During election years, governments around the world tend to increase public spending in an effort to win favor with voters. However, this practice is not without consequences. The International Monetary Fund (IMF) has expressed concerns about the impact of rising deficits and debts on global public finances, particularly in light of the Covid pandemic and inflation.
To address these challenges, the IMF has called for governments to exercise fiscal moderation and consider taxing excessive company profits to fund healthcare and pension programs. The organization is particularly concerned about the potential for global public debt to reach 99% of GDP by 2029, with significant imbalances in the public accounts of major economies like the US and China.
In Europe, countries like France and Italy face high deficits, low growth, and rising debt trajectories. Germany is expected to balance its accounts and reduce debt, while Spain will maintain deficits around 3% of GDP with a slight decrease in debt. Meanwhile, emerging and developing economies are urged to broaden their tax bases and improve revenue administration to boost their tax revenue potential.
The IMF emphasizes the importance of fiscal containment during election years and the need for countries to address structural challenges such as demographic transitions and rising interest rates. Failure to implement significant measures may result in incomplete fiscal normalization and further constraints on fiscal space in the years to come.
In summary, governments around the world must be mindful of their spending habits during election years as it can have long-term consequences on their public finances. The IMF recommends that countries exercise fiscal moderation through reforms or increased taxes on corporations or individuals as necessary.
