In 2024, a record number of countries are holding elections, prompting governments to increase public spending. The International Monetary Fund (IMF) is concerned about the potential for deficits to escalate, as public finances have not yet been stabilized. The IMF is urging governments to exercise fiscal restraint, proposing measures such as taxing excessive corporate profits and implementing reforms to contain healthcare and pension spending. The IMF is particularly worried about the impact of the pandemic and recent inflation on public finances, with deficits and debts higher than pre-pandemic levels due to increased spending on social benefits and energy subsidies.
The IMF’s latest Fiscal Monitor report highlights the risks of fiscal deviations during election years, which tend to see laxer fiscal policies and larger deficits. The IMF is calling for moderation in fiscal policies during this “Great Electoral Year” and recommends immediate action to address legacy fiscal policies from the crisis era, including energy subsidies. The IMF also emphasizes the need for advanced economies with aging populations to control healthcare and pension spending through reforms and to ensure that revenues are in line with spending over time. Additionally, the IMF suggests that emerging and developing economies can boost fiscal revenues by expanding tax bases, improving tax systems, and strengthening revenue administration.
Without significant new measures, the IMF predicts that global public debt could approach 99% of GDP by 2029, driven by China and the United States. The IMF warns that addressing structural challenges, such as demographic and ecological transitions, will require additional spending pressure. Additionally, slower growth prospects and high interest rates are expected to further constrain fiscal space in most economies. The IMF forecasts significant fiscal imbalances in the US and China, with deficits of 6.5% of GDP in the US and 7.4% in China this year. In Europe, France and Italy are facing worrying fiscal trajectories, with high deficits, low growth, and high debt levels.
France is expected to have a deficit of 4.9% this year, while Italy’s deficit is projected to be 4.6%. Both countries are expected to see rising debt levels over the coming years. Meanwhile, Germany is set to have nearly balanced accounts and reduce its debt from 64.3% in 2023 to 57.7% in 2029. In Spain, the deficit is expected to hover around 3% over the next five years, with debt decreasing from 107.5% in 2023 to 104.2% in 2029. Overall, the IMF’s Fiscal Monitor report underscores the importance of fiscal discipline during election years and the need for governments to address legacy fiscal policies and implement reforms to ensure sustainable public finances.
