Rachel Reeves supports IMF for overhaul of UK budget rules | government borrowing

In a speech in Washington on Tuesday, the International Monetary Fund's (IMF) chief economist suggested relief from rising debt levels to finance public investments. He said this in response to a question about Britain at the IMF and World Bank annual meetings, but it felt like a highly choreographed play.

Rachel Reeves was due to arrive at a conference in the US capital the following evening and the IMF knew that the British Prime Minister would announce a major overhaul of Britain's budget rules to allow for greater investment by the country.

Senior IMF officials have repeated the same message from session to session: that the Washington-based organization firmly believes in the power of public investment to spur growth.

There has also been a significant improvement in UK growth this year, giving the economy a sense of bounce back after a difficult period.

It appeared as though she was preparing the landing pad for Reeves in Washington to explain how her plan would further spur growth and improve living standards.

Set in the balmy American capital bathed in autumn sunshine, the Prime Minister has taken the opportunity to relax away from Westminster after a grueling first 100 days of his Labor government and with less than a week to go before submitting his first Budget.

Reeves said next state's budget will include new rules governing Treasury borrowing. Debt levels could be increased by up to 50 billion to spur investment in Britain's crumbling infrastructure, experts have said.

IMF staff declined to comment directly on speculation about what might be in the prime minister's budget, but they didn't have to. They supported the principles, and that alone was enough for Reeves to say he had the support of a key arbiter in the world of economic planning.

As an example of this new affection, Vtor Gaspar, director of the IMF's department that monitors budget planning, said: Our report emphasizes that public investments must be protected in a budgetary process that promotes sound macroeconomic performance.

It is very welcome that the issue is now at the center of debate in the UK.

Reeves also met U.S. Treasury Secretary Janet Yellen for a private chat on the first morning at the Washington conference, and the pair posed for a relaxed photo with European Central Bank (ECB) President Christine Lagarde and Canadian Deputy Prime Minister Chrystia Freeland. I took a pose. During a brief pause in the G20 meeting of finance ministers and central bankers in Washington.

In Washington this week are Chrystia Freeland, Janet Yellen, Rachel Reeves and Christine Lagarde. Photo: HM Treasury.

They are strong allies of Reeves as he works to regain trust in international institutions after the 2022 Liz Truss mini-budget debacle.

The conversation with each might have been more tense had Reeves not announced that Britain was rejoining the economic mainstream and placing greater emphasis on cross-border investment and cooperation.

Ukraine was also on the prime minister's mind when she arrived in Washington, and after meeting Yellen, Reeves spent time with Ukrainian Finance Minister Sergiy Marchenko, who was in town to collect $1.1 billion from the IMF. Britain plans to lend Ukraine an additional $2.26 billion.

The IMF introduced some caveats in its commentary.

Pierre-Olivier Gourinchas, chief economist and head of research at the IMF, said that if countries' debt levels are high, interest rates are high and growth is good but not significant, there is a risk that things could worsen or get out of control. fast.

The UK was mentioned in the Government Finance Review as one of the countries where debt repayments are rising due to an almost endless number of underfunded public services and welfare commitments.

The momentum is such that UK borrowing is expected to increase from 100% in 2023 to 108.3% in 2029 without any policy change. This compares with the IMF's expected increase from 123.4% to 131.1% for the G7 as a whole.

We believe that controlling public debt is very important. Gaspar said controlling public debt risk is very important.

The IMF has warned of rising debt levels through meetings held every two years since the 2008 financial crisis. Only a few countries responded to the organization's plea.

Global government borrowing is expected to reach 100 trillion next year. In 2023, the total income of the global economy was $105 trillion.

Most of the increase in government debt is due to the world's two largest economies, the United States and China.

Both countries have been trying to revive their economies with additional loans and are now deeply in debt.

What does the election of Donald Trump mean for US debt levels? According to some estimates, they will surge again, just as they did during his last presidential term when he borrowed money to finance massive tax cuts.

Trump has also raised concerns among top IMF officials that he could wreak havoc on international trade after promising sharp tariff hikes on goods imported into the United States. This applies not only to China but also to Europe.

Britain is hoping to avoid Trump's glare if he is elected on November 5. Keir Starmer this week said he could remain on good terms with Trump after the Republican candidate's campaign accused Labor of blatant foreign interference in US elections over Labor officials visiting US battleground states to volunteer for Democratic rival Kamala Harris. claimed.

Reeves has avoided controversy over his visit to Washington this week, but good relations with the US are a top priority for Labour. Whoever is in the White House must continue to offer favorable trade terms.

Once the IMF has been defeated, the next task from an international perspective will be to have President Harris or Trump by one's side.

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