IMF warns of high level of debt; calls for greater fiscal adjustments

Mexico City. The public debt of the world economy could exceed $100 trillion in 2024, representing 93 percent of global gross domestic product (GDP), and rise to 100 percent of GDP by 2030, warned the International Monetary Fund (IMF). ).

The agency noted that the risks around the debt outlook are clearly tilted to the upside and that much larger fiscal adjustments than expected will be necessary to increase the likelihood of debt reduction.

He argued that replenishing fiscal reserves is essential to contain debt, guarantee the sustainability of public finances and financial stability.

In Chapter 1 Curbing public debt of the Fiscal Monitor document, published within the framework of its joint meeting with the World Bank, the International Monetary Fund stated that although the debt is expected to stabilize or decrease in approximately two thirds of the countries, will remain well above the levels expected before the pandemic.

Countries where debt stabilization is not expected account for more than half of the world’s debt and around two-thirds of global GDP.

“There are good reasons to believe that future debt levels could be higher than currently projected,” he reiterated.

He explained that in recent decades, political discourse on fiscal issues has increasingly leaned toward increasing public spending.

“Uncertainty regarding fiscal policy has increased. “Pressures on spending to address the green transition, aging populations, security issues and long-standing development challenges continue to grow,” he detailed.

He mentioned that historical experience shows that projections tend to systematically underestimate debt levels and that the debt ratio as a proportion of GDP in three years exceeds projections by 6 percentage points of GDP on average.

They suggest reducing Mexico’s fiscal deficit to 2% of GDP

Starting in 2025, the federal government will have to have reduced the fiscal deficit to levels of 2.0 percent of GDP to avoid pressure on its credit rating. To achieve this, it will have to make an adjustment to programmable spending, BBVA warned.

In its Mexico Situation Report prepared by the Economic Studies area, the financial institution explained that the adjustment will be necessary to prevent the deficit from resuming its upward trajectory.

BBVA predicts that in 2024 the deficit will be 5.0 percent of GDP, which is the highest in the last 35 years; For the firm, it is foreseeable that next year’s fiscal consolidation will take the public deficit to levels close to 3.5 percent.

“Given the expected fragility of public finances in the coming years, due to the depletion of contingency funds, the expansion of social programs, capital support to Petróleos Mexicanos (Pemex) from the federal government, public pensions, the debt service and the little room for growth in tax collection without a fiscal reform, the government will have to make adjustments to programmable spending to generate a deficit of around 2 percent of GDP,” BBVA explained.