IMF warns Britain must address ‘fundamental’ fiscal imbalances
The UK is one of a number of major economies that need to address “fundamental imbalances” with their fiscal policy, the International Monetary Fund (IMF) said today.
The global fiscal watchdog noted that global public debt has increased to 93 per cent of GDP in 2023, nine percentage points higher than its pre-pandemic level.
By 2029, global debt is projected to be roughly equal to global output.
This has primarily been driven by increases in the US and China, where debt increased by over two and six percentage points respectively, but high interest rates and slow growth have put pressure on government balance sheets.
The IMF predicted that governments would cut back on spending slightly in the medium term, but warned this would be “insufficient” to stabilise public debt.
Public spending, excluding interest payments, is still around three percentage points higher than pre-pandemic levels in advanced economies, it said.
“This spending level reflects the slow unwinding of crisis-era fiscal policies and the introduction of new support measures, alongside new industrial policy measures including subsidies and tax incentives,” the IMF said.
With more than half the world’s population going to the polls this year, the IMF called on governments around the world to avoid “fiscal slippage” and focus on “safeguarding fiscal sustainability”.
The UK is one country which is facing increasing fiscal pressure. The IMF expects that UK general government debt will rise from just over 100 per cent of GDP in 2023 to 110.1 per cent in 2029.
However, the Washington-based body suggested government policy risked making this worse. It suggested that Jeremy Hunt’s national insurance cuts could “worsen the debt trajectory in the medium term” even though it was “part-funded by well-conceived revenue raising measures”.
“Population ageing and labour market mismatches are further expected to exert pressure on fiscal positions,” it said.
The IMF recommended that governments phase out legacies of crisis-era policy, such as energy support measures, while enacting reform to curb rising spending.
“Advanced economies with ageing populations should contain spending pressures for health and pensions through entitlement reforms and other measures,” it said.
A Treasury spokesperson said: “Thanks to our responsible action with the public finances and our progress on the economy…we have been able to cut National Insurance by a third while sticking to our fiscal rules, with debt falling in the final year of the forecast with a larger buffer than last Spring.”