Redirect fiscal policy towards resilient sustainable, inclusive growth: IMF urges govts

Indian-American Gita Gopinath: Reuters

Washington: The IMF on Friday urged the governments across the world to redirect their fiscal policy towards a resilient, sustainable and inclusive growth, noting that the countries can truly escape the great lockdown once effective vaccine and therapeutics against the COVID-19 are widely available.

In a blog post, top IMF officials -- Vitor Gaspar, Director of Fiscal Affairs Department and Indian-American Gita Gopinath, Economic Counsellor and Director of the Research Department -- wrote that the coronavirus pandemic has already prompted an unprecedented fiscal policy response of close to USD 11 trillion worldwide.

"Once effective vaccine and therapeutics against COVID-19 are widely available, we will enter a post-COVID-19 world and truly escape the great lockdown. That will only be possible if the international solidarity allows for access to treatment and vaccines for all people, in developed and developing countries alike," Gaspar and Gopinath said.

They said that at that stage, the governments should redirect their fiscal policy towards a resilient, sustainable and inclusive growth. "The policymakers should tackle the rising poverty and inequality, as well as the structural weaknesses exposed by the crisis to better prepare for the future shocks," they wrote.

This includes investing in stronger health systems, better resourced social safety nets and digitalisation. The authorities should actively support climate-friendly investments that promote greener, job-rich and innovation-driven growth, the blog post said.

The fiscal policy must also tackle inequality through spending aimed at a universal access to health and education and progressive tax systems, it said.

"But with confirmed cases and fatalities still rising fast, the policymakers will have to keep the public health response their number one priority while retaining supportive and flexible fiscal policies and preparing for transformational economic change," the top IMF officials said.

In the face of a sharp decline in global output, a massive fiscal response has been necessary to increase health capacity, replace lost household income and prevent large-scale bankruptcies.

But the policy response has also contributed to a global public debt reaching its highest level in the recorded history, at over 100 per cent of the global GDP, in excess of post-World War II peaks, they said.

Gasper and Gopinath said that the accurate, timely and comprehensive data on health and socio-economic outcomes are essential to monitor outbreaks and react swiftly to them, and provide confidence to people that future waves of contagion can be handled.

Observing that the fiscal policy will need to remain supportive and flexible until a safe and durable exit from the crisis is secured, the two IMF officials said that the policymakers should prepare contingent plans that can be flexibly scaled to manage the health, economic and fiscal risks from the recurrent outbreaks.

To prevent lags in the delivery of the targeted support, a new generation of automatic stabilisers may be needed, they said.

Noting that the current crisis will be transformational, Gasper and Gopinath said that many of the jobs destroyed by the crisis will likely not return. It will be necessary to facilitate the transfer of resources from sectors that may permanently shrink, such as air travel to sectors that will be expanding, such as digital services.

"The support should move from maintaining jobs to supporting people as they retrain or relocate across the sectors. It will be necessary to distinguish illiquid but solvent firms from insolvent ones."

"The governments might take further steps, such as using convertible bonds and injecting equity into (or even temporarily nationalising) strategic and systemic firms. Many countries will also need to take swift and determined actions to improve legal mechanisms for resolving debt overhang and preventing long-run economic scarring," they added.

According to Johns Hopkins Coronavirus Resource Center, the contagion has infected over 12 million people and killed more than 554,000 across the world.

The COVID-19, which originated in China's Wuhan city in December last year, has also battered the world economy with the International Monetary Fund saying that the global economy is bound to suffer a "severe recession".