The agency warns of the global risk due to high indebtedness in a context of high inflation
The Fund advises concentrating on the vulnerable the aid for the rises in energy and food prices
Fiscal and monetary policies helped stem the economic impact of the pandemic, but that success came at a price: deficits soared and debt grew at a rate not seen since World War II. Now, when the war in Ukraine and the sanctions against Russia are fueling a crisis that is coming in the wake of the one that had not yet been completely overcome by the pandemic, with rising inflation and skyrocketing uncertainty, imbalances in public accounts take center stage. Y Spain is one of the countries where they are accentuated, according to the latest forecasts of the International Monetary Fund.
The report Tax Monitor, presented this Wednesday in Washington, calculates that the Spanish public debt, which shot up from 95.5% of GDP in 2019 to 120% in 2020, it will be entrenched in the environment of 115% in the next years. Specifically, according to the agency’s calculations, it is expected that this year it will stand at 116.4% of GDP and will experience slight reductions each year until 2027, ending then at 114.6%.
These data place Spain on a trajectory similar to France but far from the forecasts of the euro zone, where public debt is calculated this year at 95.2% of GDP and below 90% in 2027. It is, yes, andn line with the global outlook for advanced economies, which is also estimated to continue in five years with a debt of 112.7%, nine percentage points above pre-pandemic levels.
Also in a matter of deficit there is a stagnation in the medium term in the forecasts for Spain. By 2022, it is estimated that a reduction up to 5.3% compared to 7% in 2021 and 11% in the year of the Covid outbreak. Another is also planned decrease of one more point for 2023. But from then on the Spanish deficit stagnates until 2027 at 3.9%one point above what was recorded before the pandemic.
These are data that come a day after another IMF report placed Spain as the advanced economy with the strongest GDP growth, although the figure of 4.8% estimated for 2022 represented a reduction of one point compared to previous calculations , part of a global downgrade in economic prospects. And it is that the heightened risks and uncertainty that are causing the war and sanctions, added to rising and volatile inflation, shake the economy.
At the presentation of the Fiscal Monitor report at a press conference in Washington, Victor Gaspar, Director of the Fiscal Area of the IMF, has underlined that “the risks that raise the high levels of debtfor all groups of countries (whether advanced or emerging or developing economies), they are now very prominent”.
The report warns, for example, that “the scenario in which fiscal policy operates has changed abruptly” and points out that “according toraise interest rates to try to control inflation, fiscal space is being limited”. It also highlights that “in a regime of inflation permanently high and volatile, undermines the appeal of sovereign bonds, making it more difficult to sustain high levels of debt & rdquor ;. And he warns that “the deficit and debt reduction can be tested hardespecially if economic growth is lower than expected & rdquor ;.
Protect the vulnerable
The IMF returns to affect the gaps that are accentuated between economies advanced and emerging and developing, which means that they now face different challenges. And Gaspar and other technicians from the organization, as well as the report, focus on the urgent need to help and protect especially the low-income households and countries, the most vulnerable due to the crisis of rising food and energy prices, both with national policies as with one intensified global cooperation.
In this context, in any case, the IMF has issued a warning message to the potential “unintended consequences and large fiscal costs” that they may have some measures to try to curb the rise in prices, such as tax cuts or subsidies.
Faced with this, governments are urged to focus on the most urgent needs. And Gaspar has defended that, as a general proposal, favoring “direct, temporary and specific transfers”.
In terms of fiscal policyin the specific case of countries where growth is stronger and inflationary pressures remain high, it is proposed that this policy “must moving from exceptional support in response to the pandemic to normalization”. And the report assures that “increasing spending pressures require shares provided to mobilize domestic income” and urges to “establish fiscal strategies that ensure sustainability in the medium termanchored in credible fiscal frameworks and accompanied by robust contingency plans”.
Gaspar has also highlighted that “the political response needs to consider not only fiscal constraints but also the climate crisis”. And the Fiscal Monitor dedicates its second chapter to both global cooperation in terms of taxes, a field in which it insists on promoting the minimum rate of 15% for corporationsas well as the commitment to set a global minimum price for carbon emissions.