Published November 21, 2022 at 12:48Updated November 21, 2022, 3:16 pm
Like every year, the International Monetary Fund (IMF) provides its recommendations for the French economy. Those published on Monday are unequivocal.
For the Washington-based institution, by providing significant budget support in response to the energy shock caused by the war in Ukraine, France “has succeeded in mitigating its economic impact, but at great cost.” It must therefore immediately reduce the expenditure wing to restore its budgetary leeway.
It is therefore not surprising that the IMF is recommending a redefinition of energy aid, calling for both the phasing out of tariff shields and an increase in support for the most vulnerable. According to him, the government’s decisions to stop the discount at the pump and to make the tariff shield on gas and electricity less generous from next January are steps in the right direction. He also approves the “energy allowance” which will have to be paid within the year to the 12 million most modest families.
Expansion of the deficit
However, the war in Ukraine will continue to weigh on the French economy next year. At this stage, the IMF’s forecasts are more optimistic than those of the forecasters, but less than those of Bercy. He expects activity to rise by 0.7% in 2023, versus 1% for the executive, while warning of the risk of a more pronounced deterioration in the economy. Inflation is expected to remain elevated in the coming months. “The automatic indexation of the minimum wage – and to a lesser extent pensions and social benefits – […] could induce second-round effects,” he warns.
The institution is also concerned about the trajectory of French public finances. “The 2023 budget law does not aim at reducing the deficit, postponing the budget adjustment to 2024”, she observes. While the government expects a deficit of 5% of GDP next year (as in 2022), the Fund even fears “a slight widening of the deficit”. “We believe it will rather reach 5.4% in 2023, while a more targeted aid policy could have rapid effects and help bring it back to around 4.7%”, says Jeffrey Franks, deputy director of the IMF’s Europe department.
In the event that the refocusing of public support is not sufficient, the body advises France to postpone the reduction of taxes on production scheduled for 2023 (which the senators just voted with an amendment but which the executive should revoke in the Assembly ). Or find other recipes.
Target, 0.4 points of GDP
In addition to this, the IMF warns against a foreseeable deterioration of the public debt ratio in the medium term, contributing to widening the gap between France and other European countries. Given the already high tax burden in France, he insists once again on the need to reduce current spending by implementing structural reforms – pensions and unemployment insurance in particular – but also by starting to rationalize tax expenditures or the public administration .
According to him, the goal by the end of the decade should be to reduce the deficit to 0.4% of GDP. However, fiscal consolidation must not penalize green and digital investments. Instead, the IMF calls for acceleration in these two areas.
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