The International Monetary Fund (IMF) is cautioning that widening deficits and sharply falling economic activity has caused public debt to hit record levels in the Covid-19 crisis.
Public debt has jumped up to about 100 percent of GDP, the Fund’s Director of the Fiscal Affairs Department, Vitor Gaspar said ahead of the launch of its Fiscal Monitor report.
“The Fiscal Monitor argues that premature withdrawal of fiscal support should be avoided while maintaining favorable conditions for Treasury financing. The Fiscal Monitor also makes the case for public investment as a bridge to a new growth model: a growth model that is resilient, smart, green and inclusive,” said Gaspar.
Gaspar recommends that the most immediate priority is to avoid premature withdrawal of fiscal support that is crucial to sustain the recovery and to avoid permanent scarring to the economic tissue.
“In the Fiscal Monitor we have medium-term projections and we see the public debt-to-GDP ratio stabilizing during the period 2021 to 2025. That occurs due to very low levels of interest rates and the gradual recovery in economic activity. Authorities all around the world would be well advised to use medium to long term fiscal frameworks in order to tackle preexisting imbalances and other legacies,” Gaspar explained.
He also added that COVID 19 caused a lot of anxiety and human suffering, which increased the perception of risk.
“There is too much saving, too little investment. In times of uncertainty like the ones we live in, the Fiscal Monitor argues that public investment promotes private investment, employment and growth. It also helps with the transition to a new growth model, a growth model that is resilient, smart, green and inclusive,” Gaspar said.
A full copy of the report can be found at: https://www.imf.org/en/Publications/FM