IMF says global debt levels face ‘Great Election Year’ risk

WASHINGTON: The path towards sustainable government debt levels around the world is under threat this year from the sheer number of elections taking place, the IMF said Wednesday in a new report.

“History suggests, and empirical evidence confirms, that governments tend to spend more and or tax less in election year,” Vitor Gaspar, the head of the International Monetary Fund’s Fiscal Affairs told AFP, ahead of the publication of the Fiscal Monitor report. He added that the situation this year is particularly complicated because, “the political discourse is dominated by references to fiscal expansion and calls for fiscal support or public spending — or both.”

The Fiscal Monitor report found that global public debt “edged up again” last year, reversing a couple of years of decline, due largely to a fall in revenues “as windfall revenues from inflation waned.”

“Fiscal tightening is projected for 2024, but it is subject to considerable uncertainty,” the IMF report continued. Much of this uncertainty, the IMF said, is down to the fact that 2024 is the “Great Election Year,” when 88 economies or economic areas representing more than half of the world’s population have held, or are due to hold, elections.

“Clearly, given the stronger link between fiscal policy and politics, it is perfectly reasonable to think that political factors and political discourse will play an added role right now,” Gaspar told AFP.

The IMF predicts that current spending and taxation levels have put global public debt on track to rise from just over 93 percent of economic output last year to 99 percent by 2029. This trend is “driven by the world’s two largest economies, China and the United States, where under current policies public debt is projected to continue increasing beyond historical highs,” the IMF report said. The US experienced “remarkably large fiscal slippages,” last year, the IMF said, citing a steep decline in income tax revenues due to lower capital gains taxes and “delayed tax payment deadlines.”