In its fall 2022 financial review, the International Monetary Fund (IMF) raised the specter of fiscal crises, resulting from the inability of a State to close the gap between its expenditure and its revenues, which would become frequent, even drastic. a generalized fiscal crisis. Yes, “widespread fiscal crisis”, new words from an international institution and the kind of situation our globalized world has never seen before.

As Quebec has just tabled its budget, as Canada is about to do on March 28, let us ask ourselves the question: are we at risk of a generalized fiscal crisis?

That of the States accounts for a little less than half of this amount. Helped by the economic recovery and inflation, this debt expressed as a proportion of GDP is doing better in several states, including Canada and the United States. However, the debt as such continues to increase in most countries, including Canada and the United States.

Kristin Forbes, a former member of the Bank of England’s Monetary Policy Committee, told the American Economic Association in January that the high accumulation of public debt has increased the risk of fiscal crises. Kenneth Rogoff of Harvard University also explained in January that: “We were lucky not to have a global systemic event in 2022, and we can be happy about that, but [interest] rates continue to go down. increase and the risk continues to grow. »

Given how serious a generalized fiscal crisis could be, I went to the source and met with Vitor Gaspar, Director of the Fiscal Affairs Department of the International Monetary Fund (IMF). He explained to me that at the time of his statement on October 12, 2022, the economic outlook was deteriorating, the financing conditions of several developing countries were tightening and even some developed countries such as the United Kingdom and South Korea experienced episodes of high market volatility. But since then, growth has proved surprisingly resilient, inflation is down in most countries, China is doing better, and there is some modest relief in developing countries, so concern has subsided. is attenuated. Mr. Gaspar concluded by noting that it is still true that debt servicing costs will rise and that debt risks and vulnerabilities remain high in many countries.

I also went to the source on the Canadian side and questioned the office of the Minister of Finance. The answer: “Using the net debt measure, the most relevant for comparing the indebtedness of advanced economies, Canada has a lower debt-to-GDP ratio than all of the G7 countries. Given this measure of debt, the level of concern about Canada’s fiscal capacity is low. The excellent credit ratings granted by the three main rating agencies, Moody’s (AAA), S

Gross debt is also an important measurement tool because interest is charged on gross debt and Canada’s gross debt ranks fourth among the G7 and 25th among 35 advanced economies.

The spark can come from anywhere, including the war in Ukraine, a possible recession, the default of payment by a developed country like Italy or by several developing countries, the collapse of one or more large companies. The Silicon Valley Bank debacle demonstrates how quickly fire can ignite. And let’s not forget that countries already heavily indebted do not have the same financial capacity as in 2008 to help the markets and react to the collapse. Then, judging by the latest G20 meetings, international cooperation no longer seems to be as present as in 2008, when the G20 played a key role during the financial crisis.

Let’s hope that we will succeed in avoiding fiscal crises and think about how to prepare for them. “Hope for the best and prepare for the worst: that is the rule,” wrote Pessoa.