WASHINGTON, Oct 7 (Businesshala) – Governments should begin planning a return to a more sustainable budget with policies that win investor confidence after unprecedented fiscal stimulus to fight the COVID-19 pandemic, the International Monetary Fund said on Thursday. said.
But each country should determine the appropriate timing and pace of fiscal consolidation, the IMF said in its financial monitoring report.
Fiscal plans are needed to consider the stage of the pandemic, existing financial vulnerabilities, risk of economic crisis, growing population pressures, development needs and historical difficulties in collecting revenue.
A fiscal monitor chapter titled “Strengthening the Credibility of Public Finance” said countries can buy time and make debt stabilization less painful by committing to fiscal stability with credible medium-term financial frameworks.
“When lenders are confident that governments are financially responsible, financing large deficits and debt rollovers becomes easier,” the IMF said.
The report said IMF research showed that countries with plans for credible financial frameworks had lower borrowing costs and could make big jumps in debt, with the feasibility of reversing 15% growth over a decade. Plus, additional shocks were absent.
The fund recommends that countries commit to broad fiscal goals with underlying tax and spending policies for the next three to five years, with specific policies, such as tax increases or raising the age to gain retirement benefits.
Fiscal rules, such as keeping the budget deficit within a certain percentage of GDP, or independent fiscal councils within governments can add credibility, helping it to add targets that were easier to communicate.
But the IMF said fiscal plans should be flexible enough to stabilize economies and avoid cuts to key public investments.
“Changes in taxes or spending may be pre-legislative and made contingent on recovery,” the IMF said.
It cited Britain’s announcement that corporate rates would rise in April 2023 and Israel’s sunset for extended unemployment benefits linked to achieving a lower unemployment rate.