IMF: Sharper increase in budget deficits and debts than during financial crisis
The IMF is projecting a large-scale increase in debt all around the world because of the Covid-19 pandemic. Authorities had already spent about 9.5 percent of global GDP on fiscal measure to fight the virus, the Fund’s Director of the Fiscal Affairs Department, Vitor Gaspar said at the virtual press briefing of the Fiscal Monitor report on Wednesday, April 15.
“Authorities all around the world have jumped into action. According to Fiscal Monitor estimates, discretionary policy actions with direct impact on the budget sum up to 3.3 trillion dollars. In addition, loans and equity injections amount to 1.7, pardon me, 1.8 trillion dollars. And finally, guarantees represent 2.7 trillion dollars. The sum is about eight trillion dollars, which corresponds to 9.5 percent of world GDP. “
Fiscal stimulus packages cannot work without good governance, Gaspar emphasized. Transparency will be crucial to prevent corruption.
“Principles of good governance should be reinforced in a way commensurate with the scale of the intervention. In order to make all of this memorable in a sentence – there it goes: Do whatever it takes, but make sure to keep the receipts.”
The wide-ranging measures taken by governments and central banks around the world will rapidly increase debt.
“Budget deficits and debts will sharply increase in 2020. Substantially more than in 2009 at the peak of the global financial crisis. Gross government debt all over the world will jump up by more than 13 percentage points of GDP to more than 96 percent of GDP.”
All countries around the world could do right now, is to manage the lockdown of the economy and prepare for the recovery, said Gaspar.
“The economy, to caricature, is in a lockdown. One is managing the lockdown and maintaining the conditions for recovery. That basically means that these measures are very expensive, and if the epidemic proves longer lasting, they will be more expensive still.”
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