The International Monetary Fund (IMF) stressed the importance of not pulling the plug of fiscal support used to fight the COVID-19 pandemic to limit long term scarring. The Fund’s Director of the Fiscal Affairs Department Vitor Gaspar said at the launch of the Fiscal Monitor Report (FM) Wednesday Oct. 14 in Washington.
Gaspar warned that the global public debt was already high and rising in 2020, and will take an unprecedented jump to almost 100% GDP but the outcome looks less dire in 2025.
“The major increase in the primary deficit and the sharp contraction in economic activity are the main drivers of this jump up in debt. But after this exceptional development, public debt is expected to stabilize at about 100 percent of GDP until 2025. This is explained by the negative interest-growth differentials and the decline in the primary deficit.” said Gaspar.
Gaspar added that 2020 Fiscal Monitor Report shows that investment multipliers are particularly high when macroeconomic uncertainty is elevated, and public investment can also support the transformation of our economies going forward.
“The Fiscal Monitor specifically estimates that a 1% of GDP increase in public investment in advanced and emerging markets has the potential to, within two years, push up GDP by 2.7%, private investment by 10% and most importantly, to create between 20 and 33 million jobs directly and indirectly.” Said Gaspar.
He also stressed that the confidence in the global financial system requires that international financing be available for all countries that face temporary financial challenges, which is the purpose of the financing capacity of the IMF that now stands at one trillion dollars.
“We estimate that the number of people affected by extreme poverty will increase by 80 to 90 million in 2020, even after accounting for COVID related social assistance. The risk of malnutrition is equally on the rise. Access to health and education is threatened. The international community must act with debt relief, access to grants and concessional financing now and going forward to help the poorest countries tackle these terrible challenges.” Gaspar explained.
A full copy of the report can be found at: https://www.imf.org/en/Publications/FM