IMF Fiscal Monitor 2023: On the path to policy normalization

The International Monetary Fund (IMF) has recently announced that fiscal policy is returning to pre-pandemic levels after three years since the outbreak of the COVID-19 pandemic. Despite this positive development, public debt remains higher than before the pandemic, creating significant challenges for many countries worldwide. In a recent interview with CNBC Africa, Paulo Medas, Division Chief at IMF's Fiscal Affairs Department, discussed the implications of the latest fiscal monitor and the unique challenges faced by developing countries, particularly in Africa. Reflecting on the current state of global fiscal policy, Medas highlighted that deficits and debt levels are expected to remain above pre-pandemic levels, putting pressure on public finances. This situation is exacerbated by rising interest rates and unfavorable borrowing conditions, especially for low-income countries. Medas emphasized the importance of addressing price stability to combat inflation and achieve sustainable growth. He noted that fiscal policy can play a crucial role in fighting inflation and called for decisive action from central banks and governments to stabilize the economy. Despite the constraints faced by African governments in managing tight fiscal spaces, Medas proposed key recommendations to promote economic growth while maintaining the inflation fight. These recommendations include improving tax capacity to enhance revenue generation, enhancing the quality of public spending, and seeking international support for debt restructuring. With a focus on governance and public financial management, the IMF and World Bank are working collaboratively to help countries improve expenditure quality and control corruption. Additionally, efforts are being made to address climate change by promoting green investments. The conversation also touched on the pressing issue of debt distress in low-income countries, particularly in Africa. Medas underscored the importance of debt management and called for international support to help countries navigate through the challenges posed by high debt levels. The IMF's push for debt relief and restructuring aims to prevent a return to the high debt levels experienced in the past. In addressing inflation concerns, Medas highlighted the significance of coordinating fiscal and monetary policies to achieve optimal outcomes. By working together, fiscal and monetary policies can help contain inflation while protecting vulnerable households through targeted interventions. The IMF's Fiscal Monitor report addresses these critical issues and offers valuable insights for policymakers and authorities to navigate the complexities of fiscal policy normalization in a post-pandemic world.