Infotech The IMF calls on France to tighten its fiscal policy from 2023

The IMF calls on France to tighten its fiscal policy from 2023

“It’s time to stop the ‘whatever it takes'” : after spending billions to relieve companies and households from the energy crisis, France must begin next year to clean up its finances, the International Monetary Fund (IMF) recommended on Monday 21 November.

“We supported whatever it takes, but it’s time” put an end to it, said Jeffrey Franks, IMF mission chief for France, at a press conference.

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“It is not a question of stopping all support for the economy, [mais] to support in a more targeted way” households and businesses, “without degrading public finances”he added, commenting on a report published Monday morning by the IMF.

Lowest inflation in Europe

Through the freezing of electricity and gas prices, energy vouchers, discounts on fuel prices, support for businesses… France has increased spending over the past year, evaluated by the IMF at more than 2% of its GDP.

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Government initiatives helped contain the inflation rate “two to three points” below the level it would have reached without aid measures, welcomed Jeffrey Franks.

“France has the lowest level of inflation in Europe thanks to the tariff shield”echoed the Minister of the Economy Bruno Le Maire in a reaction sent to AFP.

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But these exceptional expenditures also weighed on public finances already very degraded by the Covid-19 pandemic during which the government notably financed partial unemployment and the closures of businesses under “whatever the cost”.

A public deficit considered too large

After these two crises and when the aid linked to the pandemic faded, “it is justified to start fiscal consolidation in 2023”writes the IMF in the conclusions of an economic evaluation mission of France, known under the name of “article IV”.

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But this is not the path that Paris is taking, notes the Washington institution, noting that “the 2023 finance law does not target a reduction in the deficit, postponing the budgetary adjustment to 2024”.

The government is counting on a public deficit of 5% next year after 4.9% this year, and plans to return below the 3% mark in 2027, where its big neighbors are betting on a faster return to this level.

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Reduce public spending

In its document published on Monday, the IMF still expects growth of 0.7% next year in France. An estimate that “confirm” for Bruno Le Maire “the resistance of the French economy”.

Still, the IMF fears “a slight widening of the deficit” in 2023, citing the extension of energy measures and the continuation of the elimination of production taxes for companies.

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However, targeting energy aid could ” largely “ allow a fiscal tightening of a quarter of a point of GDP, calculates the IMF, also citing a possible postponement of production tax cuts.

Other avenues for reducing public spending and ultimately the deficit, according to Jeffrey Franks: pension reform and that of unemployment insurance, as well as the reduction of tax loopholes.

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Call for “rationalization”

“We will implement” the first two reforms, hammered this Monday Bruno Le Maire, while the Minister of Labor Olivier Dussopt has just presented to the social partners the new rules for calculating unemployment benefits.

To reduce public spending, Jeffrey Franks also insists on “clarify who takes care of what” between government and local communities. “We see a lot of duplication of expenditure between central government and local governments”he assures, calling for the “rationalization”.

In the longer term, the French deficit should remain above the level at which it stabilizes the debt, worries the IMF.

The Washington institution therefore calls for “a sustained adjustment” to reduce the deficit to 0.4% of GDP by 2030 by relying on the reduction in the growth of current expenditure, in particular that linked to the pandemic and the energy crisis.

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