Debt accumulated by companies and individuals worldwide could slow the economic recovery from the pandemic crisis, the IMF warned Monday.
Governments took exceptional measures to support their economies as Covid-19 spread two years ago, including rolling out debt service deferrals or offering large-scale loans.
But these programs resulted in higher debt for some sectors, including those most disrupted by the virus, such as tourism and restaurants, as well as low-income households, the Washington-based crisis lender said.
In a chapter of its World Economic Outlook, the IMF said debt could hold back growth by 0.9 percent in developed countries and 1.3 percent in emerging markets over the next three years.
“Financially tight households and vulnerable businesses, which have grown in number and proportion during the COVID-19 pandemic, are expected to spend more, especially in countries where the insolvency framework is inefficient and fiscal space is limited,” the lender said.
To prevent the problems from worsening, the government must “adjust the pace” of phasing out aid and spending programs.
“Where the recovery is in full swing and balance sheets are in order, fiscal support can be phased out more quickly, making the work of central banks easier,” the IMF said.
Governments could help troubled sectors avoid bankruptcy, or provide incentives for restructuring rather than liquidation.
“To ease the pressure on public finances, temporary higher taxes on excess profits could be considered. This would help reclaim some of the transfers to companies that didn’t need them,” the lender said.