Political and economic realities in the United States, Europe and China are all clouding the global fiscal outlook but countries should still press forward with nuanced tax and spending policies, the International Monetary Fund said on Wednesday.
The international lender’s temperature check on the fiscal situation of the global economy also said that overall public debt in advanced economies should stabilise in the medium term while fiscal deterioration in emerging economies appeared at an end.
“The lack of specificity about the size and composition of the expected fiscal stimulus in the United States, a number of elections in Europe, and the upcoming party congress in China all contribute to policy uncertainty,” the IMF said.
The report came as policymakers began gathering in Washington for the semi-annual meetings of IMF and World Bank member countries.
Finance ministers and central bank governors from the Group of 20 major economies, known as the G20, are also scheduled to meet on the sidelines of the April 21-23 conference.
The IMF has long advocated for growth-friendly fiscal stimulus in countries that require a boost but has also warned robust economies to be fiscally prudent during good times.
This time around, the IMF urged the United States to begin fiscal consolidation next year “to put debt firmly on a downward path” given the economy is close to full employment.
Republican President Donald Trump has promised a fiscal stimulus including tax cuts. If enacted, the IMF said, it expected the US debt ratio to increase continuously over the next five years.
The lender noted, however, a strong case for more public investment in many countries “in light of low borrowing costs and substantial deficiencies in infrastructure” as long as they were efficiently managed and said tax reform, particularly in the United States, could spur business investment.
The IMF warned too that emerging market and developing economies remained at risk from a more rapid rise in interest rates, a large appreciation in the US dollar and lower commodity prices.
All could “exacerbate debt vulnerabilities and trigger the materialisation of contingent liabilities, in particular those related to implicit government guarantees on corporate borrowing,” the IMF said.
On Tuesday, the IMF raised its 2017 global growth forecast on manufacturing and trade gains in Europe, Japan and China, but warned that protectionist policies threaten to halt a broad-based recovery.