Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, has issued a cautionary note, stating that the year ahead poses significant challenges for fiscal policy, especially for countries gearing up for elections. “This is going to be a very tough year because fiscal policy has to rebuild buffers and deal with the debt that was accumulated in many countries,” Georgieva said.
According to AFP, in an interview before her departure for the World Economic Forum in Davos, Switzerland, Georgieva highlighted the tough road ahead for fiscal policy worldwide. She emphasised the need for countries to rebuild buffers and address the accumulated debt, with approximately 80 nations slated to undergo elections.
As numerous countries, including India and the United States, prepare for elections, there is a foreseeable pressure on governments to either increase spending or reduce taxes to secure popular support. Georgieva expressed concerns about the potential impact of expansive fiscal policies, which could undermine the progress made in combating high inflation.
“About 80 countries are going to have elections, and we know what happens with pressure on spending during election cycles,” she continued.
While the IMF is set to release updated economic forecasts later this month, Georgieva indicated that the global economy is generally “on track” to meet previous projections. However, she noted that the world is in a delicate position where monetary policy needs to strike the right balance to avoid either a too rapid or too slow easing.
The global economy is “poised for a soft landing,” she said, adding: “Monetary policy is doing a good job, inflation is going down, but the job is not quite done.”
Georgieva acknowledged the positive role of monetary policy in bringing down inflation, citing a “soft landing” for the global economy. She emphasised the need for caution, especially as the US Federal Reserve and the European Central Bank consider potential adjustments to interest rates.
“The concern at the IMF is that governments around the world spend big this year and undermine the progress made in the fight against high inflation. If monetary policy tightens and fiscal policy expands, going against the objective of bringing inflation down, we might be for a longer ride,” Georgieva added.
