IMF Says Fiscal Policy Key to Addressing Effects of Covid Pandemic

In its Fiscal Monitor report of this October 2021, the International Monetary Fund (IMF) warns the countries of the world of the need to consider the effects of an increase in tax revenue or a fall in public spending.

In its report, the multilateral financial organization also draws attention to the impact that a drop in world savings could have or a sudden rise in interest rates, with negative repercussions for emerging markets.

However, it states that even when fiscal policy needs to be adapted to changing conditions, “Fiscal policy is key to addressing the effects of the pandemic.”
Web Live
In a live presentation (Web Live) on the results of the Fiscal Monitor 2021 report, through which they answered questions about the countries, Víctor Gaspar, director of the IMF’s Public Finance Department; Paulo Meneses, and Paulo Mauro, highlighted that countries have to emphasize credibility, because by increasing the fiscal framework and credibility, they will be able to achieve lower rates on sovereign bonds.

“Fiscal responsibility does pay off,” said Gaspar. He argued that fiscal policy to respond to the very high levels of public debt is related to risks and world stability.

The debt of governments and households and non-financial corporations in the world amounted to US $ 226 million in 2020, higher than US $ 27 million to the 2019 figure. “Increase, which is by far the largest we have on record.”

Stated that more than 90% of debt accumulation corresponds to advanced economies and to China, while emerging and low-income countries contributed only 7% of the increase.

However, in 2020, fiscal policy proved to have its value, as the increase in debt was justified by the need to respond to Covid, as well as its special and financial consequences, said Gaspar when commenting on the report with the directors of the IMF, Meneses and Mauro.

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He warned that financing constraints are severe for the poorest countries, although debt will fall by one percentage point this year and next.

“After that, it is projected to stabilize at about 97% of GDP,” he said.

He stressed that credibility and monetary and fiscal policies are important and they determine the degree of access to financial markets. He stated that the allocation of Special Drawing Rights of US $ 650,000 million is the largest allocation ever agreed by the IMF.

In the forum of questions he stressed that the global recovery is extremely uncertain and is stopped by the availability of vaccines, and therefore The IMF has a fund of US $ 50,000 million to ensure a vaccination advance throughout the world and ensure that 40% of the population is vaccinated in all countries before the end of this year.

Priorities
Paulo Mauro insisted that the priority remains addressing the health emergency and also increasing public investmentespecially green investing. He indicated in the round of questions that countries should adopt measures on several fronts, starting with mobilizing internal resources and spending more efficiently, in addition to the fact that international support will be required with the vaccine and handling financial limitations in highly indebted countries.

On economic measures, does not recommend widespread fuel and energy subsidies. In the short term, he suggested giving targeted support to the most vulnerable sectors, targeted transfers and subsidies to the electricity bills of low-income families, and investing more in clean and renewable energy.

Measures
Policy councils must be adapted to the evolution of the epidemic and to economic events and prospects, but also to the characteristics of each country.

Financial gaps
Before 2020, the financial gaps to reach the Sustainable Development Goals in 2030 were considerable and the pandemic makes them worse.

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