IMF urges France to step up reforms to rein in debt

File photo. International Monetary Fund (IMF) director Christine Lagarde (L) speaks with French President Emmanuel Macron during the first day of a two-day conference on combating the financing of terror groups at the OECD in Paris, France, 26 April 2018. [Pool/EPA/EFE]

The International Monetary Fund on Monday (3 June) warned France that its public debt is “too high for comfort”, calling on the nation to tackle the issue by stepping up spending reforms.

In a report outlining preliminary findings of its 2019 mission, the IMF said tax and labour market reforms had helped keep the economy resilient despite slowing growth.

But it urged the government of President Emmanuel Macron to find further ways to curb spending and to ensure the measures have public support, in a nation rocked by weekly anti-government “yellow vest” protests.

“France’s public debt is too high for comfort,” said the IMF mission’s concluding statement.

“While there is no immediate risk, as the currently low interest rates suggest that higher debt can be sustained at this juncture, the elevated debt level provides little comfort from a medium and long-term perspective.”

The IMF noted that public debt has risen from around 20% of gross domestic product in the 1980s to close to 100%.

“Additional spending reforms are needed to ensure that the ongoing tax-burden reduction can be sustained and public debt placed on a firm downward path,” the statement said.

The IMF maintained its growth forecast for France at 1.3% this year, predicting it would “stabilise at around 1.5% in the medium term, predicated on a recovery of domestic and external demand and on gains from recent reforms”.

It added that while the current outlook is positive, “risks have risen”, citing global trade tensions, the uncertainty over Britain’s exit from the European Union and “in France, erosion of support for necessary economic reforms among the general public”.

On coming to power in 2017, Macron immediately set about trimming the deficit to bring it in line with an EU limit of three percent of GDP, which the eurozone’s second-biggest economy had persistently flouted for a decade.

In March the national statistics agency Insee said France’s budget deficit fell to a 12-year low of 2.5% of GDP in 2018, a greater-than-expected decline achieved despite falling growth and purchasing power.

But the announcement came after months of yellow vest protests, sparked last November over plans to increase diesel prices and raise taxes on pensions.

Macron announced a package of tax cuts and income top-ups worth 10 billion euros in December, following the first month of the protests.

And in April, the government announced new plans for fresh tax cuts, to be funded by axing corporate tax breaks, reducing public spending and introducing longer working hours.

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