Global finance officials have suggested that they might consider more aggressive tax collection measures in advanced economies as a way to get the global economy out of a looming “worrisome” situation. Coronavirus pandemic– induced debt hole.
The comments were made during a virtual summit of the International Monetary Fund (IMF), broadcast online, at a seminar titled “Avoiding a COVID-19 Debt Trap” today. Participants discussed possible ways “to contain debt risks through better debt architecture and transparency” and asked how “global cooperation” could help alleviate the problem.
The Managing Director of the IMF, the Bulgarian economist and the former CEO of world Bank Kristalina Georgieva, claimed that the world had “entered the pandemic with high debt levels”, with 56% of low-income countries exposed or already struggling with “debt distress”.
She added that the risk for developing countries was twofold: with slower vaccine roll-out than richer economies, low-income regions would likely be “years behind compared to advanced-economy countries without support.” . And, she said, good economic news “for some” could “turn into bad news for others.” A faster recovery in the United States, she added, “could push up interest rates, increasing the debt burden of developing countries.”
Indeed, the last projections saw global GDP grow by more than 6% this year, falling to just under 4.4% in 2022 – after global production fell 3.3% in 2020. America, however, is expected to exceed average global growth of 6.4%, while the growth rate will be the lowest in sub-Saharan Africa, at only 3.1%.
But Georgieva said the IMF’s “way forward” involved “more grants and more support” to “reduce [poorer countries’] debt levels. And as the 30 or so poorest countries are temporarily not repaying IMF loans due to the economic fallout from the pandemic, she called on advanced countries to ensure that “all hands” are “on the bridge.” . And that, she said, involved governments to “collect taxes more efficiently.”
His comments followed calls for international tax reform from Janet Yellen, the US Secretary of the Treasury. Yellen recently expressed his desire to see a “comprehensive corporate tax” system put in place.
AP city the head of the treasury said she wanted “to ensure that governments have stable tax systems that generate sufficient income to invest in essential public goods”.
Many governments have already sought to bolster public coffers by cracking down on crypto tax evasion – and imposing capital gains and tax levies on crypto-related profits.
Georgieva added that transparency would be key to his approach to global debt. She said the IMF “needs to push really hard for mountains of often hidden debt” to be made public and “expose” the debt contracts and some of their “often ridiculous terms”.
She also spoke of creating a common framework for creditors and “making it stand” for traditional lenders as well as a new breed, including potential creditors from the private sector and parts of countries like “China and Turkey”.
“We cannot afford to be satisfied. If countries are not determined to move with us, nations will begin to fall into the debt trap. “
Martin Wolf, chief economic commentator for the Financial Times, drew attention to IMF polls conducted on LinkedIn where 48% of respondents said they were “extremely concerned” about the escalating debt crisis and 23% said “low and stable inflation”. would be the key to alleviating the situation.
He noted that participants painted a “disturbing picture” of the likely outcome.
Mohamed El-Erian, the president of Queens’ College, Cambridge, and AllianzThe chief economic adviser, argued that higher growth and “timely debt restructuring” could help avoid the kind of debt crisis the world faced in the early 1980s and again in Africa. 2008, but felt that a “lost decade” could loom. “More market volatility” could follow if the correct actions are not followed, El-Erian added.
He warned that part of the debt restructuring solution will “involve using the stick” in the system, “not the carrot”. He added that there was “too much complacency at the moment” and warned that many markets were “inundated with liquidity” which had “made debt problems worse”.
The crisis, he added, could be worse than that of the 1980s, especially in Africa and parts of Asia.
But the Deputy Secretary General of The United Nations, Vera Songwe, who is also the executive secretary of the Economic Commission for Africa, noted that debt-to-GDP levels are currently 65% in Africa, and said a “lack of private sector participation” could exacerbate the problem.
She said: “Vulnerable middle-income countries like Morocco […] suffer from a lack of tourism. And that, Songwe said, could send low-income countries into negative spirals.
And while others were more cautious about the role of the private sector and Chinese actors in debt relief for developing countries, Songwe said liquidity was badly needed. “Emerging economies have not seen enough liquidity,” she said, adding:
“[These countries] need new cash yesterday. […] The private sector must come to the markets – and do it at the right cost. We can reduce the cost of market access. […If not,] 170 million people could fall into poverty. Can we really afford to let so many people fall into poverty? “
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