(Teleborsa) – Even as the economic and financial outlook for the global economy is stabilizing, efforts to normalize fiscal policy continue to struggle with the legacy of high debts and deficits as they face new challenges. After a rapid reduction in fiscal deficits and public debt levels in 2021-2022, the Fiscal aggregates reversed course in 2023, halting progress towards normalization. This is what emerges from the Fiscal Monitor of the International Monetary Fund (IMF).
According to the IMF, they are sustained fiscal consolidation efforts are needed to safeguard the sustainability of public finances and replenish fiscal reserves in a context of slowing medium-term growth prospects and high real interest rates. There Fiscal tightening would also support the “last mile” of disinflationespecially in overheated economies.
The Fiscal Monitor notes that four years after the outbreak of the COVID-19 pandemic, deficits and fiscal debts are higher than prepandemic projections. Higher interest rates pushed up interest expenditure, while spending on social benefits, subsidies and transfers was supported by the extension of support measures put in place in response to the pandemic and energy price shocks. Many economies have introduced new fiscal initiatives to cut taxes and social security contributions and increase spending through higher wages, social benefits and industrial policy measures. These initiatives were only partially offset by revenue increases from past inflation, as inflation surprises faded and tax brackets aligned with wage growth.
In 2024, i overall primary deficits they should reduce to 4.9% of GDP. However, substantial risks to public finances remain and restoring fiscal policy normalization will require significant efforts to counter several obstacles. The risks of fiscal slippages are particularly acute given that 2024 is what it’s called the “big election year”: 88 economies or economic areas representing more than half of the world’s population and GDP have already held or will hold elections during the year.
“In recent decades the Support for increasing government spending has grown across the political spectrummaking this year particularly challenging, as empirical evidence shows that fiscal policy tends to be more flexible and slippages greater during election years,” the report reads.
The IMF expects medium-term fiscal consolidation to remain modest, with the overall deficit expected to stabilize at 4.3% of GDP by 2029, around 0.7 percentage points higher than in 2019. In many economies, the expected adjustment will help stabilize debt in the medium term. Nonetheless, it is expected that the Global debt will increase to nearly 100% of GDP by 2029. The increase will be led by some large economies (e.g. China, Italy, the United Kingdom and the United States), which “must seriously consider policy action to address fundamental imbalances between spending and revenue.”
From the Fiscal Monitor it emerges that the probability that theItaly reaches the primary deficit necessary to stabilize the debt level (estimated at more than 0.5% of GDP for 2024) is less than 50%, indicating the “need for further fiscal efforts in the next two years“. Furthermore, it is recalled that some governments have also extended some support measures related to the pandemic, such as the Superbonus program in Italy. Italy, together with Japan, is also the country mentioned when referring to the fact that some countries have announced new fiscal stimulus plansincluding costly changes to fiscal policy, cuts to social security contributions, and new spending initiatives, often based on optimistic financing assumptions.
As for Italy, the GDP deficit ratio is seen at -4.6% in 2024, -3.2% in 2025 and -3% in 2026, before falling to 2.9% the following year and returning to 3% in 2028 and 2029. After the 139.2% of GDP in 2024, the debt it will rise to 140.4% in 2025, 142.6% in 2026 and 143.1% in 2027. Also in 2028 and 2029 it will stand above 140%, at 144.7 and 144.9% respectively.
Tags: IMF Italy among countries pushing global debt fiscal efforts Economy Finance
