In 2024, a record number of countries around the world are holding elections, which has prompted concerns from the International Monetary Fund (IMF) about rising deficits and debts. The IMF is urging governments to exercise fiscal moderation and consider taxing excessive company profits to address spending on healthcare and pensions.
The pandemic and inflation have had a significant impact on public finances, leading to increased spending on social benefits and support measures. The IMF warns that global public debt may reach 99% of GDP by 2029, with significant imbalances in the public accounts of major economies like the US and China.
To address these challenges, the IMF is calling for advanced economies to contain spending pressures from healthcare and pensions through reforms while also increasing revenue through measures like corporate tax on excess profits. Emerging and developing economies are urged to broaden tax bases and improve revenue administration to boost their tax revenue potential.
In Europe, countries like France and Italy face high deficits, low growth, and rising debt trajectories. The IMF forecasts deficits in France and Italy to remain around 4-5% of GDP for the next few years, leading to increases in public debt. 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.
Overall, the IMF stresses the importance of fiscal containment during election years and the need for countries to address structural challenges like 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 conclusion, during election years, governments tend to increase public spending to win favor with voters. However, this practice can lead to rising deficits and debts that can have long-term consequences for a country’s economy. To address these challenges, governments must exercise fiscal moderation by containing spending pressures from healthcare and pensions through reforms while also increasing revenue through measures like corporate tax on excess profits.
Countries must also broaden their tax bases by improving revenue administration to boost their tax revenue potential. Moreover, emerging economies should prioritize addressing structural challenges such as demographic transitions or rising interest rates when implementing fiscal policies.
If governments fail to implement significant measures now, they risk facing further constraints on fiscal space in the future due to an overreliance on government spending rather than sustainable economic growth strategies.
Therefore, it is crucial that governments take action now before it’s too late!