Fiscal policy needs to adapt to changing conditions: IMF

Fiscal deficits to slip by nearly 3 percentage points in 2022, return to pre-pandemic levels by 2026, IMF says

Tuba Sahin   | 13.10.2021
Fiscal policy needs to adapt to changing conditions: IMF


In order to address the impacts of the still-evolving pandemic, fiscal policy needs to adapt to changing conditions amid uncertainties over new variants of COVID-19, according to the International Monetary Fund (IMF) on Wednesday.

"Fiscal policy remains supportive, with 2021 deficits falling by about 2 percentage points of GDP in 2021, on average," the IMF said in its October 2021 Fiscal Monitor Report.

Pointing to the large fiscal packages announced in the EU and the US that would add $4.6 trillion to global GDP in 2021-2026, the IMF said the growth is held back in emerging markets (EMs) and low-income developing countries by the low availability of vaccines, and spending more on virus-related priorities.

The report highlighted that low-income developing countries could not provide fiscal support and service their debt mainly due to higher interest rates and lower government revenues.

It projected that deficits will slip by nearly 3 percentage points next year and will return to their pre-pandemic levels by 2026.

"In EMs and low-income developing countries, where the fiscal stance is less supportive than in advanced economies, output and tax revenues are not projected to regain their pre-crisis trajectory and the reduction in deficits will occur largely through lower spending," the IMF said.

Recalling that the global debt rose by $27 trillion year-on-year to reach $226 trillion in 2020, according to preliminary estimates, it said the debt is expected to remain at record-high levels, nearly 100% of GDP in 2021, and to decrease slightly through 2026.

Many low-income developing countries will likely need further international aid and in some cases debt restructuring, it underlined.

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