IMF says fiscal support needed until recovery takes hold

Global debt likely reached 98% of economic output at the end of 2020 as governments poured in nearly $14 trillion in fiscal support to battle the coronavirus pandemic, the International Monetary Fund (IMF) said on Thursday, January 28, while urging that fiscal support stay in place until recovery is firmly underway.

The IMF, in an update of its Fiscal Monitor, said that the fiscal support included $7.8 trillion in additional direct spending or foregone revenue and $6 trillion in guarantees, loans, and equity injections. Total support is up about $2.2 trillion since the last Fiscal Monitor update in October.

The Fiscal Monitor projected global government gross debt as a share of gross domestic product (GDP) would reach 99.5% in 2021, compared to 83.5% for 2019. For G20 countries, gross debt is set to reach 109% in 2021, while debt in advanced economies is set to reach 124.9%.

The IMF projected 2021 fiscal deficits at 8.5% for the world, 9.4% for G20 countries, and 8.8% for advanced economies.

“Global cooperation on producing and widely distributing treatments and vaccines to all countries at low cost is crucial,” IMF officials said in a blog posting accompanying the report. “Vaccination is a global public good that saves lives and will eventually save taxpayers’ money in all countries. The sooner the global pandemic ends, the quicker economies can return to normal and people will need less government support.”

The IMF said that fiscal policy should stay in place to support vulnerable households and firms until recovery takes hold and even then, many low-income countries will need additional assistance through grants, concessional financing, longer suspensions of debt service, and in some cases, debt restructurings.

It also called for fiscal policy to “enable a green, digital, and inclusive transformation.” This includes investments in health systems, job training and hiring subsidies, promoting greater tax fairness, and cutting wasteful spending.

“In short, governments need to win the vaccination race, respond [with] flexibility to the changing economic conditions, and set the stage for a greener, fairer, and more durable recovery,” IMF officials said. – Rappler.com