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Higher food and energy prices have heightened the risks of
social unrest, especially in low-income countries already
struggling with high debt levels after the COVID-19 pandemic,
and now facing higher borrowing costs amid interest rate hikes,
the IMF said in its latest report on global fiscal developments.
"Government acting in its special role to protect the vulnerable
when things fall apart goes a long way to keep social cohesion,"
IMF Fiscal Affairs Director Vitor Gaspar told Reuters in an
interview.
Gaspar said there was ample evidence that financial crises,
pandemics, and volatile or surging prices could exacerbate
divisions and strife, and fiscal policy had an important role to
play in addressing such concerns.
"It is an absolute imperative for public policies everywhere to
provide food security for all," he said, arguing in favor of
targeted, temporary measures such as cash transfers instead of
broader, generalized subsidies that could be costly.
Measures taken by many countries to limit the rise in domestic
prices could also exacerbate global mismatches between supply
and demand, driving prices even higher.
Gaspar said poor households spent up to 60% of their budgets on
food, compared to just 10% for the average household in advanced
economies.
However, many countries lack the spending power to fully address
the latest crisis, after unprecedented outlays during the height
of the COVID pandemic that drove global debt to $226 billion in
2020 - the largest one-year surge in debt since World War Two.
"We believe that the global debt risks are quite significant.
They affect some countries in all country groups," Gaspar said,
pointing to high yield spreads on some emerging market debt that
reflected growing market perception of risk.
The IMF said it expects global public debt to fall to 94.4% of
gross domestic product in 2022 after peaking at 99.2% in 2020,
stabilizing around 95% over the medium term. But that level is
11 percentage points higher than before the pandemic.
Gaspar said the IMF would continue to push for changes to ensure
greater clarity about the Group of 20's common framework debt
restructuring process and quicker timelines, as well as a freeze
in debt payments during negotiations, and comparable treatment
of private and public creditors.
"The case for a global solution is very strong. And we are
working hard to try to make it happen," he said.
"It's in the best interest of creditor countries, it's in the
best interest of debtor countries, and it is in the best
interest of private creditors as well."
(Reporting by Andrea Shalal; Editing by Kenneth Maxwell)
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