France should plan post-coronavirus recovery plan for public finances ‘now’

3 Nov 20

France must begin establishing its medium-term fiscal plans to ensure they are ready in time to help the country recover from Covid-19, the IMF has said.

 

The western European country has been one of the hardest hit by the pandemic in terms of deaths and economic output, IMF economists said in an evaluation of the economy, adding that its high deficit and debt levels (set to reach 11.4% and 120% of GDP respectively this year) are causes for concern.

Reducing the deficit “should not be a concern” while the pandemic is ongoing, the economists said, because citizens and the private sector still need support, and withholding that support would likely increase poverty and inequality.

But given the “limited” fiscal space, any additional spending should be targeted and temporary, and permanent increases should be avoided – likewise with permanent tax cuts – “to prevent the build-up of additional fiscal problems once the crisis eases”.

Once the recovery gets going, the IMF said, spending cuts will be needed to start to reduce France’s debt.

“While the exceptionally low interest rate outlook has provided some fiscal space, France’s elevated debt level provides less room to manoeuvre over the medium term and increases fiscal risks,” the economists said.

They stressed that this should only happen after the economy has “broadly recovered” to its pre-crisis level, but said preparation work should begin immediately.

“It would be advisable to begin the planning process now in order to provide a credible medium-term fiscal path,” they said.

“The plan should be focused on structural fiscal reforms to streamline and boost the efficiency of recurrent expenditure.”

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