Will France seek help from the IMF? - Public finances are weakening and the population is aging
French policymakers have been debating whether the country will be forced to default on its debt to the International Monetary Fund if parliament continues to resist budget reforms and reducing its total debt. France's public finances are currently in tatters.
Paris has been unable to reduce borrowing since the end of the pandemic, so the public debt burden is growing at an unsustainable pace. In addition to rising costs for defense, digitalization and the green transition, France is spending almost 15% of annual output on pensions, an amount that is expected to increase further as the population ages.
A government in financial difficulty usually seeks help from the International Monetary Fund for a loan, after financial markets refuse to lend it because they don't think it will ever be repaid. This generally happens after a government gets into excessive debt by running large budget deficits.
But the IMF lends to a country if it agrees to adopt reforms that eliminate large deficits, as happened with Greece about a decade and a half ago. This inevitably requires politically painful decisions, such as tax increases or cuts in public spending.
France already has the highest tax burden in the developed world, at nearly 44% of GDP in 2023. But despite this, spending has consistently exceeded tax revenue for almost 50 years. By 2030, the IMF estimates that French public debt will be 130% of GDP, double what it was before the 2008 financial crisis.
However, for the time being, France is not expected to seek help from the International Monetary Fund, as it has the capacity to borrow on financial markets, even though costs have risen sharply. Even if this were to change, the first line of defense would be the European Stability Mechanism, which was created during the eurozone sovereign debt crisis. The European Central Bank could also lend unlimited amounts to France, but only as part of a structural reform plan agreed with the European Stability Mechanism.
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