IMF Director Warns Against Cutting Public Investment Amid Fiscal Reforms
Vitor Gaspar, director of fiscal policy at the International Monetary Fund (IMF), stressed that while fiscal consolidation is important, it should not come at the expense of public investment.
During the virtual launch of the 2024 IMF Global Debt Database, Gaspar explained that fiscal discipline is essential for long-term economic stability, but cuts in public investment can severely hinder growth, both in the short and long term as he acknowledged the challenges of balancing fiscal sustainability with political considerations but emphasized the need to maintain this balance to ensure financial stability.
Gaspar also addressed the global debt situation, highlighting the concerning level of global public debt, which is expected to reach $100 trillion in 2024, equivalent to 93 percent of the world’s GDP.
He described this as an uncomfortably high level, which poses risks to public debt sustainability. The IMF has introduced a new tool to quantify these risks, indicating that the risks associated with public debt are largely one-sided and tilted to the upside. Gaspar emphasized that most countries will need to adopt strategies to reduce their public debt ratios with a high degree of certainty to avoid long-term financial instability.
The IMF’s fiscal monitor report pointed out that current fiscal plans in many countries are insufficient to meet these debt reduction goals. Gaspar underscored the importance of fiscal policy in fostering sustainable and inclusive growth, particularly in the context of high debt and low growth, which has been a major concern. He noted that fiscal policy could play a pivotal role in facilitating the transition to a green economy, thereby addressing both economic and environmental challenges.
In addition to these points, Gaspar emphasized that fiscal policy has the potential to drive technological innovation and public investment, which are crucial for long-term economic growth. He stressed that such investments are vital not only for economic recovery but also for fostering a more inclusive and sustainable future. By supporting technological change and ensuring the sustainability of fiscal strategies, countries can build more resilient economies.
