business
Monday Apr 18 2022
By
AFP

Pandemic crisis: IMF warns high debt could slow countries' recoveries

By
AFP
This file photo taken on January 26, 2022, shows the seal for the International Monetary Fund (IMF) in Washington, DC. — AFP
This file photo taken on January 26, 2022, shows the seal for the International Monetary Fund (IMF) in Washington, DC. — AFP

  • IMF says debt burden can hold growth back in developed countries by 0.9% over next 3 years.
  • Govt should "calibrate the pace" of phasing out aid and spending programmes, IMF says.
  • The lender says to lessen burden on public finances, temporary higher taxes can be envisaged.


NEW YORK: Debt accumulated by businesses and individuals worldwide could slow economic recoveries from the pandemic crisis, the International Monetary Fund (IMF) warned Monday.

The governments took exceptional measures to support their economies as COVID-19 spread two years ago, including rolling out debt repayment suspensions or offering large-scale loans.

But these programmes resulted in higher debt levels for some sectors, including those most disrupted by the virus, like tourism and restaurants, as well as low-income households, the Washington-based crisis lender said.

Read more: Pakistan to attend IMF, World Bank meeting in US this week

In a chapter of its World Economic Outlook, the IMF said the debt burden could hold growth back in developed countries by 0.9% and in emerging markets by 1.3% over the next three years.

"Financially constrained households and vulnerable firms, which have grown in number and proportion during the COVID-19 pandemic, are expected to cut spending by more, especially in countries where the insolvency framework is inefficient and fiscal space limited," the lender said.

To avoid exacerbating problems, the government should "calibrate the pace" of phasing out aid and spending programmes.

"Where the recovery is well underway and balance sheets are in good shape, fiscal support can be reduced faster, facilitating the work of central banks," the IMF said.

Read more: IMF ready to work with new govt to assist Pakistan towards economic sustainability

For struggling sectors, governments could offer aid to prevent bankruptcies, or provide incentives for restructuring, rather than liquidation.

"To lessen the burden on public finances, temporary higher taxes on excess profits could be envisaged. This would help claw back some of the transfers to firms that did not need them," the lender said.