Global fiscal outlook highly uncertain amid war, sanctions on Russia: IMF

By Ovunc Kutlu

ANKARA (AA) - The global fiscal outlook is subject to high uncertainty amid Russia's war on Ukraine and sanctions on Moscow, the International Monetary Fund (IMF) said in a report on Wednesday.

The average public debt is projected to continue to rise in emerging markets, mainly driven by China, reaching 72% of gross domestic product (GDP) by 2024, according to the report titled "Fiscal Policy from Pandemic to War."

Due to the coronavirus pandemic restrictions, household savings had risen sharply relative to pre-pandemic levels, by a combined $3.5 trillion in the US and EU during the past two years, it said.

However, fiscal support was insufficient to prevent a fall in household income in many developing economies, it added.

"Uncertainty endured, shifting from pandemic to war, (which) is disrupting commodity markets, and further fueling inflation. Higher food and energy prices raise the risks of social unrest," the report said.

"Fiscal policy has a special role to play when things go wrong. It can protect the most vulnerable from the impact of high and rising food and energy prices on household budgets. More generally, governments’ responses will be shaped against the difficult background of high and increasing inflation; slowdown in growth; high debt and tightening credit conditions," it explained.

Public debt among low-income developing countries is expected to gradually decline to 48% of GDP by 2024, while debt in advanced economies is estimated to decrease to 113% of GDP by 2024.

"High uncertainty and marked divergences across countries require a tailored and agile fiscal policy response. To support economies that will be hardest hit by the war, fiscal policy will need to address the humanitarian crisis and economic disruption," it said.

The IMF noted that due to rising inflation and interest rates, fiscal support should target those that are most affected and focus on priority areas.