The year ahead will be “very tough” for fiscal policy — especially for countries holding elections — the IMF chief told AFP before departing for the World Economic Forum in Davos, Switzerland.
“This is going to be a very tough year, because fiscal policy has to rebuild buffers and deal with the debt that was accumulated in many countries,” International Monetary Fund Managing Director Kristalina Georgieva said in an interview in Washington.
“About 80 countries are going to have elections, and we know what happens with pressure on spending during election cycles,” she continued.
Billions of people in dozens of countries around the world are due to go to the polls this year, from India to the United States, putting pressure on governments to either raise spending or cut taxes to win popular support.
The IMF is due to publish updated economic forecasts later this month which will show the global economy is broadly “on track” to meet its previous forecasts, according to Georgieva.
The global economy is “poised for a soft landing,” she said, adding: “Monetary policy is doing a good job, inflation is going down, but the job is not quite done.”
“So we are in this trickiest place of not easing too fast or too slow,” she said.
In the US, the Federal Reserve recently held interest rates at a 22-year high and penciled in as many as three interest rate cuts this year, while the European Central Bank has also stopped hiking interest rates.
These steps have led traders to become more optimistic about the possibility of a loosening of monetary policy in the months ahead, which can act to boost economic growth.
The concern at the IMF, Georgieva said, is that governments around the world spend big this year and undermine the progress made in the fight against high inflation.
“If monetary policy tightens and fiscal policy expands, going against the objective of bringing inflation down, we might be for a longer ride,” she added.
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