The IMF has warned that the “most acute risk to public finances” stems from the record number of elections being held in 2024, against a backdrop of high government debt and stubborn economic development gaps.
In its latest Fiscal Monitor report, released today, the Fund calls for addressing a slowdown in productivity during what it describes as the “Great Election Year”.
Public debt continues to rise, not least in the world’s two largest economies — China and the US — where it risks doubling by 2053, the IMF said.
Published twice a year, the Fiscal Monitor series provides an overview of the latest public finance developments, updates the medium-term fiscal outlook, and assesses fiscal implications of policies pertinent to the global economy.
The large number of elections across the world this year represents a “salient risk” to fiscal consolidation prospects, the IMF said. More than 60 countries, including eight of the world’s 10 most populous nations — Bangladesh, Brazil, India, the US, Indonesia, Pakistan, Russia and Mexico — will vote in general elections in 2024.
“What makes this year different is not only the confluence of elections, but the fact that they will happen amid higher demand for public spending,” said the IMF.
Elections will take place in the midst of a “bias toward higher spending [which] is shared across the political spectrum … particularly in a key election year like 2024,” it said.
But without more decisive fiscal efforts from governments, the IMF warned that post-pandemic fiscal policy normalisation may remain incomplete in the years to come.
“Crisis-era support measures should be immediately terminated, and the political budget cycle and the drive to further increase spending should be resisted,” the IMF said.
Levels of public debt will continue to be challenging. After declines in 2021-2022, global public debt edged up again last year and remained above pre-pandemic levels by nine percentage points of gross domestic product.
Global public debt is projected to approach 99 per cent of GDP by 2029, driven predominantly by China and the US where, under current policies, “public debt is projected to continue rising beyond historical peaks”.
As well as potentially worsening the debt burden, loose fiscal policy in the US could make its “last mile of disinflation harder to achieve”, the IMF said. In China, large primary deficits are set to continue raising public debt in the country amid labour force difficulties and prevailing property sector troubles.
“How these two economies manage their fiscal policies could therefore have profound effects on the global economy and pose significant risks for baseline fiscal projections in other economies,” the IMF said.
The Fund reported that despite strong growth, the US faced fiscal decline in 2023, with the general government fiscal deficit rising to 8.8 per cent of GDP from 4.1 per cent of GDP in 2022.
China’s fiscal deficit remained above 7 per cent of GDP in 2023 and could gradually rise to about 8 per cent of GDP by 2029, but its ongoing property sector downturn continues to be a significant barrier to growth.
Economic spillovers from both countries could contribute to tighter financial conditions and increase risks elsewhere, the IMF warned, as it calls to “bring back” more sustainable public finances.
