The IMF invites France to tighten its fiscal policy from next year
Freeze of electricity and gas prices, energy vouchers, discounts on fuel prices, support for businesses and households… For the past year, France has increased spending and disbursed billions to help consumers cope with the price spike. In a report published Monday, November 21, the International Monetary Fund (IMF), however, believes that Paris must begin to clean up its finances, starting next year.
France’s spending, estimated by the IMF at more than 2% of its GDP, 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 the “whatever it takes”.
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 assessment mission of France, known under the name of“Article IV”.
However, 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 expects a public deficit of 5% next year, after 4.9% this year,
Fear of a “slight widening of the deficit”
In its document published on Monday, the IMF, which is still counting on growth of 0.7% next year in France, 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.
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.
In the longer term, the French deficit should remain above the level at which it stabilizes the debt, also anticipates the IMF, which fears a widening of the gap “already important” with comparable European countries.
He calls to “a sustained adjustment” to reduce the deficit to 0.4% of GDP by 2030, based on the reduction in the growth of current expenditure, in particular those linked to the pandemic and the energy crisis.
The International Monetary Fund is also emphasizing structural reforms, through the raising of the retirement age, the completion of the unemployment insurance reform, the rationalization of certain expenses (fossil fuels or housing), and that of the civil service workforce.