Emerging markets face debt woes: IMF chief

Higher benchmark yields in advanced economies are pressuring emerging markets by raising the cost of debt servicing, the managing director of the International Monetary Fund said on Wednesday.

Kristalina Georgieva said that putting upward pressure on the cost of debt servicing is a major problem for many developing economies.

"They are facing pressures from more expensive fuel and food. They're facing pressures from declining development assistance, from subdued foreign investors' appetite for riskier (investments)," she said at a news briefing during the annual meetings of the IMF and the World Bank in Bangkok.

The remarks came as the IMF noted in its latest Fiscal Monitor report that global public debt is "historically high" and is projected to surpass 100 percent of global GDP before 2030.

Georgieva is urging emerging economies that have to deal with huge debt servicing to focus on raising their growth rates, keeping macro foundations strong and promoting regional integration.

She cited the Association of Southeast Asian Nations, saying its members can benefit more from deeper regional integration.

"ASEAN members are trading more with the rest of the world than within ASEAN," she said.

Era Dabla-Norris, deputy director of the IMF's fiscal affairs department, said G7 countries' sovereign yields can tighten global financial conditions, noting that these yields have risen by about 120 basis points since late February.

While many emerging markets have remained resilient thanks to stronger policy frameworks and a large domestic investor base, the increase in advanced economies' sovereign yields could lead to spillovers that will affect vulnerable economies, she said.

"There's a lot of heterogeneity within the world of emerging markets. Those countries with high debt, large refinancing needs and limited fiscal space are likely to be hit harder, and it leaves them much more exposed than others," she said.

Stronger debt management, credible fiscal plans, and better taxation, revenue mobilization and spending efficiency can help emerging economies reduce vulnerabilities, she added.

"Improving tax administration is also good for (economic) growth," she said, adding that burdensome procedures in tax administration can hurt productivity of local enterprises.

The biannual Fiscal Monitor said that geopolitical tensions are adding to fiscal pressures owing to higher defense spending and increased economic uncertainty. Global growth, forecast to ease to 3.1 percent this year, is also expected to remain subdued.

Against this backdrop, tax systems carry a "dual burden" — safeguard the revenue that keeps public finances sustainable and support private investment, innovation and employment, the report said.

It said that a "well-designed" value-added tax taxes final consumption, and when firms can recover taxes paid on inputs, production costs fall and resources can move to more productive uses.

Rodrigo Valdes, director of the IMF's fiscal affairs department, said countries can increase growth while preserving revenues by improving taxation and spending.

"We can design taxes in a way that they are less distortive. And this will reduce barriers to investment, work and production while safeguarding revenues," he said.

Valdes cited several policy recommendations outlined in the Fiscal Monitor report, including urging countries with elevated debt or high risk to start fiscal consolidation now.

He said countries should also respond to the global energy shock by allowing prices to reflect energy scarcity. Implementing fuel subsidies is "fiscally very costly", he said.

"If you look at the pattern of consumption, it's easy to see that that subsidy is relatively regressive in many places," he said.

Instead of imposing domestic fuel subsidies, governments can use that money to subsidize public transport to help the more vulnerable people, he added.

prime@chinadailyapac.com