IMF expects debt increase, but stabilization at 100% of GDP if pandemic ceases and growth returns

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IMF expects debt increase, but stabilization at 100% of GDP if pandemic ceases and growth returns




File photo of the IMF logo at the IMF offices in Washington


© Reuters / YURI GRIPAS
File photo of the IMF logo at the IMF offices in Washington


By David Lawder

WASHINGTON, Oct 14 (Reuters) – Massive government spending to fight the coronavirus pandemic will push public debt to a record nearly 100% of global economic output this year, but this rise could be a one-time event if growth rebounds in 2021, the International Monetary Fund said Wednesday.

The IMF stated in its latest Fiscal Monitor report that it expects government budget deficits to rise to 12.7% of Gross Domestic Product from 3.9% in 2020.

“What we see is a one-time jump in debt in 2020, then a stabilization after 2021, and even a slight downtrend in 2025,” IMF Director of Fiscal Affairs Vítor Gaspar said in an interview with Reuters.

Although public debt will remain high at around 100% of GDP, the resumption of economic growth with extremely low interest rates will help alleviate primary budget deficits, Gaspar said.

“The difference between interest rates and growth is not only negative, it is more negative – in our projections – than before COVID-19. So low interest rates play an important role in debt dynamics. “, he pointed.

In another chapter of the Fiscal Monitor released last week, the IMF urged governments to take advantage of low rates to invest in infrastructure. According to him, an increase in investment in public infrastructure of 1% of GDP could boost production by 2.7%, creating between 20 million and 33 million jobs.

However, the Fund said that there is a wide divergence between the fiscal outlooks of member countries, with advanced economies suffering the largest increase in debt burdens, while poorer developing countries face the task. harder to recover from economic damage as more people fall into poverty.

The budget deficits of advanced countries will grow by 11% of GDP. The United States will jump 11 percentage points, to 18.7% of GDP, and Canada will rise to 20%, according to the IMF.

(Edited in Spanish by Carlos Serrano)

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