IMF Advises Govts to Spend Less Amid Post-Pandemic Recovery

The International Monetary Fund (IMF) has advised governments to return to sustainable national budgets as the world begins to recover from the economic crisis caused by the COVID-19 pandemic.

It recommended in its fiscal monitor report that countries should reign in fiscal spending to compensate for the unprecedented levels of financial support extended during the pandemic.

The economic recession caused by the pandemic necessitated a comprehensive program of fiscal stimulus, the IMF said. However, these measures have caused high deficits and a rise in debt.

The International Monetary Fund projected that, by the end of 2021, debt, as a share of the GDP, will be six percentage points higher than the pre-pandemic levels for low-income developing countries. It has advised countries to control public spending in the post-pandemic era while being careful not to risk economic recovery in the process.

“This report provides countries with guidance on how they can both avoid withdrawing fiscal support too early, and yet signal to the public that their debt levels are sustainable in the long run,” it explained.

The IMF also recommended that governments design fiscal frameworks that address the sustainability of public finances and sustainability of the economy through a countercyclical fiscal policy and facilitate communication and accountability to the public.

It highlighted that countries should aim to restrict budget deficits within a certain percentage of the GDP and strengthen the underlying fiscal institutions.

“To commit to future deficit reduction, governments have several instruments, including undertaking structural fiscal reforms (such as pension reform or subsidies reform), pre-legislating changes to taxes or spending, committing to fiscal rules that lead to deficit reduction in the future,” the IMF detailed.

It is also conducting a review of Pakistan’s tax collection for the fiscal year 2021-2022 and has asked the country to raise the annual revenue collection target for the current fiscal year to $6.3 trillion from $5.8 trillion.

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