As election years approach, governments around the world are facing growing pressure to increase public spending in order to win favor with voters. However, this spending is leading to rising deficits and debts, prompting concerns from the International Monetary Fund (IMF) about the sustainability of public finances. In 2024, a record number of countries are holding elections, exacerbating these concerns and putting additional strain on global financial markets.
The IMF is particularly worried about the impact of the pandemic and inflation on public finances. Fiscal deficits and debts have risen significantly since the Covid outbreak, as governments have had to increase spending on social benefits and support measures. The IMF warns that global public debt may reach 99% of GDP by 2029, with significant imbalances in the public accounts of major economies like the US and China.
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, on the other hand, 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.