A senior official from the IMF has urged the Chinese government to utilize its tax-and-spend policies to stimulate its faltering economic growth, ahead of significant meetings in Washington this week.
IMF warns China on use of fiscal policy
The IMF has expressed concerns regarding the increasing levels of global public debt, which it projects will reach an unprecedented USD 100 trillion this year, with debt levels anticipated to rise in both the U.S. and China, the world's two largest economies.
"China is undergoing a significant transition," said Vitor Gaspar, head of the IMF's fiscal affairs department, in an interview from his office near the White House.
"Fiscal capacity can enable China to achieve a higher level of economic ambition and prosperity," he remarked ahead of the International Monetary Fund and World Bank annual meetings set to begin on Monday.
Gaspar highlighted China's "strong fiscal capacity to act."
The IMF forecasts a gradual decline in China’s economic growth, projecting it will decrease from 5.2% in 2023 to 4.8% this year and further to 4.5% in 2025.
Countries like China and the U.S., which have rising public debt but are "safely away from debt distress," should gradually but decisively adjust their fiscal policies to lower their debt-to-GDP ratios, Gaspar suggested.
At the same time, China should implement fiscal measures aimed at driving growth and reversing its anticipated economic slowdown.
"For a large economy like China, domestic factors must be the primary drivers of growth and development," he noted, adding that addressing this issue could help rebalance the Chinese economy.
Gaspar also emphasized the need for China to address "financial misallocations," particularly those arising from its struggling real estate sector, as well as to resolve some of the "vulnerabilities and financial weaknesses" at the sub-national level.
Alongside China, the IMF identifies the U.S. as a significant contributor to global public debt, predicting that its gross general government debt-to-GDP ratio will reach 121% this year and approach 132% by the end of the decade.
