According to an IMF report, these debts could slow GDP growth in developed countries by 0.9%, and in emerging countries by 1.3%, over the next three years.
Debt accumulated by individuals and businesses during the pandemic could slow GDP growth in developed countries by 0.9%, and in emerging countries by 1.3%, over the next three years, according to a report by the IMF released on Monday.
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To support the economy, governments adopted exceptional measures in early 2020, including granting large-scale loans or suspending debt repayment. But this aid has also increased the level of indebtedness of certain actors, in particular in the most affected sectors such as tourism and catering, or of households with the lowest incomes. “Financially constrained households and vulnerable businesses, the number and proportion of which have increased during the Covid-19 pandemic, are likely to cut spending further, especially in countries with ineffective bankruptcy frameworks and limited budgetary leeway», explains the IMF.
To avoid making the problems worse, governments must “calibrate the pace of their fiscal consolidation“, recommends the international organization. “Where the recovery is well underway and financial accounts are sound, fiscal support can be reduced more quickly, making it easier for central banks to do their job“says the report.
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Elsewhere, governments can consider targeted measures. By helping, for example, the sectors where bankruptcies are the most numerous, or by granting incentives for restructuring rather than liquidation. “To ease the burden on public finances, temporary excess profit tax hikes could be considerednotes the report. “This would help recover some of the transfers to companies that did not need them.»
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