The IMF is warning that a ‘synchronized downturn’ in global growth may mean countries need to be prepared for coordinated action, the Fund’s Director of the Fiscal Affairs Department, Vitor Gaspar said ahead of the launch of the Fiscal Monitor report Wednesday (October 16) in Washington.
“The global economy is in a synchronized slowdown. Risks are on the downside. Large economies should be prepared to engage in concerted action. Our analysis finds that in case of major enduring shocks to the global economy, coordinated multilateral action holds the key to effectiveness,” Gaspar said.
Although nominal rates are low across much of the world, Gaspar says that governments must carefully watch their debt burdens.
“Low interest rates cannot be allowed to feed complacency. In most countries around the world public debt ratios and interest payment burdens are on the rise. Fiscal policy should be conducted in the context of a medium-term framework. Otherwise, as it happened too many times in the past, overborrowing may be followed by investors’ panic and financial markets disruptions.”
A major concern is how to finance sustainable green energy initiatives.
“Policymakers must act now to curb global warming. The window of opportunity is closing fast. Countries pledges for the Paris agreements are insufficient. Finance ministers must fully engage as carbon tax takes the center of mitigation efforts.”
Gaspar says that carbon taxes and pricing are an important tool both as an incentive to change energy consumption practices but also to raise income to fund other social goods.
“The Fiscal Monitor argues that carbon taxation should be the centerpiece of mitigation efforts. Carbon pricing provides incentives to reduce energy consumption to move towards clean forms of energy and move away from coal and other polluting fossil fuels. At the same time, the revenues from carbon taxation can be used to give money back to the people, compensate affected communities, finance public infrastructure and reduce taxation on labor and capital.”