The IMF calls for "temporary" policies to protect "vulnerable" citizens from the effects of the war in Iran

BarcelonaThe International Monetary Fund (IMF) calls on governments to implement "temporary" policies to protect their economies from the energy shock caused by the war in Iran, with special emphasis on protecting the most "vulnerable" segments of the population, according to the April report of Fiscal Monitor, which the economic body publishes semi-annually. In the study, the IMF warns that some countries —such as many members of the European Union, China, or the United States, among others— have limited room to maneuver to carry out public policies to support the economy due to the high levels of public debt they have accumulated in recent years and low growth levels.

"The growing risk of sustained commodity price shocks resulting from geopolitical tensions reinforces the arguments for allowing energy prices in each country to adjust where feasible," indicates the IMF document, which thus opens the door to the adoption of measures such as those approved last month by the Spanish government to limit the effects of the increase in the cost of oil and natural gas. Despite this, the international body clarifies that these support policies should be carried out as long as they are "necessary" and "there is fiscal space," meaning that public accounts can bear them.

Furthermore, it makes it clear that these should be "temporary, well-targeted, and narrowly focused" measures channeled through existing systems, such as public subsidies or existing taxes. The main objective of these measures, according to the IMF, should be to help "vulnerable households" and, in sectors that request it, those "viable" companies that have high energy consumption. The report therefore advises against "broad measures that are financially costly, distorting, and difficult to withdraw" once they come into effect.

In this regard, Pedro Sánchez's executive was one of the first in the world to approve fiscal measures to mitigate the effects of rising energy prices. On March 20, the government approved by decree a reduction in VAT and other special taxes on fuels, electricity bills, and natural gas, a broad measure affecting all citizens, in addition to larger discounts with the social energy bonus that particularly benefit low-income families. The measures also include aid for hauliers, farmers, ranchers, and other professional groups in the purchase of fuels.

In fact, despite being one of the countries that reacted earliest to the energy shock caused by the war in the Middle East, the report does not mention the measures approved by the Spanish government. In Spain's case, the report's only mention is to announce that it forecasts that the debt of Spanish public administrations will fall between 10 and 14 percentage points of gross domestic product (GDP, the indicator that measures the size of an economy) from now until 2031 thanks to "favorable dynamics in interest growth," as well as praising reforms to digitize public administration in the State, as they allow for the reduction of public spending without political or social costs.

High levels of indebtedness worldwide

As in other recent studies, the IMF has warned about the high levels of public debt accumulated by some of the world's major countries. Although the most industrialized economies, such as EU countries, Japan, or the US, are often mentioned as examples of indebted states, the IMF also mentions China and other emerging economies.

Despite this, the IMF appears to have learned the lessons of the 2008 financial crisis, when it was one of the institutions that most advocated for broad austerity policies. This time, despite warning about high deficits and the indebtedness of many countries, it asks governments to implement measures more carefully. According to the report, "rationalizing current spending"—including "industrial subsidies and foreign trade support measures," transfers to citizens, and spending on public sector salaries—offers "a more sustainable path" towards the cleanup of public finances than "uniform cuts" to all items in public budgets. Furthermore, it also calls for an effort to maintain public investment, which was one of the elements most penalized by spending containment policies over a decade ago.