries face significant pressing spending needs. For sustained development goals, to achieve climate goals, our estimate in the previous Fiscal Monitor suggests that the envelope of these spending needs could be as much as high as 16 percent of GDP.
So, in this context, one important policy action is to increase revenue through revenue mobilization. Now, it is important that this revenue mobilization strategy is guided by the principle that make the tax system more efficient, more equitable, and more progressive. So policies could be, for example, to reduce informalities, broaden the tax base, increase efficiency in revenue collections, as well as progressivity.
In the report, we also make the point that improving fiscal institutions, as also Era mentioned, is key to garner public support and to make sure that the debt system is indeed efficient.
There is also policy on the spending side, improving the quality, the composition, and the efficiency spending to make sure that each dollar spent is well spent, is spent on the key priority areas, and maximizing it.
Now, there are countries that will need help. The IMF as in the past years and as always has provided significant advice to countries from policy support, policy advice but also financing support. Just to give a number, over the past 4 years, about $60 billion of funding has been provided to African economies to help their challenge. And important, the IMF is also providing a variety of capacity development to support, including exactly in this area, for example, increase Public Finance Management, improve taxation, revenue mobilization, as well as a new area that are developing that are becoming more and more important, such as climate change.
The Moderator (Ms. Mossot): Thank you. The gentleman with his book in the hand.
Question: Thank you. You mentioned in the report that developed economies, including the United Kingdom, face risks if they do not bring debt down. We have a budget next week. Perhaps you could tell us what are those risks if the U.K. does not address its debt position quickly?
Mr. Gaspar: So, when we think about the United Kingdom, the United Kingdom is one of the countries that I listed where debt is substantially higher than it was projected pre‑pandemic. It is also one of the countries where debt is projected to increase over time, albeit at a declining pace.
If I were to give you my concern about the U.K., I would use what Kristalina Georgieva, the Managing Director of the Fund, emphasizes a theme through these Annual Meetings, the combination of high debt and low growth. For the case of the United Kingdom, I would put it as follows. The United Kingdom is living with interest rates that are close to U.S. interest rates, but it is also living with growth rates that are not close to U.S. growth rates. And that leads to a theme that has been amply debated in the United Kingdom, which is the importance of public investment.
In the United Kingdom, as in many other advanced economies, public investment as a percentage of GDP has been trending down. And given challenges associated with the energy transition, new technologies, technological innovation, and much else, public investment is badly needed. The Fiscal Monitor emphasizes that public investment should be protected in the framework of a set of rules and budgetary procedures that foster sound macroeconomic performance. The fact that that debate is very much at the center of the debate in the United Kingdom right now is very much welcome.
Ms. Mossot: We will take another question on this side. The lady in green.
Question: Thank you. After 3 years of consolidation, fiscal deficits are widening in the western Balkans. The public expenditures are increasing but more on social debt—more on social spendings than on capital spendings. How do you evaluate the economic situation in this region?
Ms. Dabla‑Norris: So, in western Balkans as a whole, growth has picked up since 2023, although there are differences across countries. For example, in North Macedonia, growth is projected to be 2.2 percent in 2024, down from 2.7 percent in 2023. But for the region, the growth momentum is expected to continue in 2025.
Now, when it comes to inflation, we see that headline inflation continues to ease throughout the region, but core inflation remains stubbornly high in some countries.
In terms of fiscal and debt, the differential—the interest and growth differential for the region is projected to remain negative over the medium term. And this is a good thing because it is favorable to debt dynamics, but this gap is closing. It is narrowing over time.
So, what is important at this juncture for these countries is to sustainably lift their growth prospects. And the IMF has spoken at length about the importance of structural and fiscal structural reforms that are needed to improve the composition of spending, to lift public investment sustainably and to undertake the labor and product market reforms that are required to sustainably boost productivity.
Ms. Mossot: Thank you. Back to the center of the room.
Question: Thanks for taking my question. I wanted to ask about France. Do you believe that the French government’s plans to return to a budget deficit of less than 3 percent by 2029 is realistic, given the size of the deficit you project for France this year?
Mr. Gaspar: So, when it comes to France, we have a country that is also in the group of countries where debt is considerably higher than pre‑pandemic. At this point in time, in our projections, the debt‑to‑GDP ratio in France is projected to increase by about 2 percentage points every year. So, given this path, we recommend in the case of France not only fiscal adjustment but fiscal adjustment that is appropriately frontloaded to enable France to credibly put public debt under control and inside the European framework.
That is completely in line with our general recommendation because the European framework allows for a country‑specific path. It allows for risks to be considered. It allows for the impact of the investment and structural reform to be internalized through an adjustment period that varies, according to cases, from 5 to 7 years.
We do believe that the government in France has presented ideas, proposals that move in the right direction, but we are waiting for more clarity coming from actual enacted measures in France.
Ms. Mossot: Another one here, the lady in blue there.
Question: Thank you. May I have an insight about public debt in Tunisia and reasons beyond not mentioning it in your report? Thank you.
Mr. Furceri: For the specific numbers for Tunisia, I would defer to the regional press briefs that is coming in the coming days. What I would like to point out, that one of the challenges that we see in many countries in North Africa, it also relates with the untargeted subsidies. And one point that we make in the report is that, also as Era mentioned, that when you think about how to recalibrate spending, it is important to preserve public investment. It is important to present targeted transfers for those that are most vulnerable, and to recalibrate the spending, for example, from away from high wage compensation when this is not the case, and untargeted subsidies.
Ms. Mossot: Thank you. This side, second row, the gentleman.
Question: I just had a question about the U.S. election. As you know, both candidates are offering many tax breaks, no taxes on tips, no tax on social security on the Trump side. These would add to the deficit of the U.S. on the Trump side as much as $7 and a half trillion over 10 years. Some estimates more than 10 trillion. Kamala Harris’ plans would call for less debt because she would raise taxes in some cases. But I am just wondering, the worse‑case scenario, how concerned are you about the amount of debt that the U.S. could be adding here? It seems to be the opposite of what the IMF has been recommending for a long time. Do you have concerns about financial markets taking matters into their own hands and imposing some discipline?
Mr. Gaspar: Thanks, I am clearly not commenting on specific elections or political platforms, but I point to you that the Fiscal Monitor in the spring was dedicated to the great election year, and there we do make a number of comments about the relevance of politics for fiscal policy. And Era, has very interesting research where she documents that political platforms on the left and on the right all around the world have turned in favor of fiscal support and fiscal expansion. And that makes the job of the Ministers of Finance around the world and the Secretary of Treasury here in the United States a particularly demanding job, but Era may want to comment on that.
When it comes to the United States, the United States is one of the largest economies where it is a fact that debt is considerably above what it was pre‑pandemic. It is growing at about 2 percentage points of GDP every year. And so from that viewpoint, this path of debt cannot continue forever. We do believe that the situation in the United States is sustainable because the policymakers in the United States have access to many combinations of policy instruments that enable them to put the path of public debt under control. And they will do that at a time and with the composition of their choosing. The decision lies with the U.S. political system.
Now, it is very important to understand that the United States is now in a very favorable economic and financial situation. Financing conditions are easing in the United States. The Fed has already started its policy pivot. The growth in the United States has been outperforming that of other advanced economies. The labor market in the United States shows indicators that are the envy of many other countries. And so the prescription that the time to adjust is now applies to the United States. It turns out that the Fiscal Monitor also documents that the United States is very important for the determination of global financial conditions and, therefore, adjustment in the United States is not only good for the United States, it is good also for the rest of the world.
Ms. Mossot: Back to the center of the room. The lady with the red shirt, please.
Question: My question is, whether you can comment on China’s recent stimulus package and as you mentioned in the opening, it seems that the largest economies, including China and the United States, is projected to keep raising its public debt, so I wonder how you are going to comment on the fiscal implication of the stimulus package, and do you have any other specific fiscal policy for China? Thank you.
Mr. Gaspar: Thank you for your question. China is very important. China is one of the largest economies that I listed. The other is the United States. For China and for the United States, we say the same. Debt is growing. Debt is growing rapidly. That process cannot continue forever, but China, as the United States, has ample policy space. And so it has the means to put public debt in China under control with the policy composition and the timing that will be the choice of the Chinese political system.
If I were to say what is most important for me for China, I would say four things. The first one is that fiscal policy, as structural policy, should contribute to the rebalancing of the Chinese economy in the sense of changing the composition of demand from exports to domestic demand. It is very important that the very high savings ratio in China diminishes so that Chinese households will be able to consume more and feel safe doing that. Making the social safety net in China wider would be a structural way of doing exactly that.
The second aspect is to act decisively to end financial misallocations associated with the property sector crisis, the real estate crisis. That is very important to stabilize the situation in China but also to build confidence, which would help with the first dimension that I pointed out as well.
Now, third, very much in the province of public finances, this is very important to address public finance imbalances and vulnerabilities at the sub‑national level. And now, there are sub‑national governments in China that are struggling with financial conditions—financial constraints, and it is very important to remove those constraints, and, again, is linked to my second point.
Fourth and last, it is very important that fiscal policy, as structural policy, promotes the transition to a new growth model in China, a model based on technological innovation, a model that supports the structural transformation towards a green economy. And my understanding is that this fourth element has been emphasized by the political authorities in China at the highest level.
Ms. Mossot: Thank you. Back to this side of the room.
Question: As already mentioned, a novel assessment framework debt that is at risk varies from country to country. Please, could you provide me details, which risks are more important and more dangerous for Ukrainian debt? And one more related question. It is that you give advice for emerging markets to increase indirect taxes for revenue mobilization. And in the case of Ukraine, when we recently already increased our taxes, for example, war tax and tax for banks’ profits, which recommendations you can give us in our situation and the worse circumstances, and maybe there are other instruments despite tax increasing.
Ms. Dabla‑Norris: Thank you. The debt‑at‑risk framework that has been presented in the Fiscal Monitor includes 70 countries, but we do not identify or quantify the debt at risk for all individual countries. Now, that said, the framework, as Davide mentions, shows that factors such as weak growth, tighter financial conditions, geopolitical uncertainty, or policy uncertainty can all add to future debt risks. This applies to Ukraine as it does to many other countries. And in the case of Ukraine particularly, the outlook, as you know, remains exceptionally uncertain.
So, in terms of priorities, we believe that the authorities need to continue to restore debt sustainability. And in this regard, there is two important aspects. The first is to complete the restructuring of external commercial debt in line with program commitments. And the second is to really redouble efforts on domestic revenue mobilization and to accelerate the implementation of their national revenue strategy. Now, what is important here is the strategy is not only about aiming to raise revenues, mobilize revenues, but to fundamentally change the tax system. The strategy aims to reduce tax evasion, tax avoidance, to improve tax compliance, and more broadly enhance the fairness and equity of the tax system. And the IMF has long advocated for countries that it is not about raising rates. It is about broadening the base and making tax systems as fair and equitable as possible.
Ms. Mossot: Back to this side. The gentleman on the second row.
Question: I just want to ask a couple of questions, blended into one. In July, the IMF released calculations showing that the U.K. budget balance, excluding interest payments, would need to improve by between .8 and 1.4 percentage points of GDP per year to get debt under control, an adjustment of 22 to 39 billion pounds. Since then, we know that the Treasury has carried out an audit and discovered over‑spends it was not aware of, and the government has made decisions on things like public sector pay. So my question to you is, how has that changed the calculations you made in July? You talked about the importance of people‑focused adjustments. Would an increase in employer national insurance contributions be people‑friendly and growth‑friendly in your view?
Mr. Gaspar: Thank you so much. So, your questions are very detailed and very specific, and so I am not in a position to comment on them at this point in time. Concerning the U.K., we believe it is very important to bring public debt under control. It is very important to control for public debt risks. In the Fiscal Monitor, we actually make the point that the risks that one should take into account when conducting a prudent fiscal policy go beyond the reference to the baseline that you made. So we believe that it is possible to make a stronger case for fiscal prudence than what was implicit in your question.
Still, it is important how the adjustment is made, and Era has emphasized very much the importance of being people‑friendly. And we, all of us, have emphasized the important contribution of public investment. And there you do have specific estimates for the U.K., impacts of public investment on economic activity and growth from the Office of Budget’s responsibility. I do not know if you want to add something.
Ms. Dabla‑Norris: No. Just to say that there are important tradeoffs, not just for the U.K., but for many countries, and there may be certain short‑term measures that see or appear to be less people‑friendly but that they improve the sustainability of the system for future generations. So there is an intertemporal aspect of this, referring to fiscal policy, that we often forget. So, pension systems, health systems, the sustainability, the fiscal sustainability of the system also matters for people because it is going to impact different generations in a different way.
Ms. Mossot: The very last question.
Question: Thank you. I would like to ask, what are the prescriptions on how developing countries can put their public debt in order, especially sub‑Saharan Africa? And, for example, Nigeria now and many other countries in Africa, their public debt has ballooned because of exchange rates devaluation. So what are your prescriptions? You also mentioned the tax systems should be friendly. In Africa, we are not seeing tax systems as being friendly now because a lot of people, they say, okay, why did not the tax base broaden? How much can you broaden since you have a lot of poor people? So, what kinds of tradeoffs do you do when incomes and people are also squeezed?
The last one is from the report. $100 trillion of global debt. How much of that is from developing economies? Thank you.
Mr. Furceri: Thank you very much. The challenges that Nigeria faces, as well as many other countries in the region, there are two. One is very low revenue‑to‑GDP ratio. For example, I believe that in the case of Nigeria it is about 10 percentage points. The second, one trend that we have seen, that we are a bit concerned, is that the ratio—the debt service obligation to revenue has been increasing. So for the average low‑income country, it is about 15 percent. What does it mean? It means that basically a large part of revenue in these countries goes to just finance the debt. And this is something that we would recommend to improve, or we can improve as we mentioned revenue mobilization. We think that it is important. It is important to broaden the tax base. But at the same time, and especially in countries like Nigeria that have been severely affected by the drought, we have seen also higher food price, it is important to put in place ex ante system and mechanisms that are transfer resources from the government to those that are most affected and those that are poor.
Ms. Mossot: Thank you very much. We have to close this session. Thank you again Era, Davide, and Vitor. You can find the full report of the Fiscal Monitor on the IMF website and also a reminder that there is tomorrow at 8:00 a.m. the Managing Director’s press conference. Thank you, all.
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