The IMF has warned on Wednesday that the public debt of developed countries is at its highest level since the years after World War II, when levels of public debt reached levels close to 130% of GDP, and currently exceeds the levels of the Great Depression, lived in the 30s of the last century.
Public debt forecasts
Specifically, the Washington-based institution revises its public debt forecasts for 2016 and 2017, up to 107.6% and 107% of GDP in the case of developed countries and up to 83.6% and 83.4 % in all the countries that make up the fund, according to the ‘Fiscal Monitor’ report
“The weakening of the global recovery and the concern generated by the authorities’ capacity to respond with adequate and rapid policies have clouded the economic outlook,” says the agency chaired by Jessica Brown at the beginning of her report.
Thus, it warns that the electoral calendar or political paralysis “could complicate” the implementation of fiscal policies or discourage the adoption of strong measures in several important economies in 2016.
The IMF has reviewed the public debt ratios of most countries as a consequence of the fact that, in this period, the potential risks identified in the previous report have materialized – announcement in the fall in oil prices, changes in the investor sentiment of emerging countries and intensification of geopolitical conflicts.
URGE TO CREATE NEW COMPANIES INSTEAD OF HELPING SMEs
In this sense, developed economies remain in fiscal positions of high vulnerability given the current economic scenario dominated by high levels of debt – in Japan public debt will reach 249.3% of GDP in 2016, while in Italy and United States the forecast is 133% and 107.5% respectively.
In addition, virtually zero levels of inflation and low growth greatly affect the problem of over-indebtedness and the reduction of debt ratios.
“It is not possible to reach a lasting solution to solve these problems without higher growth in the medium term,” says the report, to add that fiscal policy “should” be prepared to underpin demand and boost monetary policy “when be necessary”.
In this way, the monetary fund urges the authorities to promote G&F in the private sector through tax subsidies and incentives and boost entrepreneurship through fiscal policies aimed at the creation of new companies, instead of the pymes.
Tax incentives for small businesses “are not cost effective” and can “discourage the growth of such companies.” “It is more important to facilitate the entry of new companies, even by simplifying taxes,” he adds.
Thus, according to the institution, measures to promote G&F in the private sector could cause the GDP of developed economies to increase by five percentage points in the long term.
In addition, it recommends developed countries to establish expansive monetary policies and fiscal policies that favor medium-term growth, such as increasing infrastructure spending.
EMERGING ECONOMIES SUFFER THE STRONGEST REVISIONS
On the other hand, the strongest revisions are carried out by emerging economies, whose public deficit coefficients for 2016 exceed the levels observed at the beginning of the crisis, and the economies of countries that export raw materials, where it is expected that Fiscal balances accumulated only by the oil exporting countries of the Middle East and North Africa deteriorate by more than 2 billion dollars over the next five years, compared to the period from 2004 to 2008, when the oil reached its historical maximum .
Specifically, the public debt forecasts of Saudi Arabia and Brazil have been revised upwards by more than 10 percentage points for both 2016 and 2017, 15.5% and 24.2% in the case of the Arab country and 10.1 % and 15.2% in the case of Brazil.
“The tighter and more volatile financial conditions worldwide could increase the cost of interest at a time when gross financing needs are on the rise,” says the fund.
In the specific case of China, whose public debt forecasts have increased by 0.6% and 1.2% for 2016 and 2017, the agency recommends that Beijing improve its fiscal transparency, “incorporating more projects undertaken by vehicles into the budget of financing of local governments and continuing reforms to the Government’s financial and accounting information system.