The Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, called on countries to work to reduce bloated debt and start rebuilding “the shock absorbers” for the next economic hit which she said “will happen” and ” before what was expected. » These words were spoken this Thursday during his opening speech to the 2024 annual meetings that the IMF and the World Bank will organize next week in Washington.
At the beginning of this week, the multilateral entity advanced part of its Fiscal Monitor in which it assured that the world public debt would exceed this year the 100 billion dollars (92 billion euros)which will represent 93% of global gross domestic product (GDP). Furthermore, they predict that global public debt will continue its upward trend for the rest of the decade, until approaching 100% of GDP in 2030.
“The outlook becomes more worrying due to high and growing public debt, much higher than before the pandemic, even after the brief but significant decline in the debt-to-GDP ratio as inflation pushed up nominal GDP,” assured the leader.
Based on this data, Georgieva reiterated that in the event of an “unfavorable but plausible scenario”, the debt could increase. “20 percentage points” of GDP above the base level.
The problem with high debt is that it creates an unfavorable breeding ground when mixed with medium-term growth “which will be mediocre, not much lower than before the pandemic, but far from sufficient”.
In this sense, Georgieva was very clear: “It will not be enough to eradicate global poverty, nor to create the number of jobs we need, nor to generate the tax revenues which governments need to pay the heavy debt burden, and at the same time It is time to respond to the enormous investment needs, including the green transition.
The formula is written. If poor growth and very high interest rates are combined with high debt levels, the fiscal space allowing governments to invest is reduced.
This is why he reminded governments that it is “necessary” to consolidate a “credible” budgetary plan. He reiterated that we must look for ways to increase revenues while making public spending more efficient. “At the same time, political actions are well explained to gain the trust of the people,” he stressed.
“Even traditionally fiscally conservative political parties are developing a tendency to borrow to spend. Tax reforms are not easy, but they are necessary and can improve inclusion and opportunity. Countries have shown that this is possible. “
Fragmentation and global trade
To all this combination, we must add that “we are living in very turbulent times” in a world where “more wars and more insecurity”. In this sense, he predicted that defense spending “will very likely” continue to increase, while aid budgets “fall further and further behind” and do not meet the needs of developing countries.
Georgieva expressed concern that countries “concerned about their national security” are increasingly resorting to industrial policy and protectionism “creating one trade restriction after another.”
Faced with this panorama, the leader affirmed that trade “will no longer be the same engine of growth as before”. A divide that he recalled that he had already warned about in 2019, which is why he sent a clear message: “we can do better”.
Improving productivity and the labor market
In the area of reforms aimed at achieving the objectives set by the IMF to consolidate the “cushion” for future shocks, there is that of “creating labor markets that work for people”, with measures to support the incorporation of women into the labor market. . labor market and improve the skills of workers and adapt them to current times.
On the other hand, he reiterated that it is necessary to improve productivity. From “improving governance and institutions to reducing bureaucracy”. In addition, he particularly mentioned artificial intelligence (AI) as an engine of economic growth. A study by the IMF itself concludes that AI, if managed well, has the potential to increase global growth by up to 0.8 percentage points, “with this alone we would be heading towards a trajectory of growth higher than in the years before the pandemic. he pointed out.
