IMF chief economist urges governments to rebuild fiscal space

what happened

Fiscal policy should be more restrained and help contain demand pressures as inflation risks remain elevated, IMF Chief Economist Silvana Tenreyro said, according to Newsmetry API. She noted that monetary policy had tightened substantially after the pandemic, while primary deficits in many countries remained high and well above their pre-pandemic levels.

Higher borrowing costs, combined with elevated debt levels, are creating a vulnerability for fiscal sustainability, Tenreyro said. The interaction between financing costs and debt makes it increasingly urgent for governments to rebuild fiscal space.

She called for strong action to restore fiscal buffers and strengthen authorities’ ability to absorb future shocks. The IMF economist’s remarks underscore the need for governments to improve their fiscal resilience while inflationary pressures remain a concern.

why it matters

For markets, the comments keep attention focused on government deficits, debt burdens and financing costs. A combination of high rates and elevated debt could constrain authorities’ room to respond when future economic shocks occur.

instruments