The COVID-19 pandemic is leaving behind complex legacies that will need to be tackled, a top IMF official said on Wednesday, as he underlined the need for policies that must remain agile and respond flexibly as the situation may require.
The pandemic has affected almost every country in the world and has left national economies and businesses counting the costs, as governments struggle with new lockdown measures to tackle the spread of the deadly virus.
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“In the last twelve months, countries have announced $16 trillion in fiscal actions. Fiscal actions have enabled health systems and have provided emergency lifelines to households and firms. By doing so, fiscal policy has also mitigated the contraction in economic activity,” Vitor Gaspar, Director of the Fiscal Affairs Department at the International Monetary Fund, said in the annual report of the annual Fiscal Monitor.
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“Indeed, economic growth surprised on the upside as 2020 unfolded, and growth forecasts for 2021 have been revised up as well. Gradually, economies and societies have improved their ability to cope with the pandemic,” Gaspar said.
Gasper said at present, the evolution of COVID-19 and its fallout on economic and social developments remain highly uncertain.
According to Johns Hopkins Coronavirus Resource Center, the coronavirus has infected 132,293,566 people and killed 2,871,642 across the world.
The US is the worst affected country with 30,845,915 cases and 556,509 deaths. Policies must remain agile and respond flexibly as the situation may require.
The balance between supporting people and firms, in the emergency, and facilitating a resilient, sustainable and inclusive growth through economic transformation should evolve and adapt to the evolution of COVID-19 and its consequences, he wrote. COVID-19 is leaving behind complex legacies that will need to be tackled, he said.
First, the amount of fiscal support in 2020 was much larger than the historical norm for business cycle fluctuations. That was appropriate because COVID-19 is a health emergency. But these measures were expensive and contributed to reaching historically high debt levels.
“In a context of historically low-interest rates, countries with stronger buffers, better access to finance, or both were able to deploy larger fiscal support. Going forward, rebuilding buffers and dealing with legacies is crucial for resilience in the event of further shocks,” Gasper said.
Medium-term frameworks and better targeting will be key for building fiscal space and better confronting trade-offs such as providing support now and providing insurance against future emergencies.
“Second, countries are in different stages of COVID-19, economic and labour market conditions differ, structural characteristics—including institutions—are distinct. Hence, fiscal policy must be tailored to country-specific circumstances,” Gasper said.
The report said that policymakers need to balance the risks from large and growing public and private debt with the risks from the premature withdrawal of fiscal support, which could slow the recovery.
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Global cooperation must be scaled up to contain the pandemic, especially accelerated vaccination at affordable cost in all countries. In an upside scenario in which the pandemic is controlled sooner in all countries, the report said.
The targeting of measures must be improved and tailored to countries' administrative capacity so that fiscal support can be maintained for the duration of the crisis—considering an uncertain and uneven recovery.
“Given the low-interest environment, a synchronised green public investment push by countries with fiscal space can foster global growth,” it said.
In the United States, the proportion of people out of work hit a yearly total of 8.9 percent, according to the IMF, signalling an end to a decade of jobs expansion.
Millions of workers have also been put on government-supported job retention schemes as parts of the economy, such as tourism and hospitality, have come to a near standstill. The number of new job opportunities is still very low in many countries.
In April, 2020, countries took fiscal measures and central banks together injected a whopping $14 trillion as part of their efforts to mitigate the challenges posed by the novel coronavirus pandemic.Follow our full coverage of the coronavirus pandemic here.