IMF urges France to end ‘at any cost’

24 billion euros. This is what the tariff shield introduced by France to combat the energy crisis will cost. “It’s time to stop no matter what “, estimates the International Monetary Fund (IMF) this Monday. “It’s time” to put an end to this, – said at a press conference the head of the IMF mission in France, Jeffrey Franks.

Thanks to electricity and gas price freezes, energy vouchers, fuel discounts, business support… France has increased spending over the past year, which the IMF estimates is more than 2% of its GDP.

Benefits from rising prices

The government’s initiatives have kept inflation “two to three points” below what it would have been without the bailout, Geoffrey Franks welcomed. “France has the lowest inflation rate in Europe thanks to the tariff shield,” echoes Economy Minister Bruno Le Maire.

But this exceptional spending has also taken its toll on public finances, which have already been hit hard by the Covid-19 pandemic, during which the government has heavily funded partial unemployment and business closures at all costs.

After these two crises, and at a time when pandemic-related aid has faded, “it is justified to start fiscal consolidation in 2023,” the IMF writes in the findings of France’s economic assessment mission, known as “Article IV.” However, this is not the path that Paris is on, the Washington-based institution notes, noting that “the 2023 finance bill does not aim to reduce the deficit by postponing fiscal adjustment until 2024.”

Bercy welcomes France’s economic resistance

The government is targeting a government deficit of 5% next year after 4.9% this year and plans to return below the 3% mark in 2027, with its large neighbors betting on a faster return to that level.

In its paper released on Monday, the IMF still expects 0.7% growth next year in France. An assessment that “confirms” for Bruno Le Maire the “resistance of the French economy”. “This is very good news,” added Public Accounts Minister Gabriel Attal. “I heard a lot of doubts about the predictions that could be made,” he said during a public meeting in the Senate. Thus, the Bank of France expects growth from -0.5% to 0.8% in 2023.

According to Gabriel Attal, the IMF is maintaining its growth forecast “because it knows that we are determined to continue to act in the interests of our economy.”

Aid targeting

However, the IMF is also wary of a “slight increase in the deficit” in 2023, citing the extension of energy measures and the ongoing removal of taxes on production for companies. The IMF calculates that targeted energy assistance could “largely” allow for a fiscal tightening of a quarter of a point of GDP, which also suggests a possible delay in the production tax cut.

According to Jeffrey Franks, other ways to cut government spending and ultimately the deficit are pension and unemployment insurance reform, and cutting tax loopholes. “We will implement” the first two reforms hammered in on Monday by Bruno Le Maire, while Labor Minister Olivier Dussaud has just presented new rules for calculating unemployment benefits to the social partners.

Jeffrey Franks also pushes for “clarification of who does what” between government and local governments to avoid “spending duplication between central government and local governments.” In the long term, France’s deficit should remain above the debt-stabilizing level, the IMF worries. The Washington institution is therefore calling for a “sustainable adjustment” to bring the deficit down to 0.4% of GDP by 2030, based on curbing growth in current spending, in particular related to the pandemic and the energy crisis.