WASHINGTON: Rodrigo Valdez, director of the IMF’s Fiscal Affairs Department, said rising sovereign bond yields were adding to governments’ financing pressures as global public debt approaches 100 percent of gross domestic product (GDP), its highest level since the end of World War II.
In a blog post published on Wednesday, Valdez said persistent inflationary pressures, elevated debt levels and tighter financing conditions had made fiscal consolidation increasingly urgent.
“The more countries wait, the more painful the adjustment becomes,” Valdez said, warning that delays would increase fiscal vulnerabilities and leave policymakers with fewer options to manage public finances.
He said advanced economies with high debt levels needed to build political support for credible medium-term plans to contain borrowing costs and limit the spillover effects of fiscal pressures on the global economy.
For emerging markets and developing economies, financing conditions remain favourable in many cases, but the IMF cautioned that this could change. Low-income countries, which face greater constraints in accessing external financing, should strengthen tax collection systems and improve the efficiency of public spending, Valdez said.
The IMF also highlighted the fiscal cost of government measures designed to shield households and businesses from higher energy prices. While more countries are allowing rising energy costs to pass through to consumers, many continue to rely on extensive and expensive support programmes.
Valdez estimated that such measures cost governments around 0.5 percent of global GDP. He warned that maintaining broad-based energy support could put further upward pressure on prices worldwide.