The Global Fiscal Challenge: How Governments Can Balance Election Promises with Economic Stability

As 2024 approaches, many countries around the world are holding elections, prompting 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 has had a significant impact on public finances, with fiscal deficits and debts rising since the outbreak. 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.