By David Lawder

WASHINGTON, (Reuters) – Governments need to plan a return towards more sustainable budgets and policies that earn the trust of investors after the unprecedented fiscal stimulus given to combat the COVID-19 pandemic.

In its Fiscal Monitor Report, the IMF stated that every country has to decide when and how fast it should consolidate fiscal debt.

It is important to assess the fiscal plan in order to take into account the current stage of pandemic and any fiscal vulnerabilities.

According to a Fiscal Monitor Chapter, “Strengthening Credibility of Public Finances”, countries can buy time and reduce the pain of debt stabilization by making commitments to fiscal sustainability using credible fiscal frameworks.

According to the IMF, “When lenders have faith in governments’ fiscal responsibility, it becomes much easier for them to finance bigger deficits and rollover more debt,”

IMF research revealed that countries with credible fiscal policies could have lower borrowing costs, reverse huge jumps in debt faster, and it was possible to reverse a 15% rise in debt within a decade if there were no other shocks.

The Fund advised that countries agree to set broad fiscal targets, including underlying tax- and spending policy for the next three years. With specific policies such as an increase in tax or raising retirement benefit age, the Fund recommends.

It said that fiscal rules such as limiting budget deficits to a specific percentage of the gross domestic product or creating independent fiscal councils within government could increase credibility.

The IMF however stated that fiscal plans must be flexible in order to enable economies to stabilise and prevent cuts to key public investments.

The IMF stated that “Changes in taxes and spending can be pre-legislated” and could be contingent upon recovery.

The group cited Britain’s announcement of rising corporate rates in April 2023, and Israel’s passing of a sunset on extended unemployment benefits that are linked to lower jobless rates.