“It’s time to stop the ‘whatever the cost'”: after having spent billions to relieve companies and households from the energy crisis, France must start next year to clean up its finances, has recommended Monday the International Monetary Fund (IMF). “We supported whatever the cost, but it’s time” to put an end to it, said Jeffrey Franks, IMF mission chief for France, at a press conference. Through the freezing of electricity and gas prices, energy vouchers, discounts on fuel prices, support for businesses… France has increased spending over the past year, estimated by the IMF at more than 2% of its GDP.
Finances already very degraded with the pandemic
The government’s initiatives have made it possible to contain the inflation rate “two to three points” below the level it would have reached without aid measures, welcomed Jeffrey Franks. “France has the lowest level of inflation in Europe thanks to the tariff shield”, echoed the Minister of the Economy Bruno Le Maire in a reaction sent to AFP.
But these exceptional expenditures also weighed on public finances already very degraded by the Covid-19 pandemic during which the government notably financed partial unemployment and the closings of businesses under whatever the cost. After these two crises and at a time when the aid linked to the pandemic has faded, “it is justified to start budgetary consolidation in 2023”, writes the IMF in the conclusions of an economic assessment mission of France, known as “Article IV”.
A public deficit of 5% in forecast
However, this is not the path that Paris is taking, notes the Washington institution, noting that “the 2023 finance law does not target a reduction in the deficit, postponing the budgetary adjustment to 2024”. The government is counting on a public deficit of 5% next year after 4.9% this year, and plans to return below the 3% mark in 2027, where its big neighbors are betting on a faster return to this level.
In its document published Monday, the IMF still expects growth of 0.7% next year in France. An estimate which “confirms” for Bruno Le Maire “the resistance of the French economy”. “This is very good news,” added the Minister of Public Accounts Gabriel Attal.
Targeting aid to tighten the budget
“I had heard a lot of doubts about the forecasts that could have been made,” he said during a public session in the Senate. The Banque de France is thus counting on growth of between -0.5% and 0.8% in 2023. For Gabriel Attal, the IMF maintains its growth forecast “because it knows that we have the determination to continue to act for our economy.
Still, the IMF also fears “a slight widening of the deficit” in 2023, citing the extension of energy measures and the continuation of the abolition of production taxes for companies. Targeting energy aid could “largely” allow a budgetary tightening of a quarter of a point of GDP, calculates the IMF, also suggesting a possible postponement of production tax cuts.
Avoid duplication of expenses
Other avenues for reducing public spending and ultimately the deficit, according to Jeffrey Franks: pension and unemployment insurance reforms, as well as the reduction of tax loopholes. “We will implement” the first two reforms, hammered Monday Bruno Le Maire, while the Minister of Labor Olivier Dussopt has just presented to the social partners the new rules for calculating unemployment benefits.
Jeffrey Franks also insists on “clarifying who takes care of what” between government and local authorities, in order to avoid “duplication of expenditure between central government and local governments”. In the long term, the French deficit should remain above the level at which it stabilizes the debt, worries the IMF.
The Washington institution therefore calls for “a sustained adjustment” to reduce the deficit to 0.4% of GDP by 2030 based on the reduction in the growth of current expenditure, in particular those linked to the pandemic and to the energy crisis.