Global COVID-19 Support Cost Governments $14 Trillion, IMF Says
Governments worldwide have ponied up almost $14 trillion in fiscal support in response to the COVID-19 pandemic, with $7.8 trillion coming in the form of direct spending or forgone revenues, according to an IMF report.
In the January 28 report, the IMF said many countries are calibrating their responses to the evolving economic situation as they continue to provide support to individuals and businesses trying to cope with a resurgence of infections and renewed restrictions.
Fiscal actions taken by advanced economies cover several years and will exceed 4 percent of GDP in 2021 and beyond, the study says. “In contrast, support in emerging markets and developing countries was frontloaded, with a large share of measures expiring,” the IMF said. “Together with economic contraction that has resulted in lower revenues, such support has led to a rise in public debt and deficits. Average public debt worldwide approached 98 percent of GDP at end-2020, compared with 84 percent projected pre-pandemic for the same date.”
Advanced economies experienced the largest increases in fiscal deficits and debt, reflecting a combination of higher spending and revenue declines, the IMF said. Deficits in emerging markets were primarily attributable to depressed levels of tax receipts brought on by economic recession. “In low-income countries, the fiscal policy response has been more limited, owing to financing constraints and less developed welfare programs,” the study said.
The IMF said the projected 2021 revenues of advanced economies are expected to decline by around 3 percent of their combined pre-COVID-19 GDP. Emerging markets and middle-income countries are projected to experience a revenue drop of over 4 percent compared with pre-pandemic GDP levels, while the decline for lower-income developing countries is estimated at 1.5 percent.
The IMF said the 2021 fiscal deficits for three-quarters of advanced economies are expected to shrink as pandemic support programs end and automatic stabilizers like lower unemployment benefits and higher tax revenues come into play.
The study indicates that almost 90 percent of emerging markets and middle-income countries eased fiscal policies to mitigate the impact of COVID-19. “If the health crisis abates and output recovers . . . the average overall deficit is set to narrow modestly in 2021 to 8.6 percent of GDP,” the IMF said. “Under that scenario, revenues are expected to recover modestly, and pandemic-related spending is set to decline gradually, despite significant variation across countries.”
Financing constraints and less-developed welfare programs have limited policy options for low-income developing countries, the study said. For the group, the average fiscal deficit is projected to decline to 5 percent of GDP from 5.7 percent in 2020.