Global public debt to reach highest level in history in 2020, IMF warns
HASTENING SPENDING CUTS MAY DERAIL RECOVERY — IMF
The global economic response to the coronavirus pandemic has resulted in global public debt reaching its highest level in recorded history, at over 100 per cent of global gross domestic, more than the levels seen in the Second World War.
In a blog post, IMF fiscal policy chief Vitor Gaspar and chief economist Gita Gopinath said the ongoing Covid-19 pandemic has prompted an unprecedented fiscal policy response of close to $11 trillion worldwide. But with confirmed cases and fatalities still rising fast, policymakers will need to retain supportive and flexible fiscal policies and preparing for transformational economic change.
Total global fiscal support so far has been split almost evenly between above-the-line — measures with a direct effect on revenue and expenditure such as deferral of taxes and cash transfer s — and below-the-line support, which includes public sector loans, equity injections and government guarantees.
“The need for fiscal action does not end here, as we are not out of the woods. Even as many countries tentatively exit the Great Lockdown, in the absence of a solution to the health crisis, huge uncertainties remain about the path of the recovery,” they wrote.
Policy advice
Gaspar and Gopinath advise fiscal policy will need to remain supportive and flexible until a safe and durable exit from the crisis is secured. While the trajectory of public debt could drift up further in an adverse scenario, an earlier-than-warranted fiscal retrenchment presents an even greater risk of derailing the recovery, with larger future fiscal costs.
The writers sound a sober warning on jobs.
“Many of the jobs destroyed by the crisis will likely not return. It will be necessary to facilitate the transfer of resources from sectors that may permanently shrink, such as air travel, to sectors that will be expanding, such as digital services. Support should move from maintaining jobs to supporting people as they retrain or relocate,” they wrote.