France Needs ‘Substantial’ Extra Efforts on Budget, IMF Says
(Bloomberg) -- French President Emmanuel Macron received another warning about the country’s high debt burden as the International Monetary Fund said more efforts are needed to get budget deficits under control.
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The deficit will remain elevated at 5.3% of economic output this year and only fall modestly to 4.5% in 2027, taking into account current legislation and clearly specified measures, the IMF said in a statement on the preliminary findings of its Article IV report on France.
“Substantial additional efforts, compared to staff’s current policy baseline, will be needed over the medium-term, starting in 2024, to strengthen public finance,” the IMF said on Thursday.
French Finance Minister Bruno Le Maire responded by saying the government will do “everything necessary” to meet its pledge to bring the budget deficit within the European Union’s 3% limit in 2027.
He said the report didn’t take into account additional savings announced last month of €10 billion ($10.8 billion) for this year, adding that the IMF’s recommendations for reducing public spending had been fully respected.
“The whole economic and financial strategy of the French government is validated by the IMF,” Le Maire told reporters on Thursday.
Macron’s plans to reduce budget shortfalls and curb debt after the Covid pandemic and energy crisis have fallen foul of a slowdown in growth last year. To get back on track, his government has pledged extra spending cuts in 2024 and another round of savings in the 2025 budget. But those plans have faced skepticism, with the country’s fiscal watchdog saying they lack credibility and coherency.
Macron also faces challenges at the National Assembly, where he lacks an absolute majority and opposition parties are threatening to bring down the government with no-confidence votes over budget bills.
Like France’s High Council of Public Finances, the IMF also warned that the government’s assumptions for economic growth “might prove somewhat optimistic.”
The fund expects growth in gross domestic product to pick up to 1.3% by 2025 from 0.8% in 2024 — slightly less than forecast by the Finance Ministry — as financial conditions ease, investment starts to recover, and households’ purchasing power and consumption improve.
Over the medium-term, potential growth is projected to reach 1.3% before decelerating toward 1% in the long-term as the population ages, the IMF added. Le Maire said this was “very close” to the government’s forecasts.
‘Fiscal Risks’
Without further measures to control the budget, the fund said debt would rise to 112% of economic output in 2024 and increase by about 1.5 percentage points a year over the medium-term.
“This relatively high level of debt is a source of fiscal risks, as it leaves the future evolution of public finances exposed to an unexpected increase in funding costs or a reduction in growth,” the IMF said.
(Updates with comments from French finance minister starting in fourth paragraph.)
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