IMF calls for "fiscal restraint" in biggest-ever election year

WASHINGTON, April 17 (Xinhua) -- The International Monetary Fund (IMF) on Wednesday called on governments to avoid slippages in the biggest-ever election year and focus more on rebuilding buffers and safeguarding fiscal sustainability over the medium term.

Despite that inflation has fallen and financial conditions have eased, many countries continue to struggle with high public debt and fiscal deficits amid new challenges from high real interest rates and dimming medium-term growth prospects, according to the IMF's newly released Fiscal Monitor.

Global public debt edged up to 93 percent of GDP in 2023 and remained 9 percentage points above the pre-pandemic level, the report showed.

"For low-income developing countries, scarring from the pandemic has been most significant," Vitor Gaspar, director of the IMF's fiscal affairs department, said at a press briefing during the ongoing 2024 Spring Meetings of the IMF and the World Bank.

"When we look at the extreme case of low-income developing countries, what we do see is that these countries were not able to extend fiscal support in response to the pandemic crisis and the cost of living crisis to the extent that was possible in advanced economies," Gaspar said in response to a question from Xinhua.

He noted that when thinking about public finance management, it's very important to take into account that interest rates are volatile, and "the cost of funding, the availability of funding may fluctuate in ways that can be sudden and unexpected" in some cases.

The Fiscal Monitor noted that a record number of countries, home to more than half of the world's population, are holding national elections in 2024.

"History shows governments tend to spend more and tax less during election years... In this great election year, governments should exercise fiscal restraint to preserve sound public finances," according to an IMF blog, co-authored by Era Dabla-Norris, deputy director of the IMF's fiscal affairs department, Gaspar and their colleagues.

"Without further efforts, the return of fiscal policy to its pre-pandemic normal may take years," the blog said, calling for "decisive efforts" from policymakers.

Governments should immediately phase out legacies of crisis-era fiscal policy, including energy subsidies, and pursue reforms to curb rising spending while protecting the most vulnerable, the IMF argued.

Advanced economies with aging populations should contain spending pressures for health and pensions through entitlement reforms and other measures, it continued.

On the revenue side, in advanced economies, targeting excessive profits as part of the corporate income tax system could further bolster revenues, the IMF said.

Emerging market and developing economies could raise their tax revenue potential by broadening tax bases, improving the design of their tax systems, and strengthening revenue administration, it said.