IMF fiscal chief underscores need for ‘orderly debt restructuring’

By Andrea Shalal

WASHINGTON (Reuters) – Rising debt levels and mounting fiscal pressures underscore the urgency for more “orderly debt restructuring” efforts to put low-income countries on a more sustainable path, the International Monetary Fund’s fiscal chief said on Wednesday.

Fiscal Affairs Director Vitor Gaspar told reporters the problems facing low-income countries had been exacerbated by food and energy shocks and climate disasters, and it was critical to frame policies that would avert social unrest.

“The rise of extreme poverty and food insecurity that began before the pandemic should be addressed at the global level by a broad set of initiatives,” he said, as well as more efforts to reduce the debt stock of vulnerable countries.

The IMF’s new Fiscal Monitor, released Wednesday, maps out the difficult trade-offs facing fiscal policymakers as they try to protect low-income families from large real income losses while avoiding moves that would contravene monetary policy.

It notes that global public debt is projected to remain elevated at 91% of gross domestic product in 2022, down from a historic high in 2022 but still about 7.5 percentage points higher than pre-pandemic levels.

Low income countries were particularly vulnerable, with nearly 60% of the poorest countries now in debt distress or at risk of it.

Gaspar stressed the need to narrowly target fiscal measures at those most in need, and to structure measures that helped reduce domestic demand in a world where available energy resources had shrunk.

“The Fiscal Monitor message is clear: Be prepared. Be prepared for a shock prone world,” he said.

Paolo Mauro, deputy director of the fiscal affairs department, said there was an empirical association between social unrest and episodes of spikes in food and energy prices.

“The way to reduce the risk of (widespread social unrest) is to give people a feeling that the money they pay in taxes is well-spent and we put a lot of emphasis on good governance practices,” Mauro said.

Fiscal transparency and progressive taxes – that hit the rich harder – were other options, he said.

(Reporting by Andrea Shalal, Editing by William Maclean)