The IMF cautioned Monday that debt accrued by firms and individuals throughout the world might impede economic recovery from the pandemic crisis.
As Covid-19 spread two years ago, governments took extraordinary steps to stabilise their economies, such as suspending debt repayments or granting large-scale loans.
However, the Washington-based crisis lender stated that these initiatives resulted in greater debt levels for several sectors, especially those most impacted by the virus, like tourism and restaurants, as well as low-income people.
The IMF warned in a chapter of its World Economic Outlook that debt might slow GDP in industrialised nations by 0.9 percent and in emerging economies by 1.3 percent over the next three years.
Financially constrained households and vulnerable firms, which have increased in number and proportion during the COVID-19 pandemic, are expected to cut spending even further, according to the lender, particularly in countries where the insolvency framework is inefficient and fiscal space is limited.
To prevent compounding the situation, the government should “calibrate the speed” of phased-out aid and expenditure programmes.
Where the recovery is well started and balance sheets are in good shape, fiscal support may be eliminated more quickly, easing central banks’ tasks, according to the IMF.
Governments might provide assistance to troubled industries in order to avert bankruptcy or create incentives for reorganisation rather than liquidation.
Temporarily higher taxes on surplus earnings might be considered to reduce the load on public budgets. As per the lender, this would assist in recouping some of the payments to enterprises that did not require them.