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IMF calls for resolution to fiscal challenges

0 Comment(s)Print E-mail, November 11, 2011
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Carlo Cottarelli, director of Fiscal Affairs Department under IMF, said: "if you raise the taxes too fast, if you cut spending too rapidly, people are not going to have enough money to invest and to consume. And this would also be bad for growth. It would be a cause of instability. So our message is have a plan, start reducing deficit, but you have to do it at the right pace -- not too fast, not too slow -- at least in countries that are not subject to market pressures and, therefore, have a bit more flexibility."

He believed that the fiscal policy in emerging markets should be tightened to avoid the risk of overheating. The fiscal accounts of emerging markets in general are better than the fiscal accounts of advanced countries at the moment. But these economies are overheating and inflation is too high.

"In response to this overheating most emerging economies are tightening fiscal policy in 2011 and intend to tighten in 2012. But in some emerging markets this tightening is not enough. They should tighten a bit more to reduce the pressure on inflation. At the same time, it is important that all emerging markets maintain some degree of flexibility given the very uncertain economic future at present. This means that if their economies cool off on their own, they can slow down the pace of fiscal adjustment," he said.

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