The IMF cautioned Monday that debt accrued by firms and individuals around the world might hamper economic recovery from the pandemic crisis.
As Covid-19 spread two years ago, governments took extraordinary measures to stabilise their economies, such as suspending debt repayments or granting large-scale loans.
However, the Washington-based crisis lender noted that these programmes resulted in greater debt levels for several sectors, especially those most affected by the virus, like tourism and restaurants, as well as low-income people.
The IMF predicted that debt burdens will slow GDP in rich countries by 0.9 percent and developing markets by 1.3 percent over the next three years in a chapter of its World Economic Outlook.
“Financially restricted consumers and fragile enterprises, which have increased in number and proportion during the COVID-19 pandemic, are anticipated to curtail spending even more,” the lender stated.
The government should “calibrate the speed” of phasing out aid and spending programmes to prevent worsening difficulties.
“Where the recovery is well started and balance sheets are strong, fiscal support can be eliminated more quickly, easing central bank work,” the IMF stated.
Governments should provide assistance to struggling industries to prevent bankruptcies or create incentives for restructuring rather than liquidation.
“Temporarily higher taxes on surplus profits could be considered to relieve the financial strain on the government. This would assist in recouping some of the transfers to companies that did not require them “explained the lender.