When the COVID-19 pandemic abates and the great lockdown ends, a globally coordinated, broad-based fiscal stimulus may become an effective tool to foster the recovery, an International Monetary Fund (IMF) official has said.
"Coordination enhances the effectiveness of fiscal policy actions," Vitor Gaspar, director of the IMF's fiscal affairs department, told Xinhua in a recent written interview, ahead of the IMF and World Bank Spring Meetings.
Meanwhile, he said, it has to respect relevant differences across countries, mainly in their financing capacity.
The IMF official said fiscal policy coordination could also facilitate much needed public investments in green and digital technologies, as well as more spending in people's health and education to attain the UN Sustainable Development Goals.
Noting that the near-term priority is to save lives and livelihoods, Gaspar said this requires accommodating health sector spending needs, safeguarding key public services and social protection, and providing lifelines to support the most affected people and viable firms.
According to the IMF's biannual Fiscal Monitor released Wednesday, countries have taken fiscal actions amounting to about 8 trillion U.S. dollars so far to contain the pandemic and its damage to the economy, with Group of Twenty (G20) countries taking the lead.
Commenting on China's response to the COVID-19 outbreak, the IMF official said the nation's containment efforts have proven to be successful and its policymakers reacted strongly to the pandemic by scaling up health and emergency services.
"They have also provided timely, targeted, and temporary lifelines to protect people and companies," Gaspar said. "This is important because domestic recovery will rest on actions that limit layoffs and bankruptcies of viable businesses, thus reducing the scarring effects of the economic crisis as the lockdown ends," he said.
Gaspar suggested Chinese authorities remain ready to provide additional support if it appears to be needed as the economy returns to normal.
"If more support to growth is needed, it should be on budget and in line with existing efforts to rebalance the economy and foster long-term sustainable growth," he said.
Gaspar put forward specific measures that "will contribute to rebalancing," such as more investment to promote green growth and spending to improve public health system and enhance social safety nets.
Welcoming the Chinese leadership's emphasis on enhancing epidemic prevention and control and on improving national public health emergency management system, the IMF officials said this effort should be "properly budgeted for prompt implementation."
Gaspar noted the Chinese authorities "have already laid the groundwork to ramp up fiscal stimulus if it is needed," highlighting the government's plans to increase issuance of special local and central government bonds to "finance revenue or spending measures to aid the recovery."
When asked whether countries should take fiscal deficits into consideration when rolling out policies to fight the crisis, the IMF official said policymakers should "do whatever it takes but make sure to keep the receipts."
At the world level, governments' global debt is expected to rise by 13 percentage points to reach 96 percent of global gross domestic production (GDP) in 2020, the newly released Fiscal Monitor showed.
"The increase in debt is a necessary consequence of the fiscal actions taken to fight the pandemic," Gaspar told Xinhua. "As the pandemic abates and the economy recovers, hopefully in 2021, public debt ratios should stabilize again, albeit at higher levels."
While governments should provide all the funds needed to support additional health and emergency services, extend emergency lifelines to households and to viable firms, the IMF official said they should also "limit fiscal risks" going forward.
In order to do that, he said, governments should deploy their resources in a temporary and efficient way; embed the fiscal costs in credible medium-term fiscal frameworks; and assess, monitor, and disclose the fiscal risks because not all measures will have an immediate effect on deficits and debts.
In the World Economic Outlook (WEO) report released Tuesday, the IMF projects that global economy is on track to contract sharply by 3 percent in 2020 as a result of the COVID-19 pandemic, calling it the "worst recession" since the Great Depression in the 1930s.
Gaspar said emerging markets and developing economies are hit hard by the pandemic, with typically "less room in their budget to respond." He said the IMF is engaging actively with national authorities, in collaboration with other international institutions, to help them address the extraordinary challenges.
Noting that the IMF has 1 trillion dollar lending capacity to help support members, especially developing economies, Gaspar said it is also mobilizing emergency funding to meet the expected demand of about 100 billion dollars.
Moreover, the IMF is working with development partners on increasing the Catastrophe Containment and Relief Trust to 1.4 billion dollars, up from 500 million dollars available, to give debt relief to the poorest member countries.
Aside from financial assistance, the multilateral lender is also ready to offer policy advice and technical assistance, said the IMF official.
"The virus will be not defeated until it is defeated everywhere," Gaspar said. "Global coordination will thus be necessary to support, via grants, concessional loans, and medical aid, those countries with limited health capacity and financing constraints."
"Global cooperation will also be indispensable to develop and distribute universally possible drugs and vaccines," he added.
