Transcript

Transcript of Fiscal Monitor April 2024 Press Briefing

April 17, 2024

Speakers: 

Vitor Gaspar, Director, Fiscal Affairs Department, IMF

Era Dabla Norris, Deputy Director, Fiscal Affairs Department, IMF

Marcos Poplawski Ribeiro, Deputy Division Chief, Fiscal Affairs Department, IMF 

Moderator: Nicolas Mombrial, Senior Communications Officer, IMF

Mr. MOMBRIAL: So good morning or good afternoon or maybe even good evening I think for some of you following us online. I am Nico Mombrial with the IMF’s Communications Department. I am going to be your host today for this press briefing on the Spring Meetings Fiscal Monitor 2024 “Fiscal Policy in the Great Election Year.”

I am really happy today to welcome Vitor Gaspar, the Director of the IMF Fiscal Affairs Department. Welcome, Vitor. He is joined by Era DablaNorris, the Deputy Director of the Fiscal Affairs Department. Welcome, Era. And Marcos Poplawski Ribeiro, the Deputy Division Chief in the division which has basically written the Fiscal Monitor. 

Before taking your questions, let me give the floor to Vitor so that he can tell you what is up for fiscal policy in this great election year. Vitor, the floor is yours. 

Mr. GASPAR: Good morning, everyone. Welcome. Thanks, Nico. It is a pleasure to see you all bright and early for our briefing on fiscal policy developments around the world, based on the Fiscal Monitor. 

Since the last Annual Meetings, in Marrakech, the global financial and economic outlook has improved. Inflation has fallen. Financial conditions have eased. And risks to the global outlook are becoming balanced. It is time to shift focus to fiscal policy. 

Four years after an unprecedented pandemic response, public debts and deficits remain elevated. After sharp declines in 2021 and 2022, public debt and deficits edged up in 2023, undermining momentum for their return to prepandemic levels. In fact, only half of the world’s economies tightened fiscal policy last year, down from 70 percent in 2022. As a result, global public debt edged up to 93 percent of GDP in 2023 and remained 9 percentage points above prepandemic levels. 

Moderate fiscal tightening is expected to resume this year, but significant uncertainty remains. In 2024, a record number of countries, with more than half of the world’s population, are holding elections. Evidence shows that in election years, realized deficits are 0.4 percentage points of GDP higher than budgeted. Looking ahead, global public debt is projected to approach 100 percent of GDP by the end of the decade. This rise in global public debt is primarily driven by China and the United States, where public debt is now higher and is expected to grow faster than prepandemic projections. Loose fiscal policy in the United States exerts upward pressure on global interest rates and the dollar. It pushes up funding costs in the rest of the world, thereby exacerbating existing fragilities and risks. 

While modest fiscal tightening is projected over the medium term, it will be insufficient to stabilize public debt in many countries. Under current policies, primary deficits will remain above debtstabilizing levels in 2029 in about a third of advanced and emerging market economies and almost a quarter of lowincome developing countries. Higher real interest rates and lower mediumterm growth prospects add to debt pressures. 

For lowincome developing countries, scarring from the pandemic has been most significant and financing most scarce. Against this backdrop, our latest Fiscal Monitor calls for a durable and credible fiscal tightening to safeguard public finances. The size of the necessary adjustment varies across countries. The required fiscal effort is particularly large, around 2.1 percentage points of GDP, for emerging markets with rising public debttoGDP ratios. The pace of consolidation should be calibrated, depending on the fiscal risks and macroeconomic conditions that each country faces. Tackling debt and deficits today helps avoid more painful adjustments later. It would also create budgetary space for priority spending and to deal with future shocks. Fiscal tightening would also be important, an important contributor to completing the last mile of disinflation, especially in economies characterized by excess demand. 

While strong public finances favor sustainable development, in the absence of economic growth, even sound public finances will eventually be undermined. In the long run, economic potential is mainly driven by productivity growth; and productivity growth, in turn, is driven by the production and diffusion of innovation. Fiscal policies have a role to play in directing innovation and ensuring that the overall gains are fairly and widely shared. 

The Fiscal Monitor provides a novel modelbased framework to evaluate the case for targeting fiscal support to promote innovation in specific sectors. The gains are largest when the sectors with the highest spillovers are targeted, but missed targeting is a risk. If support is generally to the wrong sectors, policy gains can turn into sizable losses. The chapter explores the risks of political capture. 

Ultimately, international cooperation is crucial for attaining the world’s innovation potential, in addition to addressing multiple imminent challenges, including global debt -- which is the theme of the next Fiscal Monitor -- and artificial intelligence, on which we have a forthcoming staff discussion note. 

I would like to conclude my remarks on climate change, where international cooperation is essential and existential. 2023 witnessed a continued increase in CO2 emissions. It was also the hottest year on record, with temperatures exceeding 1.5 degrees Celsius above preindustrial levels. Tackling climate change will require a comprehensive combination of policies at national and regional levels. It includes fiscal instruments, both taxation and spending. Crucially, emissions are a global externality, and decisive global action is long overdue. Leadership by major players -- including China, India, the United States, the African Union, and the European Union -- would be a gamechanger. 

Thank you for your attention. My colleagues and I are ready to answer the questions that you may have. 

Mr. MOMBRIAL: Thank you, Vitor. 

I think most of you know the drill; but let me just remind you of a couple of ground rules. If you want to ask a question, raise your hand. A colleague will come and give you the microphone when I call on you. When you take the floor, please let us know which network you are from. And for the colleagues who are joining us online, please let my colleague know when you want to get the floor, and I will try to alternate between the room and the people online. 

I just want to start by one or two questions that I got in advance. And then I will take more. 

QUESTION: Thank you, Nico, for taking my question. 

So, Vitor, you are talking about the high public debt levels. And the debttoGDP ratio is higher than prepandemic levels. And you also mentioned higher interest rates. Higher interest rates have pushed up the cost of -- debt servicing cost and are restraining fiscal space. Can you elaborate a little about how big the pressure is for governments, especially for lowerincome countries? 

And also, on China, some argue that China will need more fiscal support to support economic growth, but the IMF has also pointed out China’s high debt levels. Do you consider there is still fiscal space for the Chinese policymakers to boost its economy? Thank you. 

Mr. MOMBRIAL: Thank you, Vitor. I also had a question from the colleague from the second row, which was very similar to Maoling. 

QUESTION: My question was also about rates. We have seen that inflation here is a bit sticky. It might push the Fed to reconsider first cuts rates this year, perhaps a bit later. It might be the same also in the ECB zone – for the eurozone. What might be the consequences for higher rates for emerging and developing countries, and specifically those who are already in debt distress or near debt distress? Thank you very much. 

Mr. GASPAR: So thanks a lot. Important question. 

What we do see -- and we have in our baseline -- is that interest rates have increased, relative to the recent past. They have increased in order to fight inflation, but longterm interest rates have increased, as well. And they have increased significantly more than what was projected prepandemic. And that puts pressure on governments because spending increases, given the higher interest bill. 

At the same time, we emphasize in the Fiscal Monitor that interest rates are volatile, and they are much more volatile than growth rates.  It is very important, when thinking about public financial management, to take into account that the cost of funding, the availability of funding may fluctuate in a way that can be sudden and unexpected in some cases.

When we look at the extreme case of lowincome developing countries, what we do see is that these countries were not able to extend fiscal support in response to the pandemic crisis and the costofliving crisis, to the extent that was possible in advanced economies for example. PierreOlivier Gourinchas, the chief economist at the IMF, did stress that our estimates of scarring have been revised down for most country groups but, unfortunately, not for lowincome developing countries. 

In the last six months, in the period since Marrakech, we have seen that sovereign bond spreads have generally trended down, and we have seen a number of countries from subSaharan Africa issuing bonds in international markets in the early years. But the constraints on public finance are particularly severe for this group of countries. And the spending pressures to tackle issues, like in many countries, poverty, hunger, the need for infrastructure, investment in people associated with strong growth of population and very young populations, is clearly putting pressure and stressing public finances in these countries. And interest rate -- high and volatile interest rates make the situation worse. 

When looking at China, we see that China, together with the United States, is extremely important for global public debt trends. In the United States, in our projections, debt is increasing about 2 percentage points of GDP per year. In China, the path of increase is even steeper. So clearly, issues that have to do with the long run sustainability of public debt in China are important. 

In our view, China does have policy space. And China has a number of options that it can exercise to control deficits and debt. But if I were to give you my three top challenges for China and China fiscal policy right now, the tackling of the debt path would not be in the top three, because it should be tackled in the context of a comprehensive strategy. 

What is important in the comprehensive strategy? 

One, I would very much agree with the Chinese authorities when they put their emphasis on innovation and productivity growth. That is a topic which is very central to the Analytical Chapter in the Fiscal Monitor.

The second priority that I would stress is the need for China to, as quickly as possible, solve the property crisis and the impact of the property crisis on the public finances of some subnational entities. 

And third, and also important, China is facing lack of aggregate demand. Deflation in China is a risk. And by taking fiscal measures that support spending by households--for example, by strengthening social safety nets--China will be able to sustain the adjustment to a new growth model at the same time that it contributes to macroeconomic stability right now. 

Mr. MOMBRIAL: Thank you, Vitor. So I will take one more question from the room before going online. I like to reward the good students who sit in the front, so I will start with you, please. 

QUESTION: Thank you very much for the opportunity. So my question is regarding the U.S. fiscal situation. In today’s report, it has raised this concern about the U.S. fiscal deficit in 2023; so with the general government fiscal deficit rising to 8.8 percent of GDP, from 4.1 percent in 2022, despite strong growth. And I also found out--in yesterday’s WEO report, it also basically echoed today’s report, warned that the risk of – short-term risk to the disinflation process, as well as the long-term effect, and also the risks to the global economy, since it risks pushing up the global funding costs.

Can you elaborate, how the U.S. fiscal risk can affect not only the U.S. economy but also the spillover, you know, spillover effects to other economies? Do you think that the U.S. government should be, you know, more responsible when considering issuing more and more debts? Thank you. 

Mr. MOMBRIAL: Let me ask if anyone else has a question on the U.S. OK. The lady in the third row there. 

QUESTION: I wanted to ask, the US President is going to announce today a call for increased subsidies on steel. I know that you’ve raised concerns about that kind of measure in the past. And I wonder if you could comment on that. 

But then separately, I wanted to ask about the issue of taxation. You are calling for countries to do more to mobilize revenues. And there’s a growing, you know, movement to tax the superrich. You talk a little bit about excess corporate profits, but can you just talk about whether those options would produce sufficient revenue for especially developing countries? Thank you. 

Mr. GASPAR: Thanks for the questions on the U.S. When it comes to fiscal policy in the U.S. right now, I’d like to start the story with the very strong turning point in U.S. fiscal policy in 2023. In 2022, the U.S. was well on track to normalize fiscal policy after the pandemic. And my favorite indicator of fiscal stance--which is the cyclically adjusted primary deficit--was at 1.9 percent of GDP that year. In 2023, it was multiplied by almost three, to reach 5.6 percent of GDP. And going forward, the primary deficit in the United States will stay in the range of three-point-something and only comes below three toward the end of our projection period. That leads to a situation where debt is increasing at about 2 percentage points of GDP per year. 

We have emphasized many times that this fiscal policy puts pressure on policy rates. It puts pressure on long-term rates. It affects costs of funding everywhere in the world. And if the stance of policy in the United States is also uncertain, there is also an element of risk, which is reflected in the pricing. These phenomena are well documented in the Fiscal Monitor, and the spillovers are quantified in a variety of ways. 

Our view about the United States, as about China, is that the authorities have a number of options that they can use to put the situation under control. And the way it will be done will be the outcome of the political process in the United States, which is Era’s cue to cover issues of trade and industrial policy. 

Ms. DABLA-NORRIS: We are of the view that maintaining open trade is actually vital to the U.S.’s economic performance. As you know, Andrea, in our Fiscal Monitor chapter, we showed that even large countries, large, advanced economies tend to rely on innovation that is done elsewhere. So we are of the view that this is important for the U.S.’s economic performance. 

And as we have said before, including in the most recent Article IV for the U.S., we believe that the U.S. should actively engage with all major trading partners to address the core issues that risk fragmenting the global international trading system. And as the Managing Director, herself, mentioned in her curtain raiser speech, we advocate for open trade and cross-border investment flows because this is important also for global productivity and for global growth. 

The issue that you raised on taxation is a very topical issue. There is a lot of concern about the fair distribution of the tax burden, and there is particularly concern about the concentration of wealth and income at the top of the distribution. In that context, many times, one hears calls for taxation targeting the super-rich; one sees calls for wealth taxation

Our position at the Fund is that taxing the returns from wealth is generally less distorting and more equitable than a wealth tax. Put in other words, there is no objective in terms of fairness that you cannot serve, given what we have now in the world, better by adapting the income tax system. 

We very much emphasize the importance of international cooperation. For example, in exchanging information to make tax avoidance and tax evasion harder, we do believe that international agreements, like what was possible in the OECD Inclusive Framework for corporate income taxation, is a very important asset. And we believe that countries and tax administrations should embrace the promise of technology to adapt the tax system and reinforce tax compliance. 

Mr. MOMBRIAL: Thank you. OK. I will move online. 

QUESTION: I would like to ask you, what are the main challenges for governments to normalize budgetary policy after the debt legacy of recent years? Thank you. 

QUESTION: A couple of questions from me. Here in South Africa, the country will be going to the polls on the 29th of May, one of the large number of countries that are holding elections this year. But we struggle with perhaps challenges that are slightly different to others. We are talking slow growth, and we are talking very, very stubborn inflation. So I wanted to know, from the Fund’s perspective, what kind of advice you are suggesting that governments pursue, with respect to fiscal policy, to try to build the fiscal barriers that you say are necessary in this environment? 

The second question is around the sub-Saharan Africa region. We do have pockets of growth, but there is a real risk of fiscal slippage across many countries in the region because of high debt. We also have the elections that you were talking about; and the attendant pressure to spend adds to that is the geopolitical fragmentation picture. 

 Are you seeing any evidence of this beginning to affect governments’ ability to implement effective fiscal policy? And what kind of policy options are you giving to governments to prevent [inaudible] sliding on this? Thank you. 

Mr. MOMBRIAL: I had two people in the room also send me questions on sub-Saharan Africa. I will try to bring them in because the answer may be similar. Kemi, so the lady in the fourth row there. 

QUESTION: My question relates to some of what they’ve asked regarding taxation. You’ve talked a lot about mobilizing revenue in Africa, in particular, through taxation. And this is something that has been very difficult for governments. So in your assessment, when you look at the region, what are some of the tax and social policies that are working that will boost, you know, regarding the fiscal policy, that you think governments can emulate and also improve upon? Thank you.  

QUESTION: In 2023, your report indicated that fiscal policy should prioritize, consistent with monetary policy, to restore price and financial stability, while supporting the most vulnerable. 

If you look at what is happening in Africa, especially in the countries like Ghana, where we have a debt challenge, some are calling for a review or a reform of the common debt framework. In your assessment--we’re going to elections, including other African countries--what governments should do whilst this framework is delayed? Which is also affecting government ability to mobilize funds and to restore macroeconomic stability. What should they do to be able to ensure that we don’t go through the slippages we do experience during an election period? 

QUESTION: Thank you. I know you have been asked a couple of questions about Africa. More broadly speaking, how do you--how does the IMF assess the effectiveness of fiscal policies in addressing the unique economic challenges faced by various regions in Africa? And what strategies are recommended to optimize fiscal policies’ impact across the continent? 

Lastly, in light of the evolving global economic dynamics and regional disparities, what key adjustment and innovation does the IMF foresee in fiscal policy frameworks to foster sustainable growth, stability, and resilience in African economies over the coming decade? Thank you. 

Mr. GASPAR: Thank you so much. So, our main message in the Fiscal Monitor, on fiscal policy, is that time is right, now, to engage in fiscal normalization. And that is because the world economy has proven very resilient. Inflation is coming down. Risks are now balanced. And so almost everywhere, it’s very important for authorities to stay the course to control public debt developments, to moderate public finance risks, and to build buffers to be able to withstand future shocks. 

What are the obstacles? I will leave politics aside--because we got several questions specific for African countries. So, I guess that Marcos will be covering that specifically. 

But I think it’s very important to remind everybody that one of the findings from a book “Fiscal Politics,” from seven years ago, was that countries that have strong fiscal frameworks, that use fiscal rules, that rely on institutions to ensure fiscal transparency, have much smaller fiscal slippages in election years. So, with institutions, it has been possible to control the temptation for incumbent governments to use fiscal policy for political gain. And I believe that is extremely important. 

Ms. DABLA-NORRIS: Maybe I’ll turn to the question on South Africa first. 

 And in terms of sort of more concrete, specific recommendations, we believe more decisive efforts are needed to cut spending. And this can be done by reducing transfers to state-owned enterprises, rationalizing untargeted subsidies, while protecting public investment and protecting well targeted social assistance for vulnerable populations. 

South Africa has a good fiscal rule. Complementing this with an additional target -- add, for instance, a debt ceiling -- could be useful. Improving expenditure efficiency through improvements in procurement and public investment management would also help public finances. In addition, we believe that very ambitious structural reforms are really urgently needed at this stage to bolster growth. The immediate priority for South Africa is to resolve the energy and logistics crisis. And further reforms in product markets, in labor markets, and in governance could actually bolster productivity and improve growth prospects, which will also be good for public finances.

Mr. POPLAWSKI RIBEIRO: Just to give you some numbers, before going to policies in sub-Saharan Africa. In fact, sub-Saharan Africa this year, in 2023, had, like, a decline in the overall fiscal deficit. So, the overall fiscal deficit in 2023 was 4 percent of GDP, compared to 5.2 percent of GDP in 2022. It is projected to continue declining to 3.6 percent in 2024, reaching 2.7 percent of GDP by 2029. So that would bring debt levels in the region down, from 55 percent in 2023 to close to 44 percent by the medium term, in 2029. 

Now, clearly, there are risks to this baseline that we just mentioned, and I think some of the risks we have already mentioned. Some of the countries that have elections this year are allocated in sub-Saharan Africa. And our chapter discusses the risks of fiscal slippages in countries with elections -- countries in an election year. 

In terms of policies, we advise countries in sub-Saharan Africa to increase their revenue potential. So, our chapter has a Box 3, discussing the revenue potential. Our department has launched a staff discussion note recently on how emerging markets and developing economies could raise revenue potential. And the main instrument is through broadening the tax base. We believe that broadening the tax base could be one way to increase revenues, including in the region. 

It is also important, as mentioned in the questions, to improve and modernize public financial management systems. And by that, the implementation of fiscal rules, or credible medium-term frameworks, that’s something that countries in the region could implement in the coming years to improve their conduction of fiscal policy. The Fund is also contributing through capacity development. The Fund is also contributing through IMF arrangements and through international cooperation on debt restructuring. 

Now, Ghana is one example of, like, how this fiscal consolidation is under way. They have done a strong revenue mobilization in recent years and also control expenditure.

Mr. MOMBRIAL: Thank you. I see that we only have 15 minutes left, so let’s do “Fiscal Monitor speed dating.”

I see we have a U.K. corner there. So let me take all the U.K. questions at the same time. 

QUESTION: The U.K. is one of the countries that has an election looming this year. Is the Fund suggesting that fiscal policy in the U.K. should be loosened or tightened? 

QUESTION: You make reference in the Fiscal Monitor to the U.K. and the recent tax cuts in the U.K., the reduction in National Insurance Contribution. It wasn’t clear whether you actually approved of that or didn’t approve of it. And I just wondered what your thinking was. 

QUESTION: Thank you for taking my question. My question is about finding balance between the fiscal tightening and climate change because, as far as I understood, the IMF recommends to -- predicts fiscal tightening measures. So how would the IMF then recommend finding a balance between fiscal tightening measures and financing climate change -- including financing, investing in green technologies, also adaptation to climate change, mitigating climate change, and while maintaining the financial sustainability? 

QUESTION: I have a question regarding emerging economies. And previously, it was said that they will become a driver of future growth, since the advanced economies grow at a slower pace. But this sector is very broad. And if we exclude China -- China has its own situation -- we have many countries; Europe, Asia, all of them have different situations. Is it possible to form some fiscal policy cornerstones for them in the future, if it’s possible? 

QUESTION: In the Fiscal Monitor, you mentioned Italy as one of the largest economies that are contributing to increasing the debt to close to 100 percent by 2029. And I was wondering if you think that the government is too optimistic about its debt trajectory, considering that your estimates are worse? 

And as a follow-up question, why have you chosen Italy, in Figure 1.20, as an example of a country that needs to do more on the fiscal front in the next couple of years? And, therefore, what are your policy recommendations? And what are these efforts in numbers? 

Mr. GASPAR: The U.K. is a country that is characterized by relatively high debt. The U.K. has had low growth for a number of years. And the growth has been particularly lackluster in the recent past, and the World Economic Outlook has revised the U.K. down. Higher real interest rates and lower medium-term growth prospects are common with other advanced economies. And that is an issue that I have explored with my colleagues, PierreOlivier Gourinchas and Tobias Adrian, in a recent blog. The U.K. authorities are committed to fiscal consolidation, and they have been emphasizing -- since years -- the need to reduce inflation and stabilize debt. 

To bring debt down to sustainable levels does require taking into account the criticality of spending on important and priority public services but also growth enhancing investments, together with structural reforms to increase and improve potential growth. 

There are a variety of measures that U.K. authorities can take to improve the fiscal balance, both on the spending and on the revenue side. I would respectfully recommend that the forthcoming Article IV consultation in May will provide an opportunity to discuss this and other issues more in depth and recommend the Regional Economic Outlook that takes place by the European Department this week. 

Ms. DABLANORRIS: On, your question on emerging market economies, there is a divergence at this juncture, in terms of growth performance, as was pointed out in the World Economic Outlook; but there are two points that I would like to make here. 

The first is that, while there’s a divergence that we see at the current juncture, from a longer-term perspective, we see that productivity growth has been declining also for emerging market economies. Right? So as a group, productivity growth has been declining structurally, and this is a longstanding trend. And the risk that this creates is that they can -- the convergence gap between emerging market economies and advanced economies won’t close as easily. So, this gap could widen. Right? 

So, what are the types of policies that are needed? In terms of the Fiscal Monitor, we talk about the importance of getting your fiscal house in order; absolutely critical in order to be able to pay for the needed public investments, in order to achieve the Sustainable Development Goals, in order to close convergence gaps. There are a host of structural reforms that countries need which are country specific. But in the Fiscal Monitor chapter, we also talk about one very important component, and that is innovation; but specifically, technology adoption. So, for most emerging market and developing countries, technology diffusion, or the adoption of innovation that is done elsewhere, is absolutely critical in order to boost their own productivity growth and their longer-term growth prospects, as well as to build their own innovative capabilities. 

And here, in the face of the ongoing digital and green transformations that we see, there are a number of ingredients that we point out in the Fiscal Monitor. For example, if emerging market economies were to increase their spending on education by 1 percentage point of GDP -- and this essentially closes the gap, the average gap with advanced economies -- what this could do is that this would allow for a faster transfer of technology, adoption, and assimilation of technology from abroad. And it could boost GDP by about 2 percent over the medium term -- which is, you know, which is quite a sizable number. And so, this can be an important way for them to close sort of the skills gap in the digital domain. We also talked about the importance of improving infrastructure quality. 

Now, to pay for these investments, as my colleague has already pointed out, countries will also need to look on the tax side of things. And mobilizing revenues in an efficient way can allow countries to pay for these productive investments. 

Mr. GASPAR: So, to answer your question on Italy, why did we pick Italy? Italy is an advanced economy with a high public debt to GDP ratio. It is a country where there has been traditionally a concern about bond market developments and spreads. And perhaps I may have been even influenced by my own subjective experience because I remember joining European committees back in 1989. And at the time, the high debt level in Italy was already an issue. And for the record, the public debt to GDP ratio in Italy increased quite significantly since 1989. 

In our forecasts, we do have a situation where, as in many other advanced economies, the public debt to GDP ratio declined in Italy in 2021 and 2022. It continued declining until recently; but in 2024, it is projected to reach about 140 percent of GDP. And going forward, it is projected to continue rising to 145 percent of GDP at the end of our projection period. 

In recent years, Italy has recorded a relatively strong recovery which, together with the inflation surprise, helped the decline in the public debt to GDP ratio that I’ve referred to. But going forward, the dynamics are not favorable, with economic growth projected to slow down and then recover, but remaining lackluster, at the same time that the effective cost of financing debt will go up.

There are spending pressures in Italy, like in other countries associated with population aging, for example, but also the need for priority investments in green technology and digital and information technology. And our policy recommendation to Italy is that it would be important to have a credible and frontloaded fiscal adjustment to put the public debt on a sustainable declining path. 

Ms. DABLANORRIS: So, maybe just very briefly on your question on climate. In the October 2023 Fiscal Monitor, we talked about a fundamental trilemma that countries face when it comes to tackling climate change. If you were to rely on subsidies, such as spending alone, to tackle it, it could be fiscally very costly and could add to debt pressures. Not doing anything is not an option because that means global warming, with really deleterious effects on lives, livelihoods, and economies. 

At the same time, if you were to use carbon pricing as a way to sort of meet climate commitments, that could cross a political redline. So somehow, we need a package of measures that allows countries to get around this trilemma. And we feel that carbon pricing should be an integral part of any policy mix because this could allow countries to raise the revenues that are needed for green investments, but this should be complemented with a suite of other regulatory and other measures, in order to incentivize firms and households to decarbonize. 

QUESTION: I would like you to comment on the news that the Brazilian government has weakened its 2025 fiscal target from a 0.5 surplus to a balanced budget [on the back of] increasing fiscal spending and also postponing its objective to return to primary surpluses to 2026. 

QUESTION: I have a couple of questions on Egypt particularly. The first one is concerning the debt level. As you know, Egypt is currently engaging in a loan program with the IMF that has been recently expanded to $8 billion from $3 billion. So my question is on the debt level in Egypt. What are the projections of the IMF regarding the debt level in the country, in the current fiscal year and the upcoming fiscal year? And what are the recommendations of the Fund under the loan program to tackle the debt path, as well as raise the potential of the country’s revenues?

My second one is on deficits. We need to know the IMF’s projections about the deficit and to what extent Egypt is able to achieve its target regarding its deficit until 2026. Thank you so much. 

Mr. MOMBRIAL: So, I would suggest that Era, you answer first on Egypt, and I will give it to Vitor on Brazil. And Vitor, if you could use that also to give any concluding words that you may want to. 

Ms. DABLANORRIS: Doaa, for your questions on Egypt. So, external debt in Egypt is projected to rise this fiscal year, relative to the previous fiscal year. And this is largely because of valuation adjustments arising from the exchange rate depreciation, following the unification of the exchange rate. But we expect external debt and overall debt to start declining from the next fiscal year onwards. 

In terms of the fiscal deficits, the budget for fiscal year 23/24 targets a primary surplus of 2.5 percent of GDP, including 50 percent of divestment proceeds to reduce public debt. And for 24/25, the approved budget increased the primary surplus target to 3.5 percent of GDP. 

Let me just say that, more generally, the economic strategy under the Fund program is really focused on reducing Egypt’s debt by putting the general government debt as a share of GDP on a downward path. And this is expected to be achieved through continued fiscal discipline, while ensuring adequate social protection spending for vulnerable groups and the use of divestment proceeds. And more revenue mobilization will be also central to help support this effort, as it will create the space that is needed for priority spending and for the targeted support that is needed for vulnerable groups.

Mr. GASPAR: After two years of cyclically adjusted primary surplus in 2021 and 2022, Brazil fiscal policy turned procyclical, with a deficit of 2.2 percent of GDP in 2023. Brazil’s public debt is projected to increase from around 85 percent of GDP in 2023 to 94 percent in 2029, the end of our projection period. 

The authorities’ fiscal consolidation path aims for an improvement in the fiscal policy position over the medium term, but uncertainty around fiscal consolidation going forward remains. High debt and uncertain costs of financing call, in Brazil, like elsewhere, for prudent fiscal policy and debt management. 

Firmly placing Brazil on a public debt downward path would require more ambitious and sustained fiscal efforts. Efforts should be anchored in an enhanced fiscal framework that builds on the new fiscal rule in Brazil, while protecting social priority spending and investment spending. 

I will now make my transition to the conclusion of this press conference with a number of key messages that I would like to highlight. There are four messages. 

The first, you heard it at the beginning, with the world economy resilient and risks to the outlook balanced, the time is right for countries to stay the course of fiscal normalization, build buffers to cope with future shocks, and to bring down debt to more sustainable levels. 

Two, with the pandemic a distant memory and inflation approaching targets, policies are no longer dominated by the response to common shocks, and divergences across countries are taking center stage. That means that policies, in general, fiscal policy, in particular, have to be adapted to country specific circumstances. 

Third, focusing on fiscal policy in this environment is appropriate because fiscal policy has an ample toolbox that is crucial for this adaptation to country specific circumstances. I would like to emphasize the importance of long-term priorities, like competitiveness, growth, productivity; and I heard a lot about climate in this press brief. 

Finally, countries must embrace international cooperation to address the multiple and pressing global challenges. And if you would indulge me, if I were to pick one, I would underline the urgency of climate action. 

Mr. MOMBRIAL: Thank you, Vitor. Thank you, Era and Marcos, for being here with us. Thank you all of you in the room and online.