IMF Flags Fiscal Challenges as Global Economies Gear Up for ‘Great Election Year’
Washington, D.C. – April 17, 2024
In a sobering assessment, the International Monetary Fund (IMF) has issued a warning in its latest Fiscal Monitor report that the world’s economies are navigating a precarious fiscal landscape amidst the slowdown and a wave of global elections in 2024, dubbed the “Great Election Year.”
The report, released this April, projects a modest reduction in primary deficits to 4.9 percent of GDP for the year but cautions against complacency, pointing out significant hurdles including high levels of debt and increased government spending. These fiscal challenges come at a time when global economies are still grappling with the aftermath of the pandemic, alongside complications from rising interest rates and persistent inflation.
According to the IMF, the concurrent elections in 88 countries, representing over half of the world’s population and its economic output, historically trigger a loosening of fiscal policies as governments ramp up spending. “Fiscal policy tends to be looser in election years, which could threaten the progress towards policy normalization,” the report notes, emphasizing the risk this poses to economic stability.
The analysis underscores that the path to fiscal normalization is fraught with obstacles. Despite signs of economic stabilization, the recovery remains patchy, with major economies like the United States and China experiencing slow growth and financial instability, issues that could ripple across the globe affecting trade and fiscal stability in interconnected economies.
The IMF also highlights the precarious “last mile” of inflation reduction, noting the sensitivities of financing conditions to further economic and policy developments. With global public debt expected to approach 99 percent of GDP by 2029, the institution calls for immediate action to terminate crisis-era support measures and resist the political pressure to boost government expenditure.
Moreover, the report advocates for significant reforms aimed at containing spending pressures. These include entitlement reforms in aging advanced economies and enhancements to the efficiency of social safety nets. It also points to innovation and technology as critical areas for fiscal intervention, suggesting that targeted policies can substantially boost productivity and economic prospects. The IMF encourages support for fundamental research, R&D grants for startups, and broader tax incentives for applied innovation.
As the global economy navigates these challenging waters, the IMF stresses the importance of stronger international cooperation. Improving the global debt restructuring architecture and enhancing fiscal and debt transparency are pivotal, according to the IMF, to facilitate debt restructuring processes and support vulnerable economies.
In conclusion, the IMF’s report calls for comprehensive international collaboration on fiscal policies to maximize the potential of green and digital transformations and ensure that all economies, especially those far from the technological frontier, can benefit from global innovations and advancements. The call to action underscores a critical year ahead as nations balance fiscal responsibilities with electoral ambitions.
