The New Thrust of Fiscal Conservatism C. P. Chandrasekhar

In a new turn to its advocacy of a conservative fiscal stance amidst a recession, the International Monetary Fund in the April 2022 edition of its “Global Financial Stability Report” has called for reining in bank credit to governments as a way of weakening the sovereign–bank nexus that was strengthened during the pandemic and ostensibly threatens bank stability. What is side-stepped is the real possibility that this additional thrust to limit government borrowing would only contribute to an intensification of the recession, adversely affecting bank profitability and increasing rather than reducing bank fragility. The IMF’s case seems to be driven by its ideological adherence to fiscal conservatism rather than any effort to address the vulnerabilities that have heightened bank fragility during the prolonged crisis affecting the world economy.

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(The article was originally published in Economic and Political Weekly (EPW),Vol.  No 57, Issue No 20, on 14 May 2022)