The IMF released today (Wednesday, April 7th) the latest update of its Fiscal Monitor report which stated that in the first year of COVID-19, fiscal policy has reacted quickly and forcefully to the health emergency. Lifelines have saved lives and protected livelihoods. Fiscal support has also prevented more severe economic contractions and job losses than the world would otherwise have seen, including by easing financial stress when monetary and fiscal policies acted together.
“The response of fiscal policy was unprecedented in speed and size. Government provided fiscal support in a timely and decisive way. In the last twelve months, countries have announced 16 trillion dollars in fiscal actions. In most countries, the fiscal response was an order of magnitude larger than the norm for business cycle fluctuations that was fully justified. As Covid-19 is a health emergency, it was crucial to financially enable health systems and to extend emergency lifelines to households and firms,” said Vitor Gaspar, Director of the Fiscal Affairs Department of the International Monetary Fund
Gaspar explained why this update of the Fiscal Monitor is titled “ A Fair Shot” and stressed that if the global pandemic is controlled via vaccination, the resulting stronger economic growth would yield more than $1 trillion in additional tax revenues in advanced economies by 2025—and save more in fiscal support measures. The COVID-19 vaccination will thus more than pay for itself
“A fair shot reminds us of an amazing success in 2020, the fast development of highly effective vaccines and the start of the vaccination process, but progress has been very uneven across countries and regions of the world. If progress in vaccination is accelerated further and reaches everybody, the health, social, economic and financial benefits would be enormous. Even a narrow focus on tax revenue for advanced economies alone identifies potential gains of more than one trillion dollars over the medium term. Vaccination may well be the highest return global public project ever identified,” said Gaspar
Gaspar concluded the release of the report by stressing that until the pandemic is brought under control, however, fiscal policy will have to remain flexible and supportive. The need and scope for such support varies across sectors and economies, with responses tailored to country circumstances
“ Countries are in different stages of covid-19 and of the economic recovery; structural characteristics, institutional characteristics are also distinct. The set of viable policies depends on financing constraints. It is important to stress that developing countries are facing dramatic tradeoffs going forward. There is the risk that access to financing will become even harder. The bottom line is fiscal policy must be tailored to fit country specific circumstances,” said Gaspar
To read the full report, click here