## Fiscal Monitor: Policies to Support People During the COVID-19 Pandemic (April 2020)

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### Preface — context, immediate priorities, and fiscal risks
- Purpose: discuss fiscal policy roles to save lives; protect people and firms from income losses, unemployment, and bankruptcies; and reduce the risk of a deep, long-lasting slump arising from the COVID-19 pandemic.
- Context:
  - The pandemic struck against a backdrop of a preexisting sluggish global growth outlook, with low inflation and nominal interest rates.
  - Fiscal policy action is elevated to an unprecedented level and fiscal tools take a prime role in the response.
- Immediate priorities and instruments:
  - First priority: saving lives, requiring:
    - fully accommodating spending on testing and treatment;
    - global coordination, including support to countries with limited health capacity through grants and concessional financing and development of a universally low-cost vaccine.
  - Protect most-affected people and firms via:
    - government-funded paid sick and family leave;
    - transfers;
    - unemployment benefits;
    - wage subsidies;
    - deferral of tax payments.
  - Liquidity support to firms (for example, loans and equity injections, guarantees) to reduce bankruptcies.
- Fiscal costs, contingent liabilities, and risks:
  - Revenue is projected to be 2.5 percent of global GDP lower in the baseline scenario for 2020 than projected in the October 2019 Fiscal Monitor.
  - Direct fiscal costs currently estimated at $3.3 trillion globally for health expenditure and tax and spending measures.
  - Public sector loans and equity injections amount to $1.8 trillion; guarantees and other contingent liabilities amount to $2.7 trillion.
  - Global public debt was 83 percent of GDP in 2019.

### IDEAS framework and policy rationale (Chapter 2)
- IDEAS definition:
  - IDEAS = Invest, Discretionary, Enhance Automatic Stabilizers.
- Invest:
  - Prioritize public investment in health systems, infrastructure, low-carbon technologies, education, and research to boost productivity growth.
  - Additional investment needs to combat climate change and meet SDGs likely to exceed $20 trillion globally at current prices over the next two decades.
  - Additional global investment needs estimated, on average, at 1.3 percent of global GDP per year during 2020–40 (exceeding $20 trillion in current US dollars), comprising:
    - infrastructure: 0.5 percent of GDP
    - other SDGs: 0.2 percent of GDP
    - low-carbon investment: 0.6 percent of GDP
  - Investment inefficiency: one-third of funds for public infrastructure is lost worldwide to inefficiencies.
- Discretionary:
  - Adopt well-planned discretionary policies to be deployed when shutdowns end and fiscal stimulus becomes effective.
  - Prepare a pipeline of appraised investment projects now for quick deployment post-health crisis.
  - Embed emergency measures in medium-term fiscal frameworks and transparently record measures not included in revenue or expense (for example, government guarantees).
- Enhance Automatic Stabilizers:
  - Strengthen tax and benefit system features that stabilize incomes and consumption (progressive taxation and unemployment assistance).
  - Example: upgrading Estonia’s or the United States’ benefit systems to the median OECD level would make net incomes of workers who lose their jobs fall by one-third less during recessions.

### Fiscal outlook, projections, and key statistics
- Global GDP and fiscal projections:
  - Global economy is expected to contract sharply in 2020 by –3 percent.
  - Global debt (public and private) reached $188 trillion (226 percent of GDP) in 2018.
  - One-fifth of global bonds traded in negative territory at the end of 2019.
- Aggregate fiscal support and liquidity measures (global totals and averages):
  - G20 economies have provided revenue and spending measures of 3.5 percent of GDP on average, as of April 8, 2020.
  - At the global level, spending and revenue measures amount to $3.3 trillion and loans, equity injections, and guarantees total $4.5 trillion.
  - Global public debt is estimated to increase by 13 percentage points to reach 96.4 percent of GDP in 2020.
- Projections for 2020 (average overall fiscal balance, percent of GDP):
  - World: –9.9
  - Advanced Economies: –10.7
  - United States: –15.4
  - Euro Area: –7.5
  - Japan: –7.1
  - Canada: –11.8
  - Emerging Market and Middle-Income Economies: –9.1
  - China: –11.2
  - India: –7.4
  - Low-Income Developing Countries: –5.7
- Gross government debt levels, projections for 2020 (percent of GDP):
  - World: 96.4
  - Advanced Economies: 122.4
  - United States: 131.1
  - Euro Area: 97.4
  - Japan: 251.9
  - Emerging Market and Middle-Income Economies: 62.0
  - China: 64.9
  - India: 74.3
  - Low-Income Developing Countries: 47.4
- Health spending pledges (additional, percent of GDP, averages):
  - Advanced economies: 0.5 percent of GDP
  - Emerging market and middle-income economies: 0.2 percent of GDP
  - Low-income developing countries: current pledges average 0.3 percent of GDP (but likely to increase substantially)
- Representative country package examples and figures:
  - Group of Seven (G7) economies: weighted average additional fiscal measures of 5.9 percent of GDP.
  - United States: CARES Act includes $2 trillion or almost 10 percent of GDP in tax, spending, and liquidity-support measures.
  - European Union: discretionary measures by member states amount to 3.1 percent of EU-27 GDP; liquidity support measures such as loans or loan guarantees amount to 16.7 percent of EU-27 GDP.
  - Japan: Emergency Economic Package totals ¥108 trillion (20 percent of GDP).
- Fiscal tools creating contingent liabilities:
  - Loans and equity injections: $1.8 trillion globally (public sector).
  - Guarantees and other contingent liabilities: $2.7 trillion globally.

### Policy priorities, design principles, and implementation guidance
- Overarching goals:
  - Save lives; protect households so loss of income does not affect livelihoods; assist viable firms to prevent layoffs and permanent exits from supply chains.
- Design principles for crisis response:
  - Timely, temporary, targeted, and proportional to the health-crisis nature of the shock.
  - Prioritize measures that preserve employment relationships (wage subsidies, furlough schemes) and protect most-affected households, including hard-to-reach informal sectors.
  - Transparency is crucial given the extraordinary scale of public support, including loans and guarantees.
- Spending-side recommendations:
  - Fully accommodate health and emergency spending regardless of fiscal room.
  - Use wage subsidies with clear phase-out mechanisms and link transfers to employment where feasible.
  - Enhance unemployment benefits: extend duration, raise benefit levels, relax eligibility as needed.
  - Use existing social safety-net infrastructure where possible; where absent, use categorical targeting or unconditional direct cash transfers depending on administrative capacity and fiscal space.
- Revenue-side recommendations:
  - Temporary deferral of tax payments and social security contributions (three months to one year) to support liquidity.
  - Prefer reductions in taxes paid monthly or quarterly for liquidity impact.
  - Use targeted, temporary tax advantages (accelerated depreciation, super-deductions) to encourage investment in undersupplied goods (medical equipment).
  - Avoid blanket profit-based incentives (reduced tax rates, tax holidays) that reward the most profitable firms.
- Liquidity-support recommendations:
  - Ensure loans, equity injections, and guarantees are properly costed, recorded, and monitored; disclose contingent liabilities.
  - Make liquidity support conditional on pandemic duration and on firm viability to avoid supporting nonviable firms.
  - Prefer umbrella guarantees for SME lending where transaction costs are high; consider partial guarantees and risk-based guarantee charges.
  - Central approval processes (Ministry of Finance or cabinet) for government loans to ensure transparent ex-ante assessment and ongoing monitoring.
  - Make provisions for expected losses and retain ability to recover assets.
- Policy sequencing and exit:
  - As containment ends, broad-based, coordinated fiscal stimulus becomes more effective; consider stimulus depending on countries’ financing constraints and market access.
  - Scale back extraordinary support gradually and flexibly as the pandemic fades and shift focus to securing robust recovery while ensuring debt sustainability.
- Guidance for countries with limited fiscal space:
  - Reprioritize expenditure toward health while safeguarding key public services (transport, energy, communications), social protection, and capital maintenance.
  - Seek aid and concessional emergency financing from development partners and multilateral institutions.
  - Low-income developing countries: ramp up public health expenditure as the number one priority irrespective of fiscal space and debt positions.

### Public investment scaling, efficiency, and simulation results
- Investment needs and efficiency:
  - Additional investment needs for climate adaptation: $1.8 trillion cumulatively over 2020–30, or 0.2 percent of global GDP per year.
  - Additional global investment needs average 1.3 percent of global GDP per year during 2020–40 (exceeding $20 trillion).
  - Improving public investment management to the 90th percentile could halve investment inefficiencies.
  - On average, more than one-third of funds for public infrastructure are estimated to be lost owing to inefficiencies.
- Macroeconomic simulation — productive public investment scenario:
  - A sustained increase in public investment across the world (1.3 percent of global GDP initially, then declining very gradually) could increase global GDP by an estimated 1.4 percent per year, on average, over a 20-year horizon.
  - Inflation would increase by 66 basis points per year initially.
  - The real interest rate would increase by 14 basis points over the 20-year horizon.
  - Impact on public debt-to-GDP ratio would be limited.
- European Union illustrative exercise:
  - A sustained public investment increase of 0.6 percent of EU GDP on infrastructure and decarbonization would increase EU output by 0.7 percent per year, on average, over a 20-year horizon.
- Low-efficiency / supply-side rigidities scenario:
  - Binding supply-side bottlenecks and absorptive capacity constraints would reduce growth effects and lead to a large rise in debt-to-GDP ratios.
- Cumulative simulation magnitudes:
  - Cumulative public investment injection over 20 years is 18 percent of global GDP and the increase in GDP is estimated to be 28 percent (assuming efficient investment); cumulative multiplier above 1.

### State-Owned Enterprises (Chapter 3) — risks, performance, and policy priorities
- SOE scale and global presence:
  - The share of SOE assets among the world’s 2,000 largest firms doubled to 20 percent over the past decade.
  - SOE assets were $45 trillion in 2018, equivalent to 50 percent of global GDP.
  - The debt of the largest SOEs is $7.4 trillion, compared with $1.4 trillion in 2000.
- Performance and governance:
  - Simple comparisons show profits and labor productivity are lower in SOEs than in private firms; private firms are three times more productive than firms with government majority ownership (sample results).
  - In countries with high perceived corruption, SOEs are one-third as productive as private firms on average; in countries with strong governance, the productivity gap is 7 percent.
- Fiscal costs and contingent liabilities:
  - Historical maximum annual government support to SOEs:
    - Financial SOEs: up to 18 percent of GDP.
    - Nonfinancial SOEs: up to 16 percent of GDP.
  - Examples of large supports:
    - Jordan: subsidies to NEPCO close to 6 percent of GDP in 2014.
    - South Africa: Eskom receiving a rolling government bailout of 2⅓ percent of GDP over three years.
- Reform evidence and recommendations:
  - Governance and pricing reforms show strongest effects on SOE financial performance.
  - Recommendations include: clear ownership policy; integrate SOE financials into public sector balance sheets where feasible; strengthen transparency and disclosure; professionalize boards and management; apply independent regulation where relevant; price-to-cost recovery or transparently compensate mandates.
  - Gradual, sequenced, risk-based approaches recommended for low-capacity countries.
- International spillovers and competitive neutrality:
  - SOE international expansion raises concerns about competitive advantages from government support and international distortions; propose voluntary multilateral principles to guide SOE international behavior and increase transparency.
- Privatization and public banks:
  - Privatization can improve outcomes when institutional and market preconditions exist; poor governance and rushed sales can produce adverse outcomes.
  - Public banks: evidence links greater state ownership of banks with lower financial development and higher financial instability in some studies; public commercial banks often less profitable and cost-efficient than private peers in developing economies.

### Risks, uncertainties, and IMF operational role
- Key downside risks identified:
  - More severe pandemic waves; repeated outbreaks and longer recovery.
  - Large swings in commodity prices (oil fell by 50 percent in Q1 2020).
  - Prolonged stress in global financial markets: higher spreads, exchange rate volatility, dollar funding pressures, reversal of capital flows.
  - Renewed social unrest, extreme weather events, and climate risks.
- IMF response highlights:
  - IMF has secured $1 trillion in lending capacity and responded to emergency financing requests from over 90 countries so far.
  - IMF tools referenced include the Catastrophe Containment and Relief Trust (about $500 million in grant-based debt-service relief currently available), doubled access limits of emergency financing facilities to meet expected demand of $100 billion via the Rapid Credit Facility and the Rapid Financing Instrument, and policy and lending trackers and notes.
  - Communication tagline quoted: “A global crisis like no other needs a global response like no other.” — Kristalina Georgieva

*Source: Preface, Chapter 1, Chapter 2, Chapter 3, Appendix 1, and methodological notes from Fiscal Monitor: Policies to Support People During the COVID-19 Pandemic (April 2020).*

### Preface

### Preface

### Context and purpose
- The Fiscal Monitor discusses fiscal policy roles to: save lives; protect people and firms from income losses, unemployment, and bankruptcies; and reduce the risk of a deep, long-lasting slump arising from the COVID-19 pandemic.
- The pandemic struck against a backdrop of a preexisting sluggish global growth outlook, with low inflation and nominal interest rates.
- Fiscal policy action is elevated to an unprecedented level and fiscal tools take a prime role in the response.

### Immediate priorities and policy instruments
- First priority: saving lives, which requires:
  - fully accommodating spending on testing and treatment;
  - global coordination, including support to countries with limited health capacity through grants and concessional financing and development of a universally low-cost vaccine.
- Social distancing is necessary to save lives but imposes larger economic costs (lower output, lower tax revenues), and requires protection for the most-affected people and firms via:
  - government-funded paid sick and family leave;
  - transfers;
  - unemployment benefits;
  - wage subsidies;
  - deferral of tax payments.
- Liquidity support to firms (for example, loans and equity injections, guarantees) can reduce the risk of bankruptcies.

### Fiscal costs, contingent liabilities, and risks
- Revenue is projected to be 2.5 percent of global GDP lower in the baseline scenario for 2020 than what was projected in the October 2019 Fiscal Monitor.
- Direct fiscal costs of necessary health expenditure and tax and spending measures to support people and firms are currently estimated at $3.3 trillion globally.
- Public sector loans and equity injections amount to $1.8 trillion and guarantees and other contingent liabilities amount to $2.7 trillion; these measures support enterprises but create fiscal risks.
- Global public debt was 83 percent of GDP in 2019, posing starting-position vulnerabilities for some countries.

### Distributional and regional concerns
- Fiscal balances in 2020 are expected to deteriorate in almost all countries, with sizable estimated expansions in the United States, China, and several European and other Asian economies.
- Emerging market and developing economies face multiple shocks: the pandemic, abrupt worsening in financing conditions, weak external demand, and, for commodity exporters, lower commodity prices.
- These countries will need to reprioritize expenditure toward the health sector while safeguarding key public services (transport, energy, communications) and social protection.

### Uncertainty, transparency, and exit strategy
- The size of the impact on public finances is highly uncertain and depends on the pandemic duration and whether the economic recovery is swift or long-lasting.
- Given the extraordinary scale of public sector support, including loans and guarantees, transparency is crucial to manage fiscal risks.
- As countries contain the pandemic and shutdowns end:
  - broad-based, coordinated fiscal stimulus—depending on countries’ financing constraints—will become a more effective tool to foster the recovery;
  - exit from exceptional measures introduced during the crisis will be appropriate;
  - once economies recover, progress toward ensuring debt sustainability will be needed.

*Source: Preface, Fiscal Monitor: Policies to Support People During the COVID-19 Pandemic (April 2020).*

### Chapter 2: IDEAS to Respond to Weaker Growth

### Chapter 2: IDEAS to Respond to Weaker Growth

### Framework: IDEAS
- IDEAS = Invest, Discretionary, Enhance Automatic Stabilizers.
- Invest: prioritizing public investment in health systems, infrastructure, low-carbon technologies, education, and research to boost productivity growth.
- Discretionary: adopt well-planned discretionary policies to be deployed when shutdowns end and fiscal stimulus becomes effective and, depending on fiscal space, appropriate.
- Enhance Automatic Stabilizers: strengthen features of the tax and benefit system that stabilize incomes and consumption (for example, progressive taxation and unemployment assistance).

### Rationale for Public Investment
- Low interest rates present an opportunity for high-return public investment; over the past decade, moderation of capital accumulation has slowed economic growth.
- Additional investment needs to combat climate change and meet sustainable development goals are likely to exceed $20 trillion globally at current prices, over the next two decades.
- For advanced economies with fiscal space, more investment projects are worthwhile because the value of resulting assets will likely exceed the liabilities incurred, improving public sector net worth.
- Where fiscal space is limited, reorient revenues and expenditures to increase investment in health systems, infrastructure, and people.
- In emerging market and developing economies, high debt levels and rising interest expenditures require financing development in a fiscally responsible way.
- In low-income developing countries, raising tax revenues is crucial over the long term.
- Improving investment management is critical: one-third of funds for public infrastructure is lost worldwide to inefficiencies.

### Discretionary Policies: Design and Timing
- Discretionary fiscal support during previous downturns often came too late and was not well targeted.
- Policymakers should act swiftly to establish a pipeline of appraised investment projects now that can be implemented when the health crisis abates, and plan discretionary measures that can be deployed quickly.
- Given large fiscal costs of emergency measures, they should be embedded in a medium-term fiscal framework and measures not included in revenue or expense (for example, government guarantees of business loans) should be transparently managed and recorded to mitigate fiscal risks.

### Strengthening Automatic Stabilizers and Social Safety Nets
- Enhancing automatic stabilizers—especially improving unemployment benefit systems and social safety nets—can protect household incomes from adverse shocks and strengthen resilience against epidemics.
- Example: if Estonia or the United States were to upgrade their benefit systems to the median level of Organisation of Economic Co-operation and Development countries, net incomes of workers who lose their jobs during recessions would fall by one-third less.
- Timely extension of the coverage and benefits of social safety nets (a priority during the pandemic) supports consumption of vulnerable households.
- A good example is a guaranteed minimum income scheme that is selective, conditional, and means tested.
- While many countries are providing greater social assistance during COVID-19, priority should be placed on measures that improve tax-benefit systems permanently.

### Context: Fiscal and Macroeconomic Environment (Selected Statistics)
- Global economy is expected to contract sharply in 2020 by –3 percent.
- G20 economies have provided revenue and spending measures of 3.5 percent of GDP on average, as of April 8, 2020, in response to the pandemic.
- At the global level, spending and revenue measures amount to $3.3 trillion and loans, equity injections, and guarantees total $4.5 trillion.
- One-fifth of global bonds traded in negative territory at the end of 2019.
- Global debt (public and private) reached $188 trillion (226 percent of GDP) in 2018.
- Average public debt of advanced economies plateaued at about 100 percent of GDP in the 2010s, compared with 74 percent in 2007.

### Implications for Policy Priorities
- First policy priority during the pandemic: fully accommodate spending on health and emergency services, including global coordination to support countries with limited health capacity (medical supplies, expertise, grants, concessional emergency financing).
- Large, timely, temporary, and targeted fiscal measures are needed to protect most-affected people and viable firms, including in hard-to-reach informal sectors, to preserve economic relationships between employers and employees, producers and consumers, and lenders and borrowers.
- As the virus is contained and people return to work, broad-based fiscal stimulus becomes more effective; depending on market access and fiscal space, such stimulus could facilitate recovery.

*Source: Chapter 2: IDEAS to Respond to Weaker Growth, Fiscal Monitor: Policies to Support People During the COVID-19 Pandemic, April 2020.*

### 1. Advanced Economies2. Emerging Market and Middle-Income

### 1. Advanced Economies2. Emerging Market and Middle-Income Economies

### Fiscal outlook and key projections
- Global debt is estimated to increase by 13 percentage points to reach 96.4 percent of GDP in 2020.
- The average overall fiscal balance, projections for 2020 (percent of GDP):
  - World: –9.9
  - Advanced Economies: –10.7
  - United States: –15.4
  - Euro Area: –7.5
  - Japan: –7.1
  - Canada: –11.8
  - Emerging Market and Middle-Income Economies: –9.1
  - China: –11.2
  - India: –7.4
  - Low-Income Developing Countries: –5.7
- Gross government debt levels, projections for 2020 (percent of GDP):
  - World: 96.4
  - Advanced Economies: 122.4
  - United States: 131.1
  - Euro Area: 97.4
  - Japan: 251.9
  - Emerging Market and Middle-Income Economies: 62.0
  - China: 64.9
  - India: 74.3
  - Low-Income Developing Countries: 47.4

### Debt structure, financing risks, and interest rates
- Before the first outbreak of COVID-19 in late December 2019, effective nominal interest rates were below 2 percent in more than one-third of advanced economies and in one-tenth of emerging market and developing economies.
- The lengthened residual maturity of debt in advanced economies increased from six to nearly eight years over the past decade at the general government level, helping mitigate refinancing risk.
- The median remaining maturity of government bonds in emerging markets has declined since 2014 but remains greater than its level before the global financial crisis.
- Several countries face sizable gross financing needs in 2020 (see gross financing needs figure).

### Fiscal measures announced and health spending
- On average, additional pledges to health care in response to COVID-19:
  - Advanced economies: 0.5 percent of GDP
  - Emerging market and middle-income economies: 0.2 percent of GDP
  - Low-income developing countries: current pledges average 0.3 percent of GDP (but likely to increase substantially)
- Examples of announced packages and measures:
  - Group of Seven (G7) economies: weighted average additional fiscal measures of 5.9 percent of GDP.
  - United States: CARES Act includes $2 trillion or almost 10 percent of GDP in tax, spending, and liquidity-support measures.
  - European Union: discretionary measures by member states amount to 3.1 percent of EU-27 GDP; liquidity support measures such as loans or loan guarantees amount to 16.7 percent of EU-27 GDP.
  - Japan: Emergency Economic Package totals ¥108 trillion (20 percent of GDP), covering cash handouts, concessional loans, and deferral of tax and social security premiums for one year.
- Common fiscal support measures include extended unemployment benefits, government-funded paid sick leave, wage subsidies, targeted transfers to affected households and firms, support to hard-hit sectors (tourism, hospitality, travel), temporary deferral of corporate and personal tax payments and social security contributions, and temporary tax relief or exemptions on medical goods and services.

### Country-group-specific developments and vulnerabilities
- Advanced economies:
  - Large discretionary and automatic stabilizer effects are expected to widen deficits and increase public-debt-to-GDP ratios.
  - The United Kingdom’s fiscal year 2020/21 budget projects medium-term fiscal easing of 1 percentage point of GDP on average over the next five years and a planned increase in net public investment from 2 to 3 percent of GDP.
  - Debt dynamics in some advanced economies depend on interest rates remaining low.
- Emerging market and middle-income economies:
  - Average overall deficit projected to widen to 9.1 percent of GDP in 2020 from 4.8 percent in 2019.
  - Countries face multiple shocks: recession, lower commodity prices, tighter financing conditions, and discretionary fiscal responses to COVID-19.
  - Examples: Chile combined preexisting stimulus with additional health spending and tax payment delays; China increased health spending, accelerated unemployment insurance disbursement, provided temporary tax relief and deferral of tax payments for businesses and is expected to use fiscal space for additional recovery support.
  - India announced a fiscal support package of 0.8 percent of GDP in March 2020 and reduced personal income tax rates and exemptions in the 2020/21 budget.
  - Brazil implemented pension reform in 2019 and provided pandemic-related measures amounting to 2.9 percent of GDP.
- Low-income developing countries:
  - Health spending pledges average 0.3 percent of GDP but experience from past epidemics (Ebola) shows health spending can rise sharply (example: increase by 4 percentage points of GDP on average in affected countries during the Ebola outbreak).

### Policy financing and implementation approaches
- Governments plan to finance additional fiscal measures through:
  - Reprioritizing budget items
  - Using emergency funds or buffers
  - Frontloading existing spending plans
  - External aid or grants
  - Additional borrowing
- Revenue-side relief examples include temporary deferral of tax payments and social security contributions ranging from three months to one year, and temporary tax relief or exemptions for affected sectors and vulnerable firms and households.
- Liquidity support efforts (loans, guarantees) are common, especially in European countries.

*Source: IMF staff estimates and projections.*

### 1. Fiscal Stance, 2010–20

### 1. Fiscal Stance, 2010–20

### Fiscal developments and policy actions
- Several emerging market and developing economies announced fiscal measures in response to COVID-19: Indonesia (1.8 percent of GDP), Turkey (1.6 percent of GDP), Malaysia (2.8 percent of GDP).
- As of April 8, 2020, most countries planned or allocated additional fiscal resources to health care amounting to 0.3 percent of GDP, on average.
- Germany allocated €1.1 billion for development of vaccines and medicines.
- The European Commission announced an aid package of €232 million to support WHO’s global response plan and vaccine development.
- The US government has pledged up to $2 billion to help countries battling the virus.
- Japan has pledged ¥15 billion (about $140 million) in contributions to WHO and other international organizations.

### Emerging market and middle-income economies (EMMIEs)
- Overall deficits increased in 2019, reversing previous consolidation trends, and are expected to rise further in 2020 (projection shown in Figure 1.10).
- Fiscal policy was eased in 2019, and a large number of countries are expected to ease further in 2020.
- The fall in oil prices (partly owing to COVID-19) will weigh on fiscal balances of oil-exporting countries; several were set to resume fiscal adjustments after the 2019 pause, but this may no longer be the case.

### Low-income developing countries: debt, revenues, and deficits
- Average debt ratio of low-income developing countries remained stable at 43 percent of GDP over 2017–19 after an increase of 9 percentage points over the previous five years.
- Half of low-income developing countries have seen their tax-to-GDP ratios increase by more than 3.7 percent of GDP since 2000.
- The average overall fiscal deficit in low-income developing countries increased by 0.4 of a percentage point of GDP to 4.1 percent in 2019.
- For non-oil exporters, fiscal deficits rose moderately in 2019 to 4 percent of GDP.
- In 2020, the average headline deficit is projected to widen by 1.6 percentage points of GDP, notably in oil exporters.
- According to IMF–World Bank Debt Sustainability Assessments, the number of low-income developing countries in debt distress or classified as “at high risk” increased to 25 countries (44 percent) in 2019.

### Risks to the fiscal outlook
- Identified downside risks:
  - A more severe economic fallout from widespread coronavirus infections and repeated outbreaks, with potential for the pandemic to resurface in waves and for developing economies to be especially vulnerable.
  - Large swings in commodity prices: oil prices declined by 50 percent in the first quarter of 2020; risks to oil prices are large and could keep prices low for a long period.
  - Prolonged stress in global financial markets, including higher spreads, exchange rate volatility, pressures in dollar funding, and sudden reversal of capital flows; risks of a sharp rise in sovereign spreads remain for some advanced and emerging market economies.
  - Renewed social unrest that could exhaust reform momentum and put public finances at risk.
  - Extreme weather events and climate risks that raise humanitarian and reconstruction spending needs and could affect public finances, especially in small states.
- These risks are intertwined and could reinforce one another, exacerbating the drag on growth and public finances and raising the possibility of debt deflation.

### Fiscal policy response principles and recommendations
- Immediate fiscal response should be timely, temporary, targeted, and account for the health-crisis nature of the shock (affecting supply, demand, and confidence).
- Discretionary measures are relatively less needed where automatic stabilizers and social safety nets are larger; impact of targeted fiscal measures is larger if accompanied by monetary accommodation and financial safeguards.
- Overarching goals: save lives; protect households (so loss of income does not affect livelihoods); assist viable firms to prevent layoffs and permanent exits from supply chains.
- Transparency is crucial given extraordinary public support and use of vehicles such as loans and guarantees.
- When containment ends, broad-based, coordinated fiscal stimulus will become a more effective tool to foster recovery, depending on countries’ financing constraints.
- For countries with limited fiscal space and borrowing constraints, reprioritize expenditure toward health care while safeguarding priority spending on social protection, capital maintenance, and key public services.
- Seek aid and concessional emergency financing for health sectors and budgets from development partners and multilateral financial institutions.

### Health measures and global assistance
- Additional spending for health and emergency services should be fully accommodated regardless of fiscal room; monitoring and containment costs are much lower than mitigation and treatment costs.
- Challenges: limited health infrastructure, personnel, and medical supplies constrain rapid scaling up; many emerging market and developing economies face borrowing constraints and lower revenues.
- Recommended actions: expedite procurement of medical needs; coordinate budget execution across agencies and government levels; allocate funds to subnational governments for health services or mobilize medical resources; provide wage subsidies for medical personnel; reduce taxes or tariffs and excises on hygiene and health care goods and services.
- Multilateral and bilateral support and financing:
  - The IMF’s Catastrophe Containment and Relief Trust can currently provide about $500 million in grant-based debt-service relief, including a $185 million pledge by the United Kingdom and $100 million provided by Japan.
  - Official bilateral creditors have been called upon to suspend debt payments from countries below the International Development Association’s operational threshold that request forbearance while they battle the pandemic.
  - The IMF’s recent doubling of access limits of its emergency financing facilities will allow the Fund to meet an expected demand of $100 billion in emergency financing, provided through the Rapid Credit Facility and the Rapid Financing Instrument.

*Source: IMF, Fiscal Monitor: Policies to Support People During the COVID-19 Pandemic (April 2020).*

### CHAPTER 1 POLICIES TO SUPPORT PEOPLE DURING THE COVID-19 PANDEMIC

### CHAPTER 1 POLICIES TO SUPPORT PEOPLE DURING THE COVID-19 PANDEMIC

### Health measures, continuity, and preparedness
- Business continuity plans for government services (tax and customs administration, payment processors, government benefit application centers) should rely on electronic means.
- Legal frameworks should allow budget modifications for emergency spending and these should be fully reflected in credible medium-term fiscal frameworks.
- Over the longer term, countries should act to improve their level of epidemic preparedness.
- Examples of administrative measures include contingency plans (Greece, Malaysia) and regular media briefings from officials or health experts (Chad, Indonesia, Romania, Vietnam).

### Economic repercussions: supply, demand, and confidence
- Supply-side impacts:
  - Social distancing, lockdowns, and quarantines reduce capacity utilization, make workers unable to do their jobs, and force businesses to reduce production.
  - Disruptions to regional and global supply chains contribute to rising business costs, layoffs, and potential bankruptcies.
- Demand-side impacts:
  - Loss of income (from morbidity, quarantines, and unemployment), fear of contagion, and heightened uncertainty reduce household consumption and firms’ investment.
  - Workers in sectors such as travel, tourism, and hospitality are disproportionately affected.
  - Low-income households suffer more due to less access to health care and limited savings.
  - Countries or regions reliant on oil revenues, tourism, and exports are particularly vulnerable.
- Confidence and financial conditions:
  - Extreme uncertainty about duration and magnitude of the pandemic can dampen consumer confidence and tighten financial conditions, potentially leading to job losses and cuts in investment.

### Range of targeted emergency lifelines offered
- Spending-side measures:
  - Wage subsidies and transfers to workers and firms.
  - Government-funded paid sick and family leave for those unwell, self-isolating, or providing childcare during school closings (France, Japan, Korea, Singapore, Spain, United Kingdom).
  - Cash transfers to low-income households and temporary enhancement or extension of unemployment benefits (Germany, Japan, United Kingdom, United States).
  - Expanded subsidies to firms that maintain employment at reduced hours by covering employers’ social security contributions for the missed hours (Germany).
  - Subsidies for employers who maintain employment during scale-downs (Japan, Seychelles).
  - Broadened wage supplementation fund to provide income support to laid-off workers (Italy).
  - Temporary direct subsidies to hard-hit businesses, including self-employed persons (Korea, Singapore, United States).
  - Frontloaded planned public spending on public health care, unemployment benefits, and broader social safety net (China).
- Revenue-side measures:
  - Expanded loss carry-back rules to support firms’ cashflow needs.
  - Temporary tax relief for people and firms most affected by COVID-19.
  - Postponing social security contributions and reducing advance tax payments (Madagascar).
  - Special investment allowances or temporary value-added-tax rate cuts to bring planned investment or spending forward.
  - Easing tax burden for firms in vulnerable regions and sectors (China).
  - Property tax relief for one year for small businesses in heavily hit sectors (United Kingdom).
  - Income and value-added-tax extensions to firms with cashflow shortfalls (China, Eswatini, Italy, Japan, Vietnam).
  - Deferral until the end of the financial year for value-added-tax payments falling due in the next quarter (United Kingdom).
  - Value-added-tax refunds and temporary reductions in social security contribution rates for targeted firms (China).
- Government-supported liquidity measures:
  - Cashflow support in the form of loans, umbrella guarantees, and other liquidity support to firms and households.
  - Temporary loans extended to firms and households in affected sectors (Cabo Verde, Korea, Thailand, United Kingdom).
  - Government underwriting of up to A$40 billion worth of unsecured loans, with a cap of A$250,000 per loan, underwriting half the amount offered by participating local lenders to SMEs (Australia).
  - Global estimate: liquidity-support measures including government provision of loans, equity injections, and guarantees on business loans are now estimated to total $4.5 trillion globally and are often larger in size than the revenue and spending measures.
  - Largest country examples include France, Germany, Italy, Japan, the United Kingdom, and the United States.
  - Some liquidity-support measures occur “below the line” or involve contingent liabilities outside budget revenues and expenditures.

### Principles to guide support design and instrument choice
- Clear objectives emphasizing “solidarity” and equity:
  - A clear rationale limits demands from vested interests and avoids perceptions of favoritism.
  - Measures should not be overly restrictive in eligibility and should strengthen solidarity.
- Fiscal measures should be targeted, temporary, and progressive:
  - Target households to maintain basic needs and viable firms to prevent layoffs and supply-chain exits.
  - Make measures progressive (for example, wage subsidies up to a ceiling).
  - Broad-based stimulus is less effective when physical distancing is in place.
- Cost-effectiveness and embedding in medium-term budget frameworks:
  - Avoid long-lasting deterioration of public finances.
  - Prioritize measures that maintain links with employment (for example, wage subsidies allowing furloughs rather than layoffs).
  - Use measures to move tax-benefit systems in desirable directions (mobile payments, expediting VAT refunds, upgrading health care systems).
- Build on existing programs and infrastructure:
  - Use adequacy and coverage of social safety nets and strength of social insurance systems to enable timely support.
- Consider financing constraints and properly assess, disclose, and mitigate fiscal costs and risks.

### Design recommendations for spending, revenue, and liquidity measures
- Spending measures:
  - Allow automatic stabilizers to operate and channel additional support through social safety net programs where systems are strong.
  - Enhance unemployment benefits as needed (extend duration, raise benefit levels, relax eligibility) — examples: Germany, Italy, Spain, United States.
  - Paid sick leave should last for a period commensurate with the health crisis.
  - Wage subsidies need clear phase-out mechanisms.
  - Make transfers or expanded benefits part of taxable income to allow clawbacks at higher-income levels and improve targeting.
  - In emerging market and developing economies with weaker social safety nets, link transfers to existing programs and delivery channels; where not possible, use categorical targeting (regions, sectors, residence, age).
  - Unconditional direct cash transfers could complement targeted social protection spending, especially in countries with ample fiscal space.
- Revenue measures:
  - Reductions in taxes paid monthly or quarterly are more powerful for liquidity than those paid after year-end.
  - Use temporary and targeted tax advantages (accelerated depreciation, super-deductions) to encourage investment in undersupplied goods such as medical equipment.
  - Avoid profit-based incentives (reduced tax rates, tax holidays, blanket amnesties) because they reward businesses with the greatest profits.
  - Target tax advantages to hard-hit sectors, firms with declines above thresholds, or critical products.
  - Allow tax administrations to deny deferrals to taxpayers with poor compliance records or high noncompliance risk.
  - Tax filings should indicate temporariness of measures; introduce administrative relief under existing frameworks to speed support.
  - General tax relief to boost aggregate demand is likely more effective when supply disruptions subside.
- Liquidity support:
  - Ensure measures are properly costed, recorded, and monitored.
  - Make liquidity support conditional on pandemic duration to avoid supporting nonviable firms with subsidized finance.
  - Umbrella guarantees (for loans to SMEs) are often more efficient than direct support where transaction costs are high.
  - Manage fiscal risks: assess and quantify potential fiscal costs, maintain transparency and disclosure in budgets and medium-term frameworks.
  - Apply principles to Treasury backing of central bank liquidity support.
  - Central approval process (Ministry of Finance or cabinet) should be in place for government loans to ensure transparent ex-ante assessment and ongoing monitoring.
  - For government guarantees, consider partial guarantees and risk-based guarantee charges to limit exposures.
  - Make provisions for expected losses and retain ability to recover assets.
  - Example: Netherlands’ SME loan guarantee scheme is limited to 75 percent of the loan value and loans with maturities of one year or less.

### Guidance for low-income and oil-exporting countries
- For low-income developing countries:
  - Ramp up public health expenditure as the number one priority irrespective of fiscal space and debt positions.
  - Allow automatic stabilizers to operate where possible.
  - Some discretionary fiscal support is warranted even with limited fiscal space, including to hard-to-reach households.
  - Discretionary measures: cash transfers or food subsidies delivered through digital technologies; temporary, targeted support to hard-hit sectors (Eswatini, Madagascar, Mauritius).
- For oil-exporting countries facing a long-lasting decline in oil revenues (Angola, Gabon):
  - Priorities: fund health spending and combine appropriately paced growth-friendly spending adjustments with additional financing from donors and international financial institutions.
- Once the health crisis wanes and debt servicing costs rise, all countries will need to put fiscal positions back on a sustainable path and reduce debt vulnerabilities.

### Broad-based fiscal support and timing
- The expected weakening in aggregate demand and wider spillovers (trade, commodity prices, tighter financing conditions) generally call for broad-based fiscal support (economy-wide tax cuts or public investments) to drive recovery once the health crisis recedes.
- Broad-based support is especially warranted where monetary policy rates are at or near their lower bound.

*International Monetary Fund | April 2020 — CHAPTER 1 POLICIES TO SUPPORT PEOPLE DURING THE COVID-19 PANDEMIC*

### CHAPTER 1 POLICIES TO SUPPORT PEOPLE DURING THE COVID-19 PANDEMIC

### CHAPTER 1 POLICIES TO SUPPORT PEOPLE DURING THE COVID-19 PANDEMIC

### Limits to Generalized Fiscal Stimulus and Immediate Priorities
- Early broad-based fiscal stimulus could boost business and consumer confidence but is likely to be more limited now because:
  - Localized outbreaks and some national lockdowns reduce effectiveness due to disruptions to production processes and supply chains.
  - Output multiplier effects are likely small until business activity normalizes.
  - Higher health care spending and targeted expenditure and tax measures could amount to sizable support.
  - Decision and implementation lags mean generalized stimulus would likely start to boost demand once the pandemic fades.
- Practical near-term actions:
  - Accelerate implementation of already-budgeted investment projects.
  - Expedite previously planned discretionary measures.
  - Plan for additional fiscal support over time depending on available fiscal space.
  - Fully execute discretionary fiscal easing that was already enacted or planned for 2020 in several countries (Canada, Germany, Japan, Korea, United Kingdom, Chile, China, India, Uganda).
  - Consider temporary payroll tax cuts, time-bound value-added-tax reductions, and accelerated investment, repair, and maintenance initiatives depending on financing constraints.

### Broader Country-Level Recovery Policies by Income Group
- General objectives:
  - Reduce vulnerabilities and boost medium-term growth.
  - Improve social insurance schemes and safety nets to protect against future pandemics and macroeconomic shocks.
  - Reassess pace and size of medium-term fiscal adjustment in high-debt countries once health crisis and economic loss are better known.
  - Ensure any consolidation is appropriately paced, growth-friendly, and inclusive.
  - Prioritize investment in health care systems, infrastructure, low-carbon technologies, education, and research.

- Advanced economies with ample fiscal space:
  - Take advantage of low interest rates to increase spending on health care, research and development, training, and infrastructure (example countries: Germany, the Netherlands).
  - Public investment particularly important where capital-to-GDP ratios are low or declining and where gross investment does not compensate for depreciation (see Figure 1.16).
  - Improve unemployment insurance schemes and social safety nets to increase automatic stabilizers.

- Advanced economies with some or limited fiscal space:
  - Reconfigure spending and revenue mix to allow greater capital spending, especially where quality of public capital has deteriorated (example countries: Italy, United States).
  - Additional investment should be selective in countries with large public capital stocks (Japan): build resilience against pandemics and natural disasters, develop low-carbon technologies, and digitalize.
  - United States: beyond CARES Act resources, plan more direct demand stimulus post-health crisis (federal, state, and local infrastructure needs, consumption vouchers, incentives for private creditor coordination on payment delays, support for non-GSE mortgages).
  - Post-crisis: pursue appropriately paced, inclusive, and credible fiscal adjustments to put debt ratios on a downward trajectory; improve social safety nets.

- Emerging market and developing economies (EMDEs):
  - Health systems generally have limited capacity; infrastructure needs are pressing; social safety nets are less developed.
  - Policymakers should finance development responsibly, improve public investment efficiency, and strengthen social safety nets.
  - Use unique identification systems and digital technologies to deliver public services and target income support (examples: Aadhaar in India, G-pay in Kenya).
  - Scope for recovery-phase fiscal action depends on size of initial fiscal support and financing constraints.
  - High-debt EMDEs should pursue fiscal consolidation supported by growth-friendly measures once crisis impact is clearer, with careful recalibration of size and pace.

- Country-specific guidance among large emerging and middle-income economies:
  - China: additional on-budget fiscal support focusing on rebalancing and increased spending on low-income households, public health, and social safety nets is warranted if recovery falls short; refrain from off-budget large-scale infrastructure investment.
  - India: ease fiscal stance as needed to increase public health expenditure and shield against a more severe downturn using targeted, temporary measures; subsequently adopt a more ambitious, credible medium-term consolidation to lower debt and interest expenditure; improve transparency and curb off-budget spending.
  - Brazil: further easing may be needed to arrest deterioration in aggregate demand, while pursuing fiscal reforms and a medium-term fiscal framework that preserves the expenditure ceiling rule.
  - South Africa: focus on containing pandemic short term and fiscal consolidation medium term, improve spending efficiency and implement structural reforms.
  - Oil-exporting countries: sharp fall in oil prices highlights need for economic diversification and investment in low-carbon technologies.

- Low-income developing countries:
  - Balance addressing development needs and safeguarding debt sustainability after health crisis wanes via sound medium-term fiscal frameworks, higher domestic revenues, improved spending efficiency, and reforms to facilitate private sector activity.
  - Mobilizing domestic revenues when pandemic abates:
    - Average tax-to-GDP ratio of low-income developing countries is significantly lower than that of EMDEs.
    - Current tax gap estimated at 3–5 percent of GDP in sub-Saharan African countries.
    - Current median tax-to-GDP level: 15 percent of GDP.
    - Policy measures: implement well-designed value-added taxes with timely refunds; build property tax capacity; gradually expand corporate and personal income tax bases by eliminating costly exemptions; efficiently tax extractive industries; adopt comprehensive risk-based compliance strategies focusing on large taxpayers.
    - Strengthen safety nets to address regressivity concerns of VAT within overall tax-benefit system.
  - Improve debt management and transparency:
    - Gaps remain: insufficient audits, lack of operational risk management, incomplete debt statistics coverage (including state-owned enterprise borrowing terms).
    - Rising share of external and nonconcessional financing increases need for improved debt management and transparency (see Figure 1.17).
    - Measures: publish regular debt reports, broaden coverage of debt statistics, limit contingent liability risks, strengthen debt management governance (frontier economies with large nonconcessional financing, example: Ghana).

### Types of Fiscal Measures and Public Finance Implications
- Budgetary “above-the-line” measures (immediately affect fiscal balance):
  - Additional spending (health services, unemployment benefits).
  - Capital grants and targeted transfers (wage subsidies, direct transfers).
  - Tax measures (tax cuts, relief) through standard budget channels.
  - Tax deferrals and social security contribution deferrals temporarily affect deficit and debt but provide liquidity and create future financing needs when repaid.
- “Below-the-line” measures (create assets or contingent liabilities):
  - Loans and equity injections create assets; limited upfront deficit impact unless concessional component; can increase debt or reduce liquidity.
  - Guarantees usually have no immediate deficit or debt impact unless expected costs are budgeted, but create contingent liabilities exposing government to future calls.
  - Loan defaults or equity losses reduce government assets; calls on guarantees increase public debt and reduce net worth.
- Note: All transactions in the framework are assumed financed through debt rather than by drawing on other government funds.

### Social Unrest, Root Causes, and Policy Design
- Recent context:
  - Increasing protests in past two years triggered by fuel price increases (Ecuador, Haiti, Islamic Republic of Iran), railway and pension reforms and planned fuel tax increases (France), price of bread and fuel shortages (Sudan), fees on internet calls (Lebanon), and small public transport fare increases sparking broader protests (Chile).
  - Protests often start from specific triggers but reflect long-standing grievances.
- Common root causes and triggers:
  - High or rising poverty and inequality, especially where social safety nets are weak.
  - Histories of widespread corruption, lack of transparency, and poor service delivery.
  - Perceptions of lack of representation or voice in public matters; younger generations often at the forefront.
  - Triggers commonly include price increases for basic goods and energy products or reductions in public wages, which concentrate costs on vulnerable or organized groups.
  - Cuts in public investment or general current expenditures tend to pose less immediate risk of unrest because costs are dispersed or deferred.
  - Countries could be vulnerable to new waves of unrest if support measures are seen as insufficient, unfair, or if measures are later withdrawn.
- Policy design lessons to reduce likelihood of unrest:
  - Adequate planning and a clear strategy based on analysis and mitigation measures increase likelihood of success.
  - An electoral mandate for reform supports acceptability.
  - A gradual approach allowing citizen adaptation is often more politically acceptable.
  - Reforms undertaken hastily in response to immediate pressures are less successful.

*Source: CHAPTER 1 POLICIES TO SUPPORT PEOPLE DURING THE COVID-19 PANDEMIC (text - CHAPTER 1 POLICIES TO SUPPORT PEOPLE DURING THE COVID-19 PANDEMIC).*

### Box 1.2. A Wave of Protests: Economic Reforms and Social Unrest

### Box 1.2. A Wave of Protests: Economic Reforms and Social Unrest

### Key lessons on designing and implementing reforms
- A reform plan should include a strategy for overcoming opposition from interest groups, and mitigating measures for adversely affected groups, both of which are critical to building public support (Clements and others 2013; Inchauste and Victor 2017; Furceri and others 2019).
- Implement mitigation measures before reforms, and publicly link such measures to the reforms, to help demonstrate the government’s commitment to protecting relevant groups.
- Any mitigation measure should provide adequate coverage and generosity and be visible to the relevant groups.
- A far-reaching and consistent communications strategy can help build broad public support.
  - The communication strategy should include consultation with those stakeholders who are affected by the reform and can influence its success (Worley, Pasquier, and Canpolat 2018).
  - The information campaign should be transparent, explain the rationale for reform and the cost of the status quo, and present mitigation measures for adversely affected groups (Clements and others 2013).
  - At the current juncture, making clear that support measures to address the COVID-19 crisis are temporary could help manage expectations.

### Empirical examples and outcomes
- Islamic Republic of Iran, 2010: Successful energy subsidy reform was preceded by a public information campaign accompanied by substantial and immediate cash transfers to households.
- Fuel price increase in November 2019: A large increase in fuel prices in November 2019, without prior notice or compensation, was met with protests because it occurred during a period of high unemployment and underlying dissatisfaction.
- Haiti 2018 and Ecuador 2019: When energy price increases triggered unrest, mitigation measures were either absent or not visible to the public, or were lacking in coverage and generosity.
- Morocco, 2014: Authorities phased out subsidies gradually and consulted stakeholders before implementation of the reform, and a smoother rollout ensued.
- The Bahamas, 2015: Ahead of the 2015 introduction of the value-added tax in The Bahamas, the government embarked on an in-depth public information campaign and implemented mitigation measures.

### Design principles for mitigation and communication
- Implement mitigation measures before or at the time of reform and make them visible to the affected population.
- Ensure mitigation measures provide adequate coverage and generosity for adversely affected groups.
- Link savings from reform transparently to redeployment that benefits the population (for example, scaling up education and health care spending) so the public is aware of the benefits relative to the cost of the status quo (Inchauste and Victor 2017; OECD 2018).
- Consult stakeholders who can influence reform success and design communication campaigns that explain the rationale and costs of inaction.
- Consider timing and economic context: reforms introduced without prior notice or compensation during periods of high unemployment and underlying dissatisfaction can trigger protests.

### Caveats and unpredictability
- Although these lessons are grounded in empirical evidence and cross-country experience, the factors leading to unrest remain unpredictable and depend on rapidly evolving circumstances specific to individual countries as well as on regional and global factors.
- See Abdallah and others (2019) for an application of a communications strategy in Colombia.1

*International Monetary Fund. April 2020.*

### 0.2 percent of global GDP in investment per

### text - 0.2 percent of global GDP in investment per

### Global and regional investment needs
- Additional investment needs estimated at 0.2 percent of global GDP per year up to 2030, according to the G20 initiative on the global investment outlook.
- Investment needs for climate adaptation are estimated at $1.8 trillion globally cumulatively over 2020–30, or 0.2 percent of global GDP per year (Global Commission on Adaptation 2019).
- Additional global investment needs are estimated, on average, at 1.3 percent of global GDP per year during 2020–40 (exceeding $20 trillion in current US dollars), and comprise:
  - infrastructure: 0.5 percent of GDP
  - other SDGs: 0.2 percent of GDP
  - low-carbon investment: 0.6 percent of GDP
- Additional Sustainable Development Goal investment needs for access to clean water, sanitation, and electricity are over and above the infrastructure needs indicated.
- Investment needs are mostly concentrated in sub-Saharan Africa and other low-income developing countries, amounting to 5 percent of regional GDP per year in Africa.
- Including health and education investment toward the Sustainable Development Goals could add an additional 0.2 percent of global GDP per year to the global investment needs (Gaspar and others 2019).

### Sectoral sizing and methodology notes
- The size of infrastructure needs in energy, telecommunications, transportation (airports, ports, rail, and roads), and water sectors for each of the 50 countries is calculated based on trend investment projections relative to best performers (that is, the 75th percentile) among countries with similar income levels.
- Missing data from remaining countries are scaled by their relative GDP weights to arrive at regional and global infrastructure needs.
- Additional SDG investment needs for access to clean water, sanitation, and electricity are over and above those infrastructure needs.

### Investment management and efficiency
- Scaling up public investment too much and too fast, going beyond a country’s absorptive capacity, risks waste rather than sustained output growth (Presbitero 2016).
- On average, more than one-third of funds for public infrastructure are estimated to be lost owing to inefficiencies (IMF 2015a; Baum, Mogues, and Verdier 2020).
- Weaknesses in infrastructure governance cited as critical factors: optimism bias in project appraisal, limited interagency coordination, corruption, and weak budget processes (Schwartz and others 2020; April 2019 Fiscal Monitor).
- Subnational execution challenges: fragmentation of public infrastructure delivery, local capacity constraints (Germany, Italy), or unclear delineation of land rights (India) can obstruct large public investment. Example: in Germany, two-thirds of public investment is executed by local governments; earmarked deferral funds for investment are underutilized owing to local capacity constraints and price pressures in the construction industry.
- Improving public investment management (to the 90th percentile of best performers in each income group) could halve the size of investment inefficiencies across countries (Baum, Mogues, and Verdier 2020).
- Advanced-economy measures to improve efficiency include establishing a central register of infrastructure projects, tightening financial rules on public-private partnerships, disclosing more ex post reviews and audits of capital projects, and strengthening links among national planning frameworks, long-term capital plans, and budgeting processes (Ireland). Countries should accelerate decision-making and strengthen implementation capacity (Italy, Germany).

### Sustainable financing and external financing patterns
- While government borrowing costs in many advanced economies have declined to unprecedented low levels, the rates of return on private capital have largely held up (Farhi and Gourio 2018).
- If the risk-adjusted social return on new public investment is higher than government financing costs, a greater set of public investment projects is worth undertaking (Blanchard 2019).
- In some countries with high debt-to-GDP ratios—including several advanced economies—adverse market reactions to large public investment scale-up could emerge, resulting in higher financing costs and further increases in debt vulnerabilities. In such cases, a budget-neutral increase in investment would deliver better outcomes (higher output and lower debt ratios).
- Over the past decade, large emerging market economies, such as China, have played an important role in financing infrastructure investment in many emerging and developing economies. Loans from China accounted for 17 percent of total public external debt of low-income developing countries in 2018— a fourfold increase from the 2008 levels (IMF 2019b).
- Based on current trends, meeting the Sustainable Development Goals in low-income developing countries would likely imply new borrowings on nonconcessional terms and could lead to a substantial increase in average interest rates by 110 basis points (IMF 2019b).
- Policy options emphasized: increasing tax-to-GDP ratios, seeking concessional financing, involving the private sector, stronger governance and institutions, better capture of returns to investment, management of fiscal risks from public-private partnerships, greater debt transparency, and improved coordination with creditors.

### Macroeconomic simulation results and scenarios
- A general equilibrium model is used to quantify (1) growth and debt implications of meeting global investment needs and EU green/infrastructure needs, and (2) estimated effects on inflation and interest rates (model details in Annex 1.1).
- Productive public investment scenario (efficient investment, demand inadequacy but not supply constraints):
  - A sustained increase in public investment across the world (1.3 percent of global GDP initially, then declining very gradually) could increase global GDP by an estimated 1.4 percent per year, on average, over a 20-year horizon.
  - Inflation would increase by 66 basis points per year initially.
  - The real interest rate would increase by 14 basis points over the 20-year horizon.
  - The impact on the public debt-to-GDP ratio would be limited.
- European Union illustrative exercise:
  - A sustained public investment increase of 0.6 percent of EU GDP on infrastructure and decarbonization would increase EU output by 0.7 percent per year, on average, over a 20-year horizon.
  - For illustrative purposes, the green investment needs of 0.25 percent of EU GDP are assumed to be new financing rather than from rebalanced EU budget expenditure.
  - A public investment increase would also add to inflation initially, raise long-term interest rates modestly, and result in a modest rise in the public debt-to-GDP ratio.
- Low-efficiency / supply-side rigidities scenario (binding supply-side bottlenecks and absorptive capacity constraints in skills, institutions, and management):
  - Investment efficiency would be lower, scaling up public investment would have smaller effects on growth and inflation (with little support for monetary policy in achieving inflation targets) while leading to a large rise in debt-to-GDP ratios.
- Cumulative magnitudes from model:
  - The cumulative public investment injection over 20 years is 18 percent of global GDP and the increase in GDP is estimated to be 28 percent (assuming efficient investment). Thus, the cumulative multiplier is above 1 in both simulation exercises.

### Policy recommendations and implementation guidance
- Identify high-quality measures that can be deployed quickly when downside risks materialize, given information, decision, and implementation lags for discretionary measures.
- Improve public investment management: careful project selection, management, and evaluation; clear delineation of responsibilities; mechanisms to ensure coordination between central and subnational governments.
- Strengthen infrastructure governance to reduce optimism bias, improve interagency coordination, combat corruption, and tighten budget processes.
- Use fiscal space where financing costs are low and the social return on investment exceeds financing costs, while being mindful of debt-sustainability risks in high-debt countries; consider budget-neutral options where appropriate.
- Facilitate private investment through structural reforms that improve the business environment and consider supranational coordinated projects for regional infrastructure needs.
- Seek concessional financing and increase tax-to-GDP ratios to support fiscally responsible scaling-up of investment in low-income developing countries; improve debt transparency and coordination with creditors.

*International Monetary Fund | April 2020 — Fiscal Monitor: Policies to Support People During the COVID-19 Pandemic*

### CHAPTER 2 IDEAS TO RESPOND TO WEAKER GROWTH

### CHAPTER 2 IDEAS TO RESPOND TO WEAKER GROWTH

### Rules-based and time‑ready discretionary stimulus
- Enact discretionary measures that will be automatically activated when economic conditions deteriorate (for example, a decline in job creation below a certain threshold or a large increase in the unemployment rate above a certain level or duration).
- Design rules-based fiscal stimulus to prevent continued debt buildup over the long term.
- Revenue-side examples:
  - Temporary value-added tax cuts.
  - Tax policies targeted at low-income households (such as a flat, refundable tax rebate).
  - Tax policies affecting firms (such as cyclical investment tax credits).
- Expenditure-side examples:
  - Temporary extensions of the coverage and duration of unemployment benefits (for example, emergency unemployment compensation programs in the United States).
  - Well-targeted transfers to low-income or liquidity constrained households (because they are more vulnerable to shocks and have a higher marginal propensity to consume).
- Tailor measures to respond to ongoing health crises where relevant.

### Public investment pipeline and timely implementation
- Identify a pipeline of appraised projects (especially upgrades, maintenance, and repairs) for timely implementation to avoid policy lags.
- Recognize limitations to large public investment at the current juncture because of supply disruptions (lockdowns and quarantines).
- Start reviewing the pipeline now to identify bottlenecks and prepare ready-to-implement projects; maintenance and repairs can be quickly scaled up when supply disruptions ease.
- Note examples: some governments (Australia, Ireland, New Zealand, Norway) maintain a rolling pipeline of public infrastructure projects within a budget constraint, detailing timing, sequencing, and scale at different government levels.
- In downturns, accelerate implementation of smaller projects.

### Enhancing automatic stabilizers — rationale and impact
- Automatic stabilizers: mechanisms built into budgets that raise (reduce) spending or reduce (increase) taxes when the economy slows (expands); primarily progressive income taxes, unemployment benefits, and social safety nets.
- Channels through which automatic stabilizers operate:
  - Disposable income: progressive income taxation stabilizes household disposable income across cycles.
  - Social insurance and redistribution: insures incomes when people become unemployed and protects poor households that are more likely to consume most of their incomes.
- Empirical and summary findings:
  - They account for more than one-half of overall fiscal stabilization—measured as the sensitivity of the overall budget balance to the output gap—in two-thirds of advanced economies.
  - They account for 30 percent of total fiscal stabilization in emerging market and developing economies (with large cross-country variation).
  - Automatic stabilizers provided a sizable boost to output during the Great Recession—about 2 percent of GDP in the United States and slightly less than that in the euro area.
  - Several studies suggest automatic stabilizers can absorb one-third of income shocks and 40 percent of unemployment shocks in major advanced economies.
- Enhancement of unemployment benefits and social safety nets would increase aggregate demand stabilization because a higher share of liquidity-constrained households could smooth consumption more effectively.

### Practical measures to improve automatic stabilizers
- Revenue-side measures with desirable stabilization properties are discussed elsewhere (Box 2.2 in source).
- Expenditure-side measures:
  - Strengthen social safety nets.
  - Introduce two-pillar unemployment benefit systems:
    - First pillar: unemployment insurance financed from contributions.
    - Second pillar: unemployment assistance financed from government revenues for those who have not contributed or have exhausted insurance benefits.
  - Increase generosity of unemployment benefits (evidence: a 1 standard deviation increase in the generosity of US unemployment insurance would attenuate the effect of adverse shocks on employment growth by 7 percent).
  - Increase take-up of transfer programs, raise benefit levels and duration based on predefined formulas, and ease eligibility criteria during recessions.
- Design improvements should balance demand support and work disincentives (options include gradually removing benefits as employment incomes increase).
- Note: during the pandemic, extending unemployment benefits and enhancing social safety nets would likely have limited effects on work incentives.

### Enhancing spending-side automatic stabilizers — design and targeting
- Strengthening unemployment benefit systems and social safety nets aims to:
  1. Reinforce spending-side automatic stabilizers.
  2. Protect households by providing adequate income support in difficult times.
- Consumption stabilization caveats:
  - Progressive taxes stabilize high-income households’ disposable income more than unemployment benefits and safety nets do.
  - Low-income households’ consumption depends more closely on income support; thus well-designed benefits can have larger effects on aggregate demand.
- OECD context:
  - In most OECD countries, typical household unemployment insurance and other benefits replace on average 70 percent of its last employment income.
  - Some countries provide unemployment assistance so combined replacement can be about 60 percent of previous employment incomes.
  - The fall in net incomes is sharper in countries without unemployment assistance (United States).
- Cross-country variation in income stabilization by tax-benefit systems:
  - From 95 percent in Denmark (due to generous safety net) to below 20 percent in the United States.
- Policy instruments for better reach and delivery in emerging market and developing countries:
  - Mobile money, in-kind provision (health care, water, transportation), use of existing social registries, and community-based identification methods.
  - Example: Aadhaar in India as a model for mapping bank accounts to unique IDs for direct cash transfers (subject to privacy and security safeguards).

### Social safety nets — scope, effectiveness, and gaps
- Definition: noncontributory transfer programs aimed at low-income households or the vulnerable; typically financed from government revenues and include cash transfers, in-kind transfers, income-support schemes, public works, and fee waivers.
- Global and regional statistics and findings:
  - Social safety nets have contributed to a reduction of poverty gaps by 45 percent worldwide, on average.
  - Average spending on social safety nets:
    - 2.7 percent of GDP in OECD countries.
    - 1.5 percent of GDP at the global level.
  - The size and structure of social pensions have grown rapidly in many emerging market and developing economies.
- Coverage and adequacy issues:
  - In emerging market and developing countries, safety nets cover less than one-fifth of the poorest quintile of households on average.
  - The average transfer accounts for only 13 percent of the consumption of the bottom 20 percent of the income distribution.
  - Programs are often fragmented, involve beneficiary overlaps, and lack incentive features; few poor are covered by unemployment insurance.
- Regional and country program examples:
  - Coverage of poorest quintile between 60 percent and 100 percent in specific programs: unconditional cash transfers in Malaysia; conditional cash transfers in Uruguay; social pensions in Georgia, Mauritius, and South Africa.
  - Unconditional cash transfer programs in Georgia and Rwanda effective in poverty alleviation; Malawi’s program has a large impact on household consumption.
  - Egypt scaled up means-tested cash transfers to support energy price increases; Bolivia expanded safety nets to reduce poverty.
- Good social safety net attributes (Grosh and others 2008):
  1. Broad coverage and adequate, progressive benefits.
  2. Cost effectiveness by avoiding program fragmentation and overlaps.
  3. Preservation of work incentives and enhancement of human capital (link transfers to public works, health, education, training).
  4. Financial sustainability within the overall expenditure envelope.
- Policy implication: in advanced economies, focus on improving outcomes, extending coverage via means testing, and preserving work incentives (reducing implicit labor tax wedges). Examples of program adjustments:
  - Two-pillar unemployment systems implemented in Austria, Germany, Finland, Ireland, New Zealand, Spain, and the United Kingdom.
  - Guaranteed minimum income programs: selective, conditional, and means tested; almost all OECD countries have centralized minimum-income programs for working-age individuals.

*International Monetary Fund. April 2020. FISCAL MONITOR: POLICIES TO SUPPORT PEOPLE DURING THE COVID-19 PANDEMIC, Chapter 2.*

### 1. Coverage2. Adequacy

### 1. Coverage2. Adequacy

### Coverage and adequacy of social safety nets
- Regional measures of coverage and adequacy are presented as percent of quintile population and percent of quintile welfare (Figure 2.13).
- Countries with strong spending-side automatic stabilizers are better positioned to attenuate the adverse effects of atypical shocks, such as pandemics.
- Illustrative cross-country comparisons:
  - Upgrading benefit systems in Estonia or the United States to that of the median OECD country would result in household incomes falling by one-third less when workers lose their jobs during recessions.
  - In Italy, potential improvements include reducing generosity of benefits to reduce welfare-dependence risks and create greater incentives to work, improving targeting, and building adequate controls and local administrative capacity for effective implementation.

### Employment income replacement and incentives to work
- The design of social safety net programs can increase income stabilization by increasing the progressivity of net transfers through a reduction in the benefit withdrawal rate as earnings increase.
- Cross-country patterns (Figure 2.14):
  - Some countries (Denmark, Finland) provide strong income support when households become unemployed but have a large effective tax rate of 90 percent on labor income when recipients find a job—potentially discouraging labor market participation.
  - Other countries without unemployment assistance (Turkey, United States) place a higher weight on work incentives and have low effective tax rates upon the return to work.
- Policy implication: Spending-side automatic stabilizers can be improved while preserving work incentives, including through in-work wage subsidies such as the earned income tax credit in the United States.

### Typical features of guaranteed minimum income programs (Table 2.1)
- Coverage
  - Able-bodied working-age individuals in poverty and their households receive a guaranteed minimum income.
  - Government ability to verify household income and assets via means testing is important to determine eligibility and benefit levels.
  - Verification may not be feasible in countries with large informal sectors and limited administrative capacity, especially low-income developing countries.
  - The appropriate mix of universal and targeted transfers depends on administrative, financing, social, and political constraints.
- Benefit Levels
  - The guaranteed minimum income should reflect basic needs without causing welfare dependence.
  - The state tops up the beneficiary’s income to the guaranteed limit, calibrated in relation to the relative poverty line.
  - Most countries provide additional housing allowances and health care.
- Incentives
  - Program design should include features that incentivize work.
  - Generous benefit levels and high withdrawal rates could strongly disincentivize work and discourage labor force participation.
  - Successful programs incorporate conditional in-work tax credits (including for secondary earners), marginal income disregard for part-time and casual work, gradual benefit phaseouts, and back-to-work bonuses.
- Conditionality
  - Participation in active labor market programs is essential for receiving benefits, if implementation capacity exists.
  - Conditions based on job training or placement, education, and so on help households return to work and control fiscal cost.
  - Active labor market programs are less effective if there is a high degree of welfare dependence.

### Underlying drivers of weak growth, inflation, interest rates, and high debt
- Competing theories attribute low growth, investment, interest rates, and inflation to:
  - Inadequate demand (e.g., rising income inequality, aging populations, globalization, greater demand for safe assets).
  - Weak supply potential (e.g., slowing productivity growth, trend decline in public investment-to-GDP ratios, plateauing education attainments and labor participation rates, shrinking labor force in advanced economies).
  - The debt supercycle (e.g., financial boom before the global financial crisis leaving an overhang of debt; continued credit expansions with diminishing returns in China).
- Consensus policy implication: Need for more high-return public and private investment to foster long-term growth.
  - If aggregate demand remains weak for a lengthy period, high-return public investment, in a low interest rate environment, could spur private sector activity.
  - If supply weaknesses dominate, investing in physical and human capital and research and development, complemented with structural reforms that foster competition and innovation, can durably raise long-term growth.
- Figures and conceptual framing:
  - Among OECD countries, income taxes can automatically stabilize between 20 and 50 percent of income shocks (OECD 2019).

### Tax policy and automatic stabilizers (Box 2.2)
- Role of tax design
  - A progressive tax system helps stabilize the economy because taxpayers pay lower taxes in a recession than in a boom, cushioning consumption and investment and reducing volatility of output and employment.
  - Taxes on income respond most to the economic cycle; progressive personal income taxes and corporate taxes linked to profitability are especially effective automatic stabilizers.
- Limitations and complementarity
  - Certain tax-related items contribute little to stabilization, including tax deductions, earmarked tax proceeds, nontax revenues loosely related to nominal GDP, specific taxes infrequently indexed, and taxes collected with delays.
  - Tax-related automatic stabilizers may not be sufficient for large output shocks; expenditure-side automatic stabilizers (unemployment benefits, social transfers) can complement revenue-side stabilizers.
- Specific tax instruments and adjustments to strengthen automatic stabilizers
  - Bonus depreciation/accelerated depreciation/super-deductions:
    - Allow firms to automatically deduct a substantial portion of new investment from taxable profits during recessions; evidence suggests this boosted investment in the United States during the global financial crisis.
    - Accelerated depreciation or super-deductions can encourage investment in health or hygiene products undersupplied during the pandemic.
  - Cyclical loss-carry backward:
    - Automatically allowing deduction of current corporate losses against past tax payments can provide immediate tax refunds during recessions; applied in Canada, France, Germany, United Kingdom, United States, and during the current pandemic in several advanced economies.
  - Linking property taxes to the real estate cycle:
    - Assessing property values annually (United States) increases collections during property booms and reduces taxes during slumps.
  - Tax credits versus deductions:
    - Tax credits are preferable to deductions for encouraging socially valuable activities while smoothing the cycle because the impact on disposable income is fixed.
    - Uniform personal income tax credits are recommended when the personal income tax is progressive.
  - Investment tax credits:
    - Stabilizing because they reduce the cost of capital and stimulate investment when it tends to fall during recessions.
    - Historical example: Sweden’s cyclical investment tax credits—firms could deduct up to 40 percent of their taxable profit to an investment fund during normal times and draw on it during downturns.
  - Corporate income tax collections based on current-year estimated income:
    - Allow tax collections to be linked more closely to the current state of the economy and make stabilization timelier.

*Source: IMF staff summary and materials from the cited chapter.*

### References

### References

### Fiscal policy, automatic stabilizers, and macroeconomic stabilization
- Auerbach, Alan J., and Daniel R. Feenberg. 2000. “The Significance of Federal Taxes as Automatic Stabilizers.” Journal of Economic Perspectives 14 (3): 37–56.
- Auerbach, Alan J., and Yuriy Gorodnichenko. 2012. “Measuring the Output Responses to Fiscal Policy.” American Economic Journal: Economic Policy 4 (2): 1–27.
- Auerbach, Alan J., and Yuriy Gorodnichenko. 2013. “Fiscal Multipliers in Recession and Expansion.” In Fiscal Policy After the Financial Crisis, edited by Alberto Alesina and Francesco Giavazzi. Chicago: University of Chicago Press.
- Baunsgaard, Thomas, and Steven A. Symansky. 2009. “Automatic Fiscal Stabilizers.” IMF Staff Position Note 09/23, International Monetary Fund, Washington, DC.
- Debrun, Xavier, and Radhicka Kapoor. 2010. “Fiscal Policy and Macroeconomic Stability: Automatic Stabilizers Work, Always and Everywhere.” IMF Working Paper 10/111, International Monetary Fund, Washington DC.
- Debrun, Xavier, Jean Pisani-Ferry, and Andre Sapir. 2008. “Government Size and Output Volatility: Should We Forsake Automatic Stabilization?” IMF Working Paper 08/122, International Monetary Fund, Washington, D.C.
- McKay, Alisdair, and Ricardo Reis. 2016. “The Role of Automatic Stabilizers in the US Business Cycle.” Econometrica 84 (1): 141–94.
- McKay, Alisdair, and Ricardo Reis. 2019. “Optimal Automatic Stabilizers.” NBER Working Paper 22359, National Bureau of Economic Research, Cambridge, MA.
- Blanchard, Olivier J., and Lawrence H. Summers. 2020. “Automatic Stabilizers in a Low-Rate Environment.” Policy Brief 20–2, Peterson Institute for International Economics, Washington, DC.
- Congressional Budget Office. 2013. “The Effects of Automatic Stabilizers on the Federal Budget as of 2013.” Congressional Budget Office, Washington, DC.
- Dolls, Mathias, Clemens Fuest, and Andreas Peichl. 2012. “Automatic Stabilizers and Economic Crisis: US vs. Europe.” Journal of Public Economics 96 (3–4): 279–94.
- Auerbach, Alan J., and Yuriy Gorodnichenko. 2012. “Measuring the Output Responses to Fiscal Policy.” American Economic Journal: Economic Policy 4 (2): 1–27.

### Fiscal multipliers, zero lower bound, and unconventional fiscal policy
- Christiano, Lawrence, Martin Eichenbaum, and Sergio Rebelo. 2011. “When Is the Government Spending Multiplier Large?” Journal of Political Economy 119 (1): 78–121.
- Woodford, Michael. 2011. “Simple Analytics of the Government Expenditure Multiplier.” American Economic Journal: Macroeconomics 3 (1): 1–35.
- Eggertsson, Gauti B. 2011. “What Fiscal Policy Is Effective at Zero Interest Rates?” NBER Macroeconomics Annual 25 (1): 59–112.
- Correia, Isabel, Emmanuel Farhi, Juan Pablo Nicolini, and Pedro Teles. 2013. “Unconventional Fiscal Policy at the Zero Bound.” American Economic Review 103 (4): 1172–211.
- Farhi, Emmanuel, and Ivan Werning. 2016. “Fiscal Multipliers: Liquidity Traps and Currency Unions.” Handbook of Macroeconomics 2: 2417–92.
- Farhi, Emmanuel, and François Gourio. 2018. “Accounting for Macro-Finance Trends: Market Power, Intangibles, and Risk Premia.” NBER Working Paper 25282, National Bureau of Economic Research, Cambridge, MA.

### Public investment, infrastructure governance, and SOE management
- Baum, Anja, Tewodaj Mogues, and Genevieve Verdier. 2020. “Getting the Most from Public Investment.” In Infrastructure Governance: From Aspiration to Action, edited by Gerd Schwartz, Manal Fouad, Torben Steen Hansen, and Genevieve Verdier. Washington, DC: International Monetary Fund.
- Gaspar, Vitor, David Amaglobeli, Mercedes Garcia-Escribano, Delphine Prady, and Mauricio Soto. 2019. “Fiscal Policy and Development: Human, Social, and Physical Investment for the SDGs.” IMF Staff Discussion Note 19/03, International Monetary Fund, Washington, DC.
- IMF. 2015a. “Making Public Investment More Efficient.” IMF Policy Paper, Washington, DC.
- IMF. 2015b. “Fiscal Policy and Long-Term Growth.” IMF Policy Paper, Washington, DC.
- IMF. 2017. Ireland: Technical Assistance Report-Public Investment Management Assessment. IMF Country Report 17/333, Washington, DC.
- Presbitero, Andrea F. 2016. “Too Much and Too Fast? Public Investment Scaling-Up and Absorptive Capacity.” Journal of Development Economics 120: 17–31.
- Schwartz, Gerd, Manal Fouad, Torben Steen Hansen, and Genevieve Verdier. 2020. Well Spent: How Strong Infrastructure Governance Can End Waste in Public Investment. Washington, DC: International Monetary Fund.
- Irwin, Timothy, Samah Mazraani, and Sandeep Saxena. 2018. “How to Control the Fiscal Costs of Public-Private Partnership.” How to Note 18/04, International Monetary Fund, Washington, DC.
- Berg, Andrew, Edward F Buffie, Catherine Pattillo, Rafael Portillo, Andrea F Presbitero, and Luis Felipe Zanna. 2019. “Some Misconceptions about Public Investment Efficiency and Growth.” Economica 86 (342): 409–30.
- World Bank. 2018. The State of Social Safety Nets 2018. Washington, DC: World Bank.

### State-owned enterprises, corporate debt, and internationalization
- Bakker, Bas B. 2019. “What Happens if Central Banks Misdiagnose a Slowdown in Potential Output?” IMF Working Paper 19/208, International Monetary Fund, Washington, DC.
- Kowalski and others 2013. [citation as listed in source]
- Musacchio and Lazzarini 2014. [citation as listed in source]
- Musacchio and Pineda Ayerbe 2019. [citation as listed in source]
- Richmond and others 2019. [citation as listed in source]
- Wilkinson 2018. [citation as listed in source]
- Cuervo-Cazurra and others 2014. [citation as listed in source]
- Maliszewski, Wojciech, Serkan Arslanalp, John Caparusso, José Garrido, Si Guo, Joong Shik Kang, W. Raphael Lam, Daniel Law, and Wei Liao. 2016. “Resolving China’s Corporate Debt Problem.” IMF Working Paper 16/203, International Monetary Fund, Washington, DC.

### Unemployment insurance, social protection, and safety nets
- Chodorow-Reich, Gabriel, John Coglianese, and Loukas Karabarbounis. 2019. “The Macro Effects of Unemployment Benefit Extensions: A Measurement Error Approach.” The Quarterly Journal of Economics 134 (1): 227–79.
- Di Maggio, Marco, and Amir Kermani. 2016. “The Importance of Unemployment Insurance as an Automatic Stabilizers.” NBER Working Paper 22625, National Bureau of Economic Research, Cambridge, MA.
- Hagedorn, Marcus, Fatih Karahan, Iourii Manovskii, and Kurt Mitman. 2016. “Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects.” NBER Working Paper 19499, National Bureau of Economic Research, Cambridge, MA.
- Kekre, Rohan. 2019. “Unemployment Insurance in Macroeconomic Stabilization.” University of Chicago Booth School of Business Working Paper, Chicago, IL.
- Landais, Camille, Pascal Michaillat, and Emmanuel Saez. 2018. “A Macroeconomic Approach to Optimal Unemployment Insurance: Theory.” American Economic Journal: Economic Policy 10 (2): 152–81.
- Landais, Camille, and Johannes Spinnerwijn. 2019. “The Value of Unemployment Insurance.” CEPR Discussion Paper 13624, Center for Economic and Policy Research, Washington, DC.
- Hellwig, Klaus Peter. Forthcoming. “Can Unemployment Benefits Stabilize Economic Activity? Evidence from U.S. Counties.” IMF Working Paper, International Monetary Fund, Washington, DC.
- Hsu, Joanne W., David A. Matsa, and Brian T. Melzer. 2018. “Unemployment Insurance as a Housing Market Stabilizer.” American Economic Review 108 (1): 49–81.
- Grosh, Margaret E., Carlo Del Ninno, Emil Tesliuc, and Azedine Ouerghi. 2008. For Protection and Promotion: The Design and Implementation of Effective Safety Nets. Washington, DC: World Bank.

### Public debt, secular stagnation, and growth dynamics
- Blanchard, Olivier. 2019. “Public Debt and Low Interest Rates.” American Economic Review 109 (4): 1197–229.
- Blanchard, Olivier J., Giovanni Dell’Ariccia, and Paolo Mauro. 2010. “Rethinking Macroeconomic Policy.” Journal of Money, Credit and Banking 42: 199–215.
- Benigno, Gianluca, and Luca Fornaro. 2018. “Stagnation Traps.” Review of Economic Studies 85 (3): 1425–70.
- Caballero, Ricardo J., Emmanuel Farhi, and Pierre-Olivier Gourinchas. 2016. “Safe Asset Scarcity and Aggregate Demand.” American Economic Review 106 (5): 513–18.
- Chudik, Alexander, Kamiar Mohaddes, M. Hashem Pesaran, and Mehdi Raissi. 2017. “Is There a Debt-Threshold Effect on Output Growth?” The Review of Economics and Statistics 99 (1): 135–50.
- Lo, Stephanie, and Kenneth Rogoff. 2015. “Secular Stagnation, Debt Overhang and Other Rationales for Sluggish Growth, Six Years On.” BIS Working Paper 479, Bank for International Settlements, Basel.
- Rachel, Łukasz, and Lawrence H. Summers. 2019. “On Falling Neutral Real Rates, Fiscal Policy and the Risk of Secular Stagnation.” Brookings Papers on Economic Activity BPEA Conference Drafts, March 7–8.
- Gourinchas, Pierre-Olivier, and Hélène Rey. 2016. “Real Interest Rates, Imbalances and the Curse of Regional Safe Asset Providers at the Zero Lower Bound.” NBER Working Paper 22618, National Bureau of Economic Research, Cambridge, MA.
- Gourinchas, Pierre-Olivchas, and Hélene Rey. 2019. “Global Real Rates: A Secular Approach.” BIS Working Paper 793, Bank for International Settlements, Basel.
- Chodorow-Reich, Gabriel, John Coglianese, and Loukas Karabarbounis. 2019. “The Macro Effects of Unemployment Benefit Extensions: A Measurement Error Approach.” The Quarterly Journal of Economics 134 (1): 227–79.

### Tax policy, redistribution, and wealth taxation
- Batchelder, Lily L., and Fred T. Goldberg. 2008. “Reforming Tax Incentives into Uniform Refundable Tax Credits.” Basic Income Studies 2 (2): 1–11.
- Romer, Christina D., and David H. Romer. 2010. “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks.” American Economic Review 100 (3): 763–801.
- Romer, Christina D., and David H. Romer. 2019. “Fiscal Space and the Aftermath of Financial Crises: How It Matters and Why.” Brookings Papers on Economic Activity. (Spring), Brookings Institution, Washington, DC.
- Saez, Emmanuel, and Gabriel Zucman. 2019. “Progressive Wealth Taxation.” Brookings Papers on Economic Activity. (Fall), Brookings Institution, Washington, DC.
- Pisani-Ferry, Jean. 2019. “The Great Wealth Tax Debate.” Project Syndicate, October 31.
- Zwick, Eric, and James Mahon. 2017. “Tax Policy and Heterogeneous Investment Behavior.” American Economic Review 107 (1): 217–48.

### Additional empirical and theoretical contributions referenced
- Acemoglu, Daron, Philippe Aghion, and Fabrizio Zilibotti. 2006. “Distance to Frontier, Selection, and Economic Growth.” Journal of the European Economic Association 4 (1): 37–74.
- Benigno, Gianluca, and Luca Fornaro. 2018. “Stagnation Traps.” Review of Economic Studies 85 (3): 1425–70.
- Berg, Andrew, Edward F Buffie, Catherine Pattillo, Rafael Portillo, Andrea F Presbitero, and Luis Felipe Zanna. 2019. “Some Misconceptions about Public Investment Efficiency and Growth.” Economica 86 (342): 409–30.
- Chudik, Alexander, Kamiar Mohaddes, M. Hashem Pesaran, and Mehdi Raissi. 2017. “Is There a Debt-Threshold Effect on Output Growth?” The Review of Economics and Statistics 99 (1): 135–50.
- Christiano, Lawrence, Martin Eichenbaum, and Sergio Rebelo. 2011. “When Is the Government Spending Multiplier Large?” Journal of Political Economy 119 (1): 78–121.
- Crucini, Mario J., and Nam T. Vu. 2017. “Did the American Recovery and Reinvestment Act Help Those Most in Need? A County-Level Analysis.” NBER Working Paper 24093, National Bureau of Economic Research, Cambridge, MA.
- Di Maggio, Marco, and Amir Kermani. 2016. “The Importance of Unemployment Insurance as an Automatic Stabilizers.” NBER Working Paper 22625, National Bureau of Economic Research, Cambridge, MA.
- Eichenbaum, Martin S. 2019. “Rethinking Fiscal Policy in an Era of Low Interest Rates.” Northwestern University, Department of Economics, Evanston, IL.
- Farhi, Emmanuel, and François Gourio. 2018. “Accounting for Macro-Finance Trends: Market Power, Intangibles, and Risk Premia.” NBER Working Paper 25282, National Bureau of Economic Research, Cambridge, MA.
- Fatas, Antonio, and Ilian Mihov. 2001. “Government Size and Automatic Stabilizers: International and Intranational Evidence.” Journal of International Economics 55 (1): 3–28.
- Francese, Maura, and Delphine Prady. 2018. “Universal Basic Income: Debate and Impact Assessment.” IMF Working Paper 18/273, International Monetary Fund, Washington, DC.
- Gali, Jordi. 1994. “Government Size and Macroeconomic Stability.” European Economic Review 38 (1): 117–32.
- Gordon, Robert J. 2015. “Secular Stagnation: A Supply-Side View.” American Economic Review, Papers and Proceedings 105 (5): 54–59.
- Grosh, Margaret E., Carlo Del Ninno, Emil Tesliuc, and Azedine Ouerghi. 2008. For Protection and Promotion: The Design and Implementation of Effective Safety Nets. Washington, DC: World Bank.
- Hsu, Joanne W., David A. Matsa, and Brian T. Melzer. 2018. “Unemployment Insurance as a Housing Market Stabilizer.” American Economic Review 108 (1): 49–81.
- Immervoll, Herwig. 2010. “Minimum-Income Benefits in OECD Countries: Policy Design, Effectiveness and Challenges.” OECD Social, Employment and Migration Working Paper 100, OECD Publishing, Paris.
- Philippon, Thomas. 2019. The Great Reversal. Cambridge, MA: Harvard University Press.
- Pisani-Ferry, Jean. 2019. “The Great Wealth Tax Debate.” Project Syndicate, October 31.
- Romer, Christina D., and David H. Romer. 2010. “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks.” American Economic Review 100 (3): 763–801.
- Spilimbergo, Antonio, Steven Symansky, Olivier Blanchard, and Carlo Cottarelli. 2010. “Fiscal Policy for the Crisis.” In Lessons from the Financial Crisis, edited by Robert W. Kolb. New York, Wiley.
- Taylor, John B., Martin Neil Baily, and Stanley Fischer. 1982. “The Swedish Investment Funds System as a Stabilization Policy Rule.” Brookings Papers on Economic Activity (1): 57–106.
- Traum, Nora, and Shu-Chun S. Yang. 2015. “When Does Government Debt Crowd Out Investment?” Journal of Applied Econometrics 30 (1): 24–45.
- Woodford, Michael. 2011. “Simple Analytics of the Government Expenditure Multiplier.” American Economic Journal: Macroeconomics 3 (1): 1–35.

*International Monetary Fund. April 2020. Fiscal Monitor: Policies to Support People During the COVID-19 Pandemic — References (text).*

### CHAPTER 3 State-Owned enterprISeS: the Other GOvernMent

### CHAPTER 3 State-Owned enterprISeS: the Other GOvernMent

### The Largest SOEs Have Become Global Players
- The share of SOE assets among the world’s 2,000 largest firms has doubled to 20 percent over the past decade.
- SOE assets were $45 trillion in 2018, equivalent to 50 percent of global GDP.
- SOEs have accounted for 5–15 percent of annual cross-border acquisitions since 2008.
- The debt of the largest SOEs is $7.4 trillion, compared with $1.4 trillion in 2000.
- Large SOEs now comprise one-third of the entire emerging market sovereign hard currency debt tracked in the most widely followed emerging market sovereign bond index (October 2019 Global Financial Stability Report).
- Sector concentration: large SOEs are especially active in banking, energy, industrials, and utilities.
- Ownership structure: among the largest SOEs, almost 60 percent have a mix of public and private sector owners.
- SOMNEs (state-owned multinational enterprises) defined: an SOE that controls assets of other entities in countries other than its home country.
  - UNCTAD identified 1,500 SOMNEs in 2018 across 109 countries.
  - In 2018, half of the top 10 nonfinancial firms globally (by revenue) were SOMNEs.
  - Prominent examples among the largest nonfinancial SOEs: China National Petroleum, Volkswagen AG, Saudi Arabian Oil Company, Gazprom, Rosneft.

### The Evolving Nature of SOEs Exacerbates Policy Challenges
- Mixed ownership blurs the line between state and private control; governments can exert influence through minority shareholdings, golden shares, or indirect ownership via public banks, public pension funds, or sovereign wealth funds.
- Government support mechanisms include: budget compensation (subsidies, capital transfers), cheap debt and equity financing, special tax and regulatory provisions, privileged market positions, superior access to information, and rescues from bankruptcy.
- Government support may not be linked to a specific public mandate or may exceed the net cost of the mandate, creating competitive advantages over private firms.
- Example of cross-subsidization: Deutsche Post used profits from its letter delivery monopoly for 25 years until 2000 to cross-subsidize below-cost selling in business parcel delivery.
- IMF staff estimates (sample of SOEs in 65 countries) suggest SOEs benefit from lower debt-financing costs, on average, relative to private firms.
- Economic and fiscal implications of government-bestowed advantages:
  - Distorted competition.
  - Sustained inefficient SOEs, possibly lowering growth and tax revenues.
  - Overcapacity concerns in aluminum, semiconductor, and steel sectors; studies found sizable government support through budget support, subsidized inputs, below-market loans, and equity financing.
  - SOEs produced one-third of global steel output in 2016 amid complaints of unfair government support.
- Host-country responses: some countries may unilaterally counteract perceived foreign-policy or national-security–driven SOE expansion abroad.

### Achieving Policy Objectives — Struggling to Meet Policy Mandates
- Governments mandate SOEs to pursue diverse goals; government intervention often justified to correct market failures (natural monopolies, public goods).
- SOEs are sometimes used to pursue broad macroeconomic goals (for example, promoting credit growth) or to develop new sectors (examples: copper-mining sector in Chile in 1976; oil and gas sector in Ghana in 1983).
- Core problems hindering SOEs in meeting mandates:
  - Unfunded mandates: lack of clear and funded mandates can weaken SOE financial health.
    - Example: inability to set prices or tariffs to cost-recovery levels can lead to systematic losses, accumulation of debt and arrears, deterioration of infrastructure, or limited accessibility.
  - Government bailouts: expectation of compensation or bailouts may incentivize managers to avoid pursuing efficiency, take larger risks, or borrow excessively.
  - Weak governance and oversight: government agencies often lack information or capacity to monitor SOEs; many countries lack guidelines for SOE financial reporting. Weak governance and corruption are main sources of SOE difficulties.
  - Costly government dividend and tax policies: excessive dividend payouts can impair SOE operations. Example: Argentina’s YPF paid dividends of $602 million in 2016 despite incurring a loss of more than $1 billion that year.
- These challenges are particularly relevant in critical nonfinancial network sectors (power, water, ground transportation, energy) and in public banks.

### Network Sectors: Special Challenges
- Network industries require large fixed infrastructure and standardization; government intervention often justified where private entry is limited.
- Power sector:
  - SOEs dominate transmission and distribution; private investors more involved in generation but SOEs remain major players.
  - In advanced economies, evidence is mixed on whether reforms or privatization delivered expected efficiency gains.
  - Access challenge: 840 million people live without electricity, most in Africa.
  - Common problem: failure to achieve cost recovery; below-cost tariffs reduce SOE ability to invest and weaken financial positions.
- Water sector:
  - Delivery systems require major infrastructure investment; potable water and adequate sewerage are essential for public health.
  - Public provision through SOEs is dominant in most advanced economies; a few rely significantly on private providers.
  - Remunicipalization examples: Paris, Berlin, and several US municipalities.
  - Developing-country challenge: more than 2 billion people lack safely managed services, reflecting weak SOE performance.
  - Examples of reform outcomes:
    - Burkina Faso: public water utility doubled population access to drinking water over two decades by introducing a progressive tariff grid.
    - Mali: a private concession on water and electricity failed due to tariff disputes, political interference, and government nonpayment of its own utility bills.
- Transportation sector:
  - Provision of public transportation (trains, subways, buses) involves government intervention to ensure affordability and address congestion, pollution, and accidents.
  - Local SOEs commonly provide ground transportation in advanced economies; informal private services are widespread in many emerging markets.
  - Charging prices that cover investment and maintenance needs remains challenging; failure can require large government subsidies (example: Chile metro fare reform and financial viability issues).
- National oil companies (NOCs):
  - Many oil-exporting countries use NOCs to control oil and gas exploration and capture profits for the state.
  - NOCs are significantly less profitable and efficient than private peers, partly due to government pressures (for example, excessive hiring).
  - Governments often require NOCs to sell fuel at subsidized retail prices and to undertake social spending.
  - NOCs may undertake exploration risks and costs instead of the government simply taxing profits.
  - Large profits in the sector create strong incentives for corruption.

### Are Public Banks an Appropriate Tool for Macro-Fiscal Management?
- Government intervention in the financial system through public banks is significant in many countries.
- The presence of public banks declined sharply since the 1990s but they still hold significant market share in several large economies.
- Types of public banks:
  - Commercial public banks that provide corporate and retail services.
  - Development banks that provide credit for development-related projects.
- Justifications for public banks: address market failures and promote economic development; many also pursue profit maximization.
- The global financial crisis prompted large-scale recapitalizations and nationalizations of failing banks, notably in advanced economies, that has not been completely unwound.
- Literature on public banks cited for further context (references in source): Cull, Martinez-Peria, and Verrier (2017); Ferrari, Mare, and Skamnelos (2017); World Bank (2012); Yeyati, Eduardo, and Panizza (2005).

*Italicized source attribution: CHAPTER 3 State-Owned enterprISeS: the Other GOvernMent, text - CHAPTER 3 State-Owned enterprISeS: the Other GOvernMent (PDF), International Monetary Fund, April 2020.*

### 1. Labor Productivity

### 1. Labor Productivity

### SOE Financial Performance: aggregate findings
- Sample: about 969,000 firms (about 949,000 fully private, 15,000 majority state owned, and 4,000 minority state owned), across 109 countries; data mainly from advanced and emerging market economies (data from 1999 to 2017 for many indicators).
- Simple comparisons show that profits and labor productivity are lower in SOEs than in private firms (Figure 3.14).
- Labor productivity proxy used: sales per employee (sales data based on 2017 prices for some analyses).
- Possible contributors to lower SOE productivity:
  - Cost of public mandates (providing services at below-cost prices, promoting employment beyond firm-efficient levels).
  - Sectoral composition and ownership structure (see subsections below).
- Empirical evidence: private firms are three times more productive than firms with government majority ownership (Figure 3.16).

### Role of economic sectors and degree of state ownership
- SOEs are less productive than private firms within the same sectors; the productivity gap tends to be larger in sectors with typically more competition (for example, agriculture and manufacturing).
- In some regulated sectors (such as utilities), the productivity gap is lower (Figure 3.15).
- Mixed ownership matters:
  - Private involvement and listing increase monitoring and are associated with better performance.
  - Productivity is lowest when the government has a majority position; the gap narrows when the government has a minority position.

### Governance and its effect on SOE performance
- Countrywide perceived governance (Control of Corruption index from Worldwide Governance Indicators) is strongly correlated with SOE performance gaps relative to private firms (Figure 3.17).
- Quantified effects:
  - In countries with high perceived corruption, SOEs are one-third as productive as private firms, on average.
  - In countries with strong governance, the productivity gap is 7 percent.
  - Regarding profitability, even with good governance there remains a significant gap: a difference of 4 percentage points in return on equity between SOEs and private firms in countries with good governance scores—potentially reflecting unfunded public mandates.
- Sector composition likely mediates governance effects: countries with better governance tend to have SOEs concentrated in utilities and transportation, where SOE performance is closer to private firms, and fewer SOEs in sectors (for example, manufacturing) where private firms outperform significantly.

### Fiscal costs, debt vulnerabilities, and contingent liabilities
- Historical maximum annual government support to SOEs:
  - Financial SOEs: up to 18 percent of GDP.
  - Nonfinancial SOEs: up to 16 percent of GDP.
- Examples of large fiscal support and contingent liabilities:
  - Jordan: subsidies to the electricity company NEPCO were close to 6 percent of GDP in 2014; total health spending was 7.5 percent of GDP in the same year.
  - South Africa: Eskom receiving a rolling government bailout of 2⅓ percent of GDP over three years.
  - Belarus: on average provided 1½ percent of GDP in subsidies and about 2 percent of GDP in additional off-budget support in recent years.
  - Italy’s national airline (Alitalia) received large loans or transfers and was under bankruptcy protection; in 2014 the government took a minority stake and in 2017 the airline was put under special administration; in 2020 the company was formally reincorporated as a public holding.
- SOE debt vulnerabilities (Figure 3.18):
  - In some countries, debt of SOEs exceeds 20 percent of GDP; in several cases SOE liabilities constitute half or more of the public sector debt stock.
  - In some countries, SOE external debt exceeds 25 percent of exports of goods and services.
- Macro-financial propagation:
  - SOE distress can curtail credit growth via public banks, undermining economic activity.
  - Large financially impaired SOEs can affect employment, investment, the financial system, and competitiveness (example: Ghana).
  - Public sector balance sheet analysis shows macro shocks can cascade through financially vulnerable SOEs to the national budget.

### Evidence on SOE reforms and impacts
- Reform types studied (in IMF-supported programs): (1) SOE governance (management, oversight, transparency); (2) public enterprise pricing (tariffs, automatic fuel price mechanisms); (3) arrears clearance; (4) achievement of specific financial targets.
- Overall result: some reforms positively affect financial performance; governance and pricing reforms show the strongest effects.
- Illustrative quantified impacts:
  - An implemented governance reform is associated with an increase in productivity of $10,000 per worker and a reduction of costs of 5 percent in the electricity sector (Figure 3.19).
- Reforms with weaker or no impact: arrears clearance and isolated financial target setting—potentially because they do not address underlying structural drivers.
- Case studies illustrating reform paths:
  - Jordan (NEPCO): gradual tariff adjustments since 2012, installation of an LNG plant for cheaper inputs, and increased cash transfers to vulnerable households; public transfers to NEPCO were eliminated as of 2015; NEPCO posted small positive or negative net operational balances since 2016.
  - Ukraine (Naftogaz): significant gas and heating price increases, restructuring and governance reforms as of 2014, accompanied by extension of utility subsidy programs for vulnerable households; the firm moved from loss-making and budget-aided to profitable within a few years.
- Policy implementation notes:
  - Reforms require broad popular support sustained over several years.
  - Financial health improvements for SOEs must be paired with targeted protection for vulnerable households and continued efficiency gains to sustain outcomes.

*Italic source: IMF, Fiscal Monitor chapter "State-Owned Enterprises: the Other Government" (figures and data as presented in the chapter).*

### 1. Percent Change in Productivity

### 1. Percent Change in Productivity

### How to Get the Most Out of SOEs
- SOEs can be difficult to manage and costly to the budget and the economy, especially when subject to excessive political interference, off-budget spending and borrowing, patronage, or corruption.
- Countries should regularly review whether the rationale for each SOE remains valid and whether it delivers value for taxpayers’ money.
- Use SOEs selectively and only where government intervention can be most effective; the case is weaker in competitive sectors where private firms are more efficient.
- Strong SOE frameworks that link SOEs to public sector goals, improve firm-level incentives, and enhance governance institutions can help ensure SOEs deliver value for taxpayers’ money (example: the Nordics).

### Aligning SOE Activities with Public Sector Goals
- Consistency between SOE activities and general government policies is important to avoid working at cross purposes (for example, SOE debt undermining fiscal adjustment).
- SOE financial operations and assets and liabilities should be fully integrated into the financial statements of the public sector (public sector balance sheet approach).
  - Examples of partial or full implementation cited: Australia, New Zealand, United Kingdom; some Latin American countries partially reflect SOEs’ main financial indicators in the public accounts.
  - Many others do not implement this approach (noted: sub-Saharan Africa and most of Europe).
- Based on IMF’s Fiscal Transparency Evaluations since 2014, around 90 percent of the countries evaluated did not publish comprehensive information on the public sector.
- IMF staff survey of 45 countries in sub-Saharan Africa indicates many countries do not cover SOEs beyond the central government in public accounts (Figure 3.20 referenced).
- Recommendations:
  - Incremental implementation of public sector balance sheet approaches where full integration is not feasible.
  - Complement central government reporting with memorandums summarizing government guarantees to SOEs and recommended SOE financial disclosure practices.
  - Include nonfinancial SOEs in fiscal targets when they pose significant fiscal risks and the government is a majority shareholder (IMF 2007).
  - If inclusion is not feasible, include an SOE’s debt in public sector debt when the SOE poses a fiscal risk.
- Limit use of SOEs for macroeconomic stabilization; prefer direct, transparent monetary or fiscal policy tools.
  - Public banks forced to boost credit during slowdowns can deteriorate loan quality and increase risks; their use should be exceptional and transparent.

### Getting Incentives Right at the Firm Level
- Governments must give SOEs the right incentives to deliver value for taxpayers’ money, especially in sectors with limited competition or significant externalities or social mandates.
- Key measures to promote efficiency and a sustainable business model:
  - Pricing policy:
    - Pricing rules should be transparent and depoliticized (for example, published rules specifying how domestic fuel prices will adjust automatically).
    - Preferably, prices should be set to ensure cost recovery (including to cover investment expenditure).
    - Pricing in sectors with negative externalities should be adjusted while protecting vulnerable households.
    - If price adjustments are not possible, governments should compensate SOEs in a timely and transparent manner.
    - Prevent excessively high prices when SOEs have monopoly power.
  - Independent regulatory agencies:
    - Balance interests and ensure transparent, well-defined rules, especially when private investors are involved.
    - Regulators can ensure tariffs balance affordability with cost coverage.
    - In low-income countries, pooling resources in a single regulator overseeing several sectors can help build capacity.
  - Professional managers and managerial independence:
    - Corporate governance structures should promote sound hiring, wage, and procurement policies.
    - Professional boards and a high degree of transparency are important.
- Other strategies: corporatization and allowing participation of private minority shareholders.
  - In OECD countries most SOEs are incorporated under company law and about half of those companies by value are listed on a national stock exchange (OECD 2017).
  - Mixed ownership has been adopted to some degree in countries such as Brazil, China, and European countries.

### Strengthen Institutions
- Ownership policy should be clear and comprehensive, stating:
  1. Mandates, objectives, and a dividend policy for SOEs;
  2. Approach to achieving professional boards of directors;
  3. Functions carried out by the government as owner and coordination with fiscal risk oversight functions;
  4. How the government exercises its ownership rights.
- Distinguish and disclose commercial and noncommercial activities (policy mandates).
- Develop capacity to oversee companies while avoiding excessive intervention; enforce transparency requirements; establish a sound SOE corporate governance framework; implement anticorruption strategies.
- Effective financial oversight and ownership:
  - A strong centralized oversight and control agency (autonomous agency or holding company) can yield better performance from SOEs (examples: Finland, France, Kenya, Malaysia, Peru, Singapore).
  - One government unit should be responsible for financial oversight of SOEs even when a holding company exists to make oversight coherent and pool expertise.
  - Oversight units can be located within ministries of finance (example: France) or public companies (example: UK Government Investments).
  - Oversight should identify, disclose, and mitigate fiscal risks at both individual company and portfolio levels.
  - SOE investment plans require technical and economic appraisals based on standardized criteria; projects with direct budgetary costs should be subject to a selection process consistent with medium-term fiscal objectives and fiscal risk.
  - Line ministries should not have excessive control over ownership arrangements or strategic decisions.
- Containing SOE risks:
  - Consider explicit no-bailout clauses (used in transition countries such as Poland and Ukraine).
  - Subject SOEs to effective insolvency procedures similar to private firms (examples: Italy, Korea, the Netherlands, Sweden, and the United Kingdom use the same insolvency procedures for SOEs as for private companies).
  - Provide incentives to SOE management to manage risks (performance contracts and benchmarking), though implementation can be difficult.
  - Regularly review SOE portfolios to assess continued policy relevance; options if an SOE is no longer relevant include:
    - Selling assets and closing the firm with protections for workers and communities if the business plan is not viable.
    - Privatizing the firm if appropriate institutional preconditions exist and the business plan is viable.
  - Example practice: Germany conducts a biennial review of its SOE portfolio requiring justification for each SOE’s continued existence (OECD 2018a).

### Transparency
- Financial and operational performance of SOEs and their financial relations with government must be disclosed to reduce off-budget spending, borrowing, patronage, and corruption.
- Disclosure practices:
  - Advanced economies typically disclose SOE financial statements; in emerging market economies disclosure is often restricted to listed SOEs.
  - SOE financial statements should be audited by the national audit office or private audit firms approved by the national audit office.
  - Some countries (Finland, France, Ireland, New Zealand, Sweden) publish performance assessments of at least their largest SOEs.
- Reporting and integration:
  - Annual reports with detailed information and analysis of aggregate, sectoral, and company-level SOE performance can be effective communication tools (examples: India, Paraguay, the Philippines, Sweden publish aggregate reports; Brazil, Ghana, India, Korea, and Sweden provide information at the individual SOE level).
  - Ultimately, SOE financial data should be integrated into a public sector balance sheet.
- Financial interactions and fiscal risks:
  - Government mandates to SOEs should be clearly defined, disclosed in the budget, and compensated if needed.
  - Fiscal risks associated with SOEs should be regularly reported, including contingent liabilities; assessment and mitigation measures should be disclosed.
  - Fiscal risk statements are a vehicle for disclosure (examples: Austria, Georgia, Philippines).
  - Example: South Africa’s budget review discloses the financial position and prospects of the largest loss-making nonfinancial SOEs and describes ongoing risk mitigation measures.

### SOE Corporate Governance
- Establish and enforce SOE corporate governance standards in line with good international practice (OECD Guidelines on Corporate Governance of SOEs cited).
- Board composition:
  - Promote professional boards to ensure accountability; in some countries board members are required to be independent of government (examples: Canada, Germany, the Netherlands, Switzerland).
- Regulation:
  - Appropriately regulate SOEs; in Chile, the Netherlands, Norway, and Sweden, at least the largest SOEs are subject to the same regulatory framework as listed private companies.
- Management performance assessment:
  - Regular assessment of SOE management performance is important and can be implemented (example: New Zealand’s performance contracting framework where SOEs’ goals are informed by risk oversight).

*International Monetary Fund | April 2020*

### CHAPTER 3 State-Owned enterprISeS: the Other GOvernMent

### CHAPTER 3 State-Owned enterprISeS: the Other GOvernMent

### Transition to Better Oversight and Management of SOEs
- Implementing a full oversight system for SOEs takes time and resources; low-capacity countries should pursue a risk-based and sequenced approach focused on monitoring higher-risk SOEs.
- Three main pillars of reform:
  - Get Started
    - Collect data on SOEs
    - Record and report all transactions between government and SOEs
    - Take steps to improve the reliability and timeliness of SOE financial reporting
  - Build SOE Oversight Function
    - Approve SOEs’ strategy and budget
    - Set limits on SOE borrowing and contingent liabilities
    - Quantify mandates
    - Produce a fiscal risk statement or report on SOE sector
    - Overarching SOE act; ownership policy
    - Boards with professional members from the private sector
    - Robust SOE performance management cycle
    - Fund quasi-fiscal activities through the budget
  - Drive Efficiency and Competitiveness
    - Policies and procedures to incentivize government officials and SOE boards and management to strive for SOE efficiency
- Feasibility and speed of reforms depend on country circumstances, including political economy considerations.

### International Spillovers and “Being a Good Global Citizen”
- Concerns about SOEs’ international activities:
  - Government support can confer competitive advantages to SOEs and distort international markets (examples: aluminum, semiconductors, airlines, steel).
  - SOE expansion abroad may pursue home-country objectives beyond commercial goals (control of natural resources, acquisition of technology, political or diplomatic objectives).
  - Available data suggest SOE officials received 80 percent of total bribes in foreign bribery cases (OECD 2014).
  - SOEs in the power sector account for a substantial quantity of greenhouse gases (OECD 2018c), more than their private peers; NOCs can have significant environmental impacts (polluting water, abandoning oil fields).
- Domestic and global benefits of addressing these drawbacks:
  - Well-governed, transparent, and efficient SOEs support productivity growth, better use public resources, and reduce local pollution.
  - SOEs can contribute to global public goods (environmental protection, anticorruption) if governments improve governance and anticorruption strategies.
- Examples of national approaches to competitive neutrality:
  - Australia requires SOEs to make compensatory payments to the national treasury for regulatory or debt-financing advantages (OECD 2016b).
  - The EU legal framework for state aid provides an example and a working definition of problematic government support.
- Proposal for multilateral principles:
  - A voluntary multilateral agreement on general principles (akin to the Santiago Principles for sovereign wealth funds) could guide SOE international behavior, promote transparency on mandates and government support, and encourage nondiscriminatory treatment.
  - Establishing such principles requires substantial technical work and political will; information on explicit and implicit government support, SOE and comparator finances, and regulatory environments is often lacking.

### Competitive Neutrality: Key Issues and Methodological Challenges
- Issues that would need to be addressed to foster competitive neutrality:
  - Cost allocation transparency
    - What type of policy mandates should be compensated?
    - What methodologies should be used to appropriately allocate costs between commercial and noncommercial activities?
    - What is the value of a legally created captive home market?
    - Valuing compensation: What about in-kind benefits such as free land?
  - Debt neutrality
    - Assuring debt neutrality, what is the value of an implicit government guarantee?
  - Return benchmarking
    - What is an appropriate benchmark for assessing return adequacy?
  - Compensation of policy obligations
  - Ensuring similar tax, regulatory, and procurement rules
- Practical steps suggested:
  - Identify, separate, and disclose costs of commercial and noncommercial mandates using an agreed methodology.
  - Benchmark SOE cost of capital (interest on debt and return on equity) to private competitors and require compensatory payments to the budget if the SOE’s cost of capital is lower than the benchmark.

### Conclusion: SOEs’ Economic and Fiscal Effects and Policy Priorities
- Key findings on SOEs:
  - SOEs are among the largest companies in the world and are global players, but many SOEs are struggling.
  - SOEs generally have low productivity, distort competition, and can be plagued by corruption.
  - In developing countries, SOEs have often fallen short in providing basic services (safe water, sanitation, reliable electricity) to the entire population.
  - Many SOEs have been a significant drain on government budgets and in some cases contributed to economic and fiscal crises.
  - Growing presence of multinational SOEs raises concerns that could fuel protectionist measures.
- Policy priorities:
  - Strengthen the model for using and managing SOEs where appropriate.
  - Do not waste public resources where intervention is not needed; where markets are competitive and private firms provide goods and services efficiently, the case for SOEs is weak.
  - Where SOEs play a dominant role (public utilities), improve their performance and achieve a sustainable business model.
  - Attract private investment to complement SOEs in achieving development goals.
  - Set appropriate incentives and build sound institutions: a clear and comprehensive ownership policy, appropriate government oversight, good corporate governance, and transparency of SOE activities and government relations.
  - Pursue coordinated international approaches and global principles for multinational SOEs to foster a level competitive playing field and address international spillovers.

### Privatization: Conditions for “Doing It Right”
- Empirical and historical observations:
  - Privatization can improve firm performance, public finances, and macroeconomic outcomes when done right.
  - Literature suggests privatized firms outperform SOEs but underperform firms that have always been private (Estrin and Pelletier 2018; Harrison and others 2019).
  - Privatization has disappointed where complementary institutional and market reforms, and equity goals, were not pursued.
  - Examples of mixed or adverse outcomes:
    - Russia and Ukraine: rapid mass privatization in weak governance contexts led to bid rigging and limited efficiency gains.
    - Guinea: private participation in water increased access by 10 percent from 1986 to 1997 but made the price of water 40 times more expensive; privatization reversed in 2003.
    - California electricity privatization in the 1990s: deregulation lobbying, fraudulent behavior, and firm incentives contributed to higher electricity prices.
    - Power sector privatizations have been reversed where tariffs remained too low or utilities did not function at a basic level (Dominican Republic, Odisha, some African countries).
  - Positive outcomes and mitigants:
    - In some Latin American countries, utility prices fell by 50 percent after privatization, and where prices rose, access to previously unavailable goods and services expanded.
    - After liquidation of Zambia Airways, two private airlines emerged, leading to higher employment in the sector.
- Preconditions for successful privatization:
  - Solid regulatory framework, including a well-functioning legal system, an effective and independent regulator, and strong property rights.
  - Relatively low levels of corruption to enable transparent sale processes and prevent asset embezzlement.
  - Sufficient competition in the underlying market or an independent regulator at the onset of privatization.
  - Low barriers to entry for domestic firms and openness to foreign direct investment to ensure competitive pressure and reduce contract renegotiation risk.

### Public Banks: Roles, Performance, and Trade-offs
- Types and objectives:
  - Public banks comprise commercial banks (competitive banking services) and development banks (credit for development-related projects, often subsidized and funded by the budget or government guarantees).
  - Common objectives include financing socially valuable but financially unattractive or risky projects (young, small, innovative firms) and capital-intensive infrastructure projects.
- Empirical evidence and performance:
  - Greater state ownership of banks is associated with lower levels of financial development, weaker economic growth, and higher financial instability (Barth, Caprio, and Levine 2004; Beck and others 2008; La Porta, Lopez-de-Silanes, and Shleifer 2002).
  - Public commercial banks in developing economies tend to have lower profitability and interest margins, higher overhead costs, and higher nonperforming loans than private banks; no significant performance differences are found in advanced economies (Berger, Hasan, and Zhou 2009; Iannotta, Nocera, and Sironi 2007; Micco, Panizza, and Yanez 2007).
  - A sample of more than 4,000 banks in 125 countries over the past two decades shows that public commercial banks are less profitable and cost-efficient than their private counterparts (see Online Annex 3.3), not accounting for guarantees, subsidies, and preferential treatment.
  - Comparing 1999–2007 to 2010–18, performance differences between public and private commercial banks have narrowed in emerging market and developing economies but widened in advanced economies (Figure 3.2.1).
  - Hypotheses for these shifts:
    - For emerging market and developing economies: greater government support for public commercial banks after the global financial crisis may have boosted profitability.
    - For advanced economies: ultra-loose monetary policy after the crisis disproportionately affected public commercial banks because they lend more locally than private peers.

*Source: CHAPTER 3, State-Owned enterprISeS: the Other GOvernMent, Fiscal Monitor, April 2020 (text - CHAPTER 3 State-Owned enterprISeS: the Other GOvernMent).*

### Box 3.2. State-Owned Banks

### Box 3.2. State-Owned Banks

### Referenced works and thematic coverage
- Empirical and policy analyses of government ownership, guarantees, and bank vulnerability:
  - Acharya, V., and N. Kulkarni. 2019. “Government Guarantees and Bank Vulnerability during a Crisis: Evidence from an Emerging Market.” NBER Working Paper 26564.
  - La Porta, R., F. Lopez-de-Silanes, and A. Shleifer. 2002. “Government Ownership of Banks.” Journal of Finance 57 (1): 265–301.
  - Dinc, I. S. 2005. “Politicians and Banks: Political Influences on Government-Owned Banks in Emerging Markets.” Journal of Financial Economics 77 (2): 453–79.
  - Bertay, A. C., A. Demirgüç-Kunt, and H. Huizinga. 2015. “Bank Ownership and Credit over the Business Cycle: Is Lending by State Banks Less Procyclical?” Journal of Banking and Finance 50 (January): 326–39.
  - Brei, M., and A. Schclarek. 2013. “Public Bank Lending in Times of Crisis.” Journal of Financial Stability 9 (4): 820–30.
  - Cull, R., and M. S. Martinez-Peria. 2013. “Bank Ownership and Lending Patterns during the 2008–09 Financial Crisis: Evidence from Latin America and Eastern Europe.” Journal of Banking and Finance 37 (12): 4861–78.
  - Igan, D., H. Moussawi, A. Tieman, A. Zdzienicka, G. Dell’Ariccia, and P. Mauro. 2019. “The Long Shadow of the Global Financial Crisis: Public Interventions in the Financial Sector.” IMF Working Paper 19/164.

- Studies on state ownership, performance, and governance of enterprises and banks:
  - Allen, R., and M. Alves. 2016. “How to Improve the Financial Oversight of Public Corporations.” How-to Note, IMF Fiscal Affairs Department.
  - Allen, R., and S. Vani. 2013. “Financial Management and Oversight of State-Owned Enterprises.” In The International Handbook of Public Financial Management.
  - Baum A., C. Hackney, P. Medas, and M. Sy. 2019. “Governance and State-Owned Enterprises: How Costly Is Corruption?” IMF Working Paper 19–253.
  - Frigerio, M., and D. Vandone. 2018. “Bank Ownership and Firm-Level Performance: An Empirical Assessment of State-Owned Development Banks.” In Contemporary Issues in Banking.
  - Ferrari, A., D. Mare, and I. Skamnelos. 2017. “State Ownership of Financial Institutions in Europe and Central Asia.” World Bank Policy Research Working Paper 8288.

- Privatization, reform, and fiscal implications:
  - Megginson, M., and J. Netter. 2001. “From State to Market: A Survey of Empirical Studies on Privatization.” Journal of Economic Literature 39 (2): 321–89.
  - Estrin, S., and A. Pelletier. 2018. “Privatization in Developing Countries: What Are the Lessons of Recent Experience?” World Bank Research Observer 33 (1): 65–102.
  - Bai, C. E., C. T. Hsieh, and Z. M. Song. 2016. “The Long Shadow of a Fiscal Expansion.” NBER Working Paper 22801.
  - IMF. 2007. “Public Enterprises and Fiscal Risk—Lessons from the Pilot II Country Studies.” IMF Policy Paper.

- Country and region-specific analyses and case studies:
  - Agou, G., and J. Ralyea. 2019. “A Public Sector Balance Sheet for Ghana.” In “Ghana Selected Issues Paper.” IMF Country Report 19/368.
  - Government of Ghana. 2018. “2017 State Ownership Report.”
  - IMF. 2019a. “Ghana Staff Report for the 2019 Article IV Consultation.” IMF Country Report 19/367.
  - IMF. 2019b. “South Africa Staff Report for the 2019 Article IV Consultation.” IMF Country Report 20/33.
  - Lam, W. R., and A. Schipke. 2017. “State-Owned Enterprises Reforms.” In Modernizing China: Investing in Soft Infrastructure.

- Methodology, data construction, and measurement relevant to state banks and enterprises:
  - Kalemli-Ozcan, S., B. Sorensen, C. Villegas-Sanchez, V. Volosovych, and S. Yesiltas. 2015. “How to Construct Nationally Representative Firm-Level Data from the Orbis Global Database.” NBER Working Paper 21558.
  - IMF. 2014. Government Finance Statistics Manual 2014.
  - Bova, E., M. Ruiz-Arranz, F. Toscani, and E. Ture. 2016. “The Fiscal Costs of Contingent Liabilities: A New Dataset.” IMF Working Paper 16/14.

### Observations about the bibliography composition
- The reference list spans working papers, IMF staff and country reports, journal articles, World Bank and OECD papers, and policy notes.
- Recurring topics include bank ownership and performance, political economy of state banks, crisis-period lending behavior, governance and oversight of state-owned entities, privatization and reform outcomes, and measurement of fiscal risks and contingent liabilities.

*Source: Box 3.2. State-Owned Banks, text - Box 3.2. State-Owned Banks (IMF Fiscal Monitor, April 2020).*

### CHAPTER 3 State-Owned enterprISeS: the Other GOvernMent

### CHAPTER 3 State-Owned enterprISeS: the Other GOvernMent

### References and related literature
- Chapter bibliography cites multiple international organizations, academic articles, and policy papers, including works by Natural Resource Governance Institute (NRGI), OECD, World Bank, United Nations Conference on Trade and Development (UNCTAD), Transparency International, and numerous academic authors.
- Selected topics covered in the cited literature include: national oil companies, privatization experiences, moral suasion during sovereign debt crises, competitive neutrality, foreign bribery, corporate governance of state-owned enterprises, state-owned enterprises as global competitors, measuring distortions in international markets (Aluminium and Semiconductor value chains), quasi-fiscal activities in energy sectors, private sector participation in infrastructure, banking fragility, and anti-corruption principles for SOEs.
- Specific institutional publications referenced include OECD (2012, 2014, 2015, 2016a, 2016b, 2017, 2018a, 2018b, 2018c, 2019a, 2019b), World Bank (2004, 2012, 2013, 2017, 2019), IMF (European Departmental Paper Series 19/11), UNCTAD (2019 World Investment Report), WHO and UNICEF (2017), and Transparency International (2017).

### Country abbreviations and groupings
- Country classification in the Fiscal Monitor divides the world into three major groups:
  - 35 advanced economies
  - 40 emerging market and middle-income economies
  - 40 low-income developing countries
- The seven largest advanced economies as measured by GDP constitute the subgroup of major advanced economies (Group of Seven, G7): Canada, France, Germany, Italy, Japan, United Kingdom, United States.
- Euro area members are distinguished as a subgroup; composite data for the euro area cover the current members for all years.
- Low-income developing countries are defined as countries that have per capita income levels below a certain threshold (currently set at $2,700, as of 2016, as measured by the World Bank’s Atlas method), structural features consistent with limited development and structural transformation, and external financial linkages insufficiently open to be considered as emerging market economies.
- For the purpose of data reporting in the Fiscal Monitor, the Group of 20 (G20) member aggregate refers to the 19 country members and does not include the European Union.

### Glossary — key fiscal definitions (selected entries)
- “Above-the-line” measures: Involve revenue raising and government expenditure, which affects the overall fiscal balance and government debt.
- “Below-the-line” measures: Generally involve the creation of assets or liabilities without affecting fiscal revenues and spending today; typically recorded as the net acquisition of financial assets, which is below the line of the overall fiscal balance.
- Automatic stabilizers: Revenue and some expenditure items that adjust automatically to cyclical changes in the economy.
- Contingent liabilities: Obligations not explicitly recorded on government balance sheets that arise only in the event of a particular discrete situation.
- Cyclically adjusted balance (CAB): Difference between the overall balance and the automatic stabilizers; estimate of the fiscal balance that would apply under current policies if output were equal to potential.
- Cyclically adjusted primary balance (CAPB): Cyclically adjusted balance excluding net interest payments (interest expenditure minus interest revenue).
- Fiscal buffer: Fiscal space created by saving budgetary resources and reducing public debt in good times.
- Gross debt: All liabilities that require future payment of interest and/or principal by the debtor to the creditor; public debt is used synonymously with gross debt of the general government in the Fiscal Monitor unless specified otherwise.
- Net debt: Gross debt minus financial assets corresponding to debt instruments.
- Net (financial) worth: Net worth is assets minus liabilities; net financial worth is financial assets minus liabilities.
- Output gap: Deviation of actual from potential GDP, in percent of potential GDP.
- Overall fiscal balance (also “headline” fiscal balance): Net lending and borrowing, defined as the difference between revenue and total expenditure, using the IMF’s 2001 Government Finance Statistics Manual (GFSM 2001).
- Primary balance: Overall balance excluding net interest payments (interest expenditure minus interest revenue).
- Structural fiscal balance: Extension of the cyclically adjusted balance that also corrects for other nonrecurrent effects beyond the cycle.

### Methodological and statistical appendix — data and conventions (key points)
- The appendix comprises four sections: “Data and Conventions”; “Fiscal Policy Assumptions”; “Definition and Coverage of Fiscal Data”; and statistical tables on key fiscal variables.
- Data in the statistical tables have been compiled based on the information available through April 8, 2020.
- Country-specific data and projections for key fiscal variables are based on the April 2020 World Economic Outlook database, unless indicated otherwise, and are compiled by IMF staff.
- Historical data and projections are based on information gathered by IMF country desk officers and updated on a continual basis as more information becomes available; structural breaks may be adjusted through splicing and other techniques.
- IMF staff estimates serve as proxies when complete information is unavailable; Fiscal Monitor data may differ from official data in other sources, including the IMF’s International Financial Statistics.
- Most fiscal data refer to the general government for advanced economies; for emerging market and developing economies, data often refer to the central government or budgetary central government only.
- All fiscal data refer to calendar years, except for Bangladesh, Egypt, Ethiopia, Haiti, Hong Kong Special Administrative Region, India, the Islamic Republic of Iran, Myanmar, Nepal, Pakistan, Singapore, and Thailand, for which they refer to the fiscal year. For economies whose fiscal years end before June 30, data are recorded in the previous calendar year. For economies whose fiscal years end on or after June 30, data are recorded in the current calendar year.
- Composite data for country groups are weighted averages of individual-country data, weighted by annual nominal GDP converted to US dollars at average market exchange rates as a share of the group GDP.
- In the majority of advanced economies, and some large emerging market and middle-income economies, fiscal data follow the IMF’s 2014 Government Finance Statistics Manual (GFSM 2014) or are produced using national accounts methodology that follows the System of National Accounts 2008 (SNA 2008) or ESA 2010, both broadly aligned with the GFSM.

*International Monetary Fund. April 2020.*

### 2014. Most other countries follow the GFSM 2001,

### 2014. Most other countries follow the GFSM 2001,

### Fiscal balance and reporting conventions
- The overall fiscal balance refers to net lending (+) and borrowing (–) of the general government.
- In some cases, the overall balance refers to total revenue and grants minus total expenditure and net lending.
- As used in the Fiscal Monitor, the term “country” also covers some territorial entities that are not states but whose statistical data are maintained on a separate and independent basis.

### Debt data sources, definitions, and comparability
- Fiscal gross and net debt data reported in the Fiscal Monitor are drawn from official data sources and IMF staff estimates.
- Attempts are made to align gross and net debt data with the definitions in the GFSM, but data limitations or specific country circumstances can cause deviations from formal definitions.
- Differences in both sectoral and instrument coverage mean that the data are not universally comparable.
- Changes in data sources or instrument coverage can give rise to data revisions that are sometimes substantial.
- For economies that have adopted the 2008 SNA (Australia, Canada, Hong Kong Special Administrative Region, United States), gross and net debt levels reported by national statistical agencies are adjusted to exclude unfunded pension liabilities of government employees’ defined-benefit pension plans (applies explicitly to Australia, Canada, Hong Kong Special Administrative Region, United States as noted).

### Country-specific notes (selected)
- Australia: For cross-country comparability, gross and net debt levels reported by national statistical agencies for economies that have adopted the 2008 SNA (Australia, Canada, Hong Kong Special Administrative Region, United States) are adjusted to exclude unfunded pension liabilities of government employees’ defined-benefit pension plans.
- Bangladesh: Data are on a fiscal year basis.
- Brazil:
  - General government data refer to the nonfinancial public sector—which includes the federal, state, and local governments, as well as public enterprises (excluding Petrobras and Eletrobras)—and are consolidated with those for the sovereign wealth fund.
  - Revenue and expenditures of federal public enterprises are added in full to the respective aggregates.
  - Transfers and withdrawals from the sovereign wealth fund do not affect the primary balance.
  - Disaggregated data on gross interest payments and interest receipts are available only from 2003 onward. Before 2003, total revenue of the general government excludes interest receipts; total expenditure of the general government includes net interest payments.
  - Gross public debt includes the Treasury bills on the central bank’s balance sheet, including those not used under repurchase agreements.
  - Net public debt consolidates nonfinancial public sector and central bank debt.
  - The national definition of general government gross debt excludes government securities held by the central bank, except the stock of Treasury securities used for monetary policy purposes by the central bank (those pledged as security reverse repurchase agreement operations).
  - According to this national definition, gross debt amounted to 77.2 percent of GDP at the end of 2018.
- Canada: For cross-country comparability, gross and net debt levels reported by national statistical agencies for economies that have adopted the 2008 SNA (Australia, Canada, Hong Kong Special Administrative Region, United States) are adjusted to exclude unfunded pension liabilities of government employees’ defined-benefit pension plans.
- Chile: Cyclically adjusted balances refer to the structural balance, which includes adjustments for output and commodity price developments.
- China:
  - Public debt data include central government debt as reported by the Ministry of Finance, explicit local government debt, and shares—less than 19 percent, according to the National Audit Office estimate—of contingent liabilities the government may incur.
  - IMF staff estimates exclude central government debt issued for the China Railway Corporation.
  - Relative to the authorities’ definition, consolidated general government net borrowing includes (1) transfers to and from stabilization funds, (2) state-administered state-owned enterprise funds and social security contributions and expenses, and (3) off-budget spending by local governments.
  - Deficit numbers do not include some expenditure items, mostly infrastructure investment financed off budget through land sales and local government financing vehicles.
  - Fiscal balances are not consistent with reported debt because no time series of data in line with the National Audit Office debt definition is published officially.
- Colombia: Gross public debt refers to the combined public sector, including Ecopetrol and excluding Banco de la República’s outstanding external debt.
- Dominican Republic: Public debt, debt service, and cyclically adjusted or structural balances are for the consolidated public sector (which includes the central government, the rest of the nonfinancial public sector, and the central bank); the remaining fiscal series are for the central government.
- Egypt: Data are on a fiscal year basis.
- Ethiopia: Data are on a fiscal year basis.
- Greece: General government gross debt includes short-term debt and loans of state-owned enterprises.
- Haiti: Data are on a fiscal year basis.
- Hong Kong Special Administrative Region:
  - Data are on a fiscal year basis.
  - Cyclically adjusted balances include adjustments for land revenue and investment income.
  - For cross-country comparability, gross and net debt levels reported by national statistical agencies for countries that have adopted the 2008 SNA (Australia, Canada, Hong Kong Special Administrative Region, United States) are adjusted to exclude unfunded pension liabilities of government employees’ defined-benefit pension plans.
- Iceland: Gross debt excludes insurance technical reserves (including pension liabilities) and other accounts payable.
- India: Data are on a fiscal year basis.
- Islamic Republic of Iran: Data are on a fiscal year basis.
- Ireland:
  - General government balances between 2011 and 2012 reflect the impact of banking sector support.
  - Fiscal balance estimates excluding these measures are −8.6 percent of GDP for 2011 and −7.9 percent of GDP for 2012.
  - For 2015, if the conversion of the government’s remaining preference shares to ordinary shares in one bank is excluded, the fiscal balance is −1.1 percent of GDP.
  - Cyclically adjusted balances reported in Tables A3 and A4 exclude financial sector support measures.
  - Ireland’s 2015 national accounts were revised as a result of restructuring and relocation of multinational companies, which resulted in a level shift of nominal and real GDP.
- Japan: Gross debt is on an unconsolidated basis.
- Latvia: The fiscal deficit includes bank restructuring costs and thus is higher than the deficit in official statistics.
- Mexico: General government refers to the central government, social security, public enterprises, development banks, the national insurance corporation, and the National Infrastructure Fund, but excludes subnational governments.
- Myanmar: Data are on a fiscal year basis.
- Nepal: Data are on a fiscal year basis.
- Norway: Cyclically adjusted balances correspond to the cyclically adjusted non-oil overall or primary balance. These variables are in percent of non-oil potential GDP.
- Pakistan: Data are on a fiscal year basis.
- Peru: Cyclically adjusted balances include adjustments for commodity price developments.
- Singapore: Data are on a fiscal year basis.
- Spain:
  - Overall and primary balances include financial sector support measures estimated to be 0.3 percent of GDP for 2011, 3.7 percent of GDP for 2012, 0.3 percent of GDP for 2013, 0.1 percent of GDP for 2014, 0.1 percent of GDP for 2015, and 0.2 percent of GDP for 2016.
- Sweden: Cyclically adjusted balances take into account output and employment gaps.
- Switzerland:
  - Data submissions at the cantonal and commune level are received with a long and variable lag and are subject to sizable revisions.
  - Cyclically adjusted balances include adjustments for extraordinary operations related to the banking sector.
- Thailand: Data are on a fiscal year basis.
- Turkey:
  - The fiscal projections assume a more negative primary and overall balance than envisaged in the authorities’ New Economic Program 2020–22, partly due to recent weak growth and fiscal outturns, and partly due to definitional differences.
  - The basis for the projections in the World Economic Outlook and Fiscal Monitor is the IMF-defined fiscal balance, which excludes some revenue and expenditure items included in the authorities’ headline balance.
- United States: Cyclically adjusted balances exclude financial sector support estimated at 0.2 percent of potential GDP for 2011, 0.1 percent of potential GDP for 2012, and 0.0 percent of potential GDP for

*International Monetary Fund. Methodological and Statistical Appendix | April 2020*

### 2013. For cross-country comparability, expenditure

### text - 2013. For cross-country comparability, expenditure

### Data adjustments and comparability
- For cross-country comparability, expenditure and fiscal balances of the United States are adjusted to exclude the imputed interest on unfunded pension liabilities and the imputed compensation of employees, which are counted as expenditures under the 2008 SNA adopted by the United States, but not for countries that have not yet adopted the 2008 SNA. Data for the United States may thus differ from data published by the US Bureau of Economic Analysis (BEA).
- Gross and net debt levels reported by the BEA and national statistical agencies for economies that have adopted the 2008 SNA (Australia, Canada, Hong Kong Special Administrative Region, United States) are adjusted to exclude unfunded pension liabilities of government employees’ defined-benefit pension plans.
- Data coverage differences and specific country adjustments highlighted:
  - Uruguay: Data are for the nonfinancial public sector (NFPS), which includes the central government, the local government, social security funds, nonfinancial public corporations, and Banco de Seguros del Estado. Coverage changed from the consolidated public sector to the NFPS with the October 2019 submission; central bank balances are not included.
  - Venezuela: Fiscal accounts include the budgetary central government; social security; FOGADE (insurance deposit institution); and a sample of public enterprises, including Petróleos de Venezuela, S.A. (PDVSA); data for 2018–19 are IMF staff estimates.
  - Libya: Reliability of data, especially medium-term projections, is low given civil war and weak capacity.
  - Vietnam: Fiscal data for 2015–17 are the authorities’ estimates. From 2018 onward, fiscal data are based on IMF staff projections.
  - Yemen: Hydrocarbon revenue projections use WEO oil and gas price assumptions (authorities use $55 a barrel); non-hydrocarbon revenues largely reflect authorities’ projections.

### Fiscal policy assumptions and projection methods
- Historical data and projections of key fiscal aggregates are aligned with the April 2020 World Economic Outlook unless noted otherwise.
- Short-term fiscal policy assumptions: based on officially announced budgets, adjusted for differences between national authorities and IMF staff regarding macroeconomic assumptions and projected fiscal outturns.
- Medium-term fiscal projections: incorporate policy measures judged likely to be implemented. Where IMF staff lack sufficient information on authorities’ intentions, an unchanged structural primary balance is assumed unless indicated otherwise.
- Data compilation and accounting frameworks:
  - United States: Projections are based on the January 2020 Congressional Budget Office baseline adjusted for IMF staff policy and macroeconomic assumptions. Projections incorporate the effects of the Coronavirus Preparedness and Response Supplemental Appropriations Act; the Families First Coronavirus Response Act; and the Coronavirus Aid, Relief, and Economic Security Act; all signed in March 2020. Fiscal projections are adjusted for IMF staff forecasts and converted to a general government basis. Data are compiled using System of National Account 2008 and translated into government financial statistics in accordance with the Government Finance Statistics Manual 2014. Because of data limitations, most series begin in 2001.
  - Euro area and other economies: Where specified, projections use authorities’ budgets, Stability Programmes, budget laws, or IMF staff assessments, with adjustments for IMF macroeconomic assumptions (country-by-country descriptions provided in the source text).
- Specific projection assumptions (examples preserved from text):
  - Australia: Based on Australian Bureau of Statistics, fiscal year 2019/20 midyear reviews of the Commonwealth and States, and IMF staff estimates.
  - Brazil: 2020 projections take into account the deficit target proposed in the budget guidance law and reflect policy announcements as of March 31; medium term assumes compliance with the constitutional spending ceiling.
  - China: Fiscal expansion estimated for 2019 and projected for 2020 owing to tax reforms and expenditure measures.
  - Japan: Projections incorporate a stimulus package to be released in early April (size and composition estimated by IMF staff).
  - Singapore: FY2020 projections based on budget (February 18, 2020) and supplementary budget (March 26, 2020); IMF staff assumes support packages in FY2020 are only for one year and unchanged policies thereafter.
  - Spain: 2020 projections are IMF staff projections assuming no policy change except public wage and pension measures in authorities’ draft budgetary plan, and measures adopted as of March 30 in response to COVID-19; 2021 projections assume unchanged policy stance.
  - Thailand: IMF staff assumes an implementation rate of 50 percent for planned infrastructure investment programs during the projection period.
  - Turkey: Projections are based on the IMF-defined fiscal balance, which excludes some revenues and expenditure items included in the authorities’ headline balance.

### Table and indicator conventions (selection)
- Definitions and coverage notes:
  - Coverage abbreviations: CG = central government; GG = general government; LG = local governments; NFPC = nonfinancial public corporations; PS = public sector; SG = state governments; SS = social security funds; TG = territorial governments; NFPS = nonfinancial public sector; MPC = monetary public corporations; NMPC = nonmonetary financial public corporations; BCG = budgetary central government; BC G / NFPC variations used depending on country submission.
  - Accounting practice: A = accrual; C = cash; Mixed = combination of accrual and cash accounting; CB = commitments-based.
- Debt valuation definitions:
  - Nominal = debt securities valued at nominal values.
  - Face = undiscounted amount of principal to be repaid at (or before) maturity.
  - Current market = debt securities valued at market prices; insurance, pension, and standardized guarantee schemes valued according to market-equivalent principles; other instruments valued at nominal prices as proxies for market prices.
- Adjustments for SNA adoption:
  - For economies that have adopted the 2008 SNA (Australia, Canada, Hong Kong SAR, United States), gross and net debt levels are adjusted to exclude unfunded pension liabilities of government employees’ defined-benefit pension plans for cross-economy comparability.
- Data vintage and special notes:
  - For some countries, historical fiscal data were revised (examples: France, Netherlands, Ecuador, Uruguay) and coverage changes (e.g., Ecuador NFPS, Uruguay NFPS) are explicitly noted in the country entries.
  - Venezuela: projecting macroeconomic indicators involves assuming the GDP deflator rises in line with IMF staff projection of average inflation; public external debt in relation to GDP uses IMF staff estimate of average exchange rate for the year; considerable uncertainty is noted.

### Key statistics and reported series (examples preserved verbatim)
- Country groupings used in the Fiscal Monitor include Advanced Economies, Emerging Market and Middle-Income Economies, Low-Income Developing Countries, G7 Countries, G20 Countries, Advanced G20 Countries, Emerging G20 Countries. Note: G7 = Group of Seven; G20 = Group of Twenty. 1 Does not include European Union aggregate.
- Time series and tables in the source include (but are not limited to):
  - Tables A1–A22: General government overall balance, primary balance, cyclically adjusted balance, cyclically adjusted primary balance, revenue, expenditure, gross debt, and net debt across 2011–21 for Advanced, Emerging Market and Middle-Income, and Low-Income Developing country groupings.
  - Structural fiscal indicators (Tables A23–A25) including:
    - Pension Spending Change, 2019–30
    - Net Present Value of Pension Spending Change, 2019–50 (discount rate: 1 percent a year in excess of GDP growth)
    - Health Care Spending Change, 2019–30
    - Net Present Value of Health Care Spending Change, 2019–50
    - Gross Financing Need, 2020 (projected overall deficit and maturing government debt in 2020)
    - Average Term to Maturity, 2020 (years)
    - Debt to Average Maturity, 2020
    - Projected Interest Rate–Growth Differential, 2020–21 (percent)
    - Precrisis Overall Balance, 2000–07
    - Projected Overall Balance, 2020–21
    - Nonresident Holding of General Government Debt, 2019 (percent of total)
- Specific legislative and policy references preserved exactly:
  - United States: Coronavirus Preparedness and Response Supplemental Appropriations Act; the Families First Coronavirus Response Act; and the Coronavirus Aid, Relief, and Economic Security Act; all signed in March 2020.
  - India: IMF and Indian presentations differ with respect to divestment and license auction proceeds, net versus gross recording of revenues in certain minor categories, and some public sector lending; subnational data incorporated with a lag of up to one year.
  - Italy: IMF staff assumes that the automatic value-added tax hikes for future years will be canceled; the stock of maturing postal savings bonds is included in the debt projections.

*Italicized source: IMF staff estimates, projections, and methodological notes from the April 2020 Fiscal Monitor — “Policies to Support People During the COVID-19 Pandemic” (Methodological and Statistical Appendix).*

### Chapter 3

### Chapter 3

### Title and Date
- To Tighten or Not to Tighten: This Is the Question
- November 2010

### Key boxes, appendices, and related items listed in the chapter
- Box 1.2 Fiscal Adjustment and Income Distribution in Advanced and Emerging Economies — November 2010
- Appendix 3 The Fiscal Policy Outlook: Adjustment Needs and Plans — May 2010, Chapter 3
- Adjustment Measures and Institutions — May 2010, Chapter 4
- Fiscal Adjustment Requirements: Gross and Net Debt Targets — May 2010, Appendix 2
- Fiscal Adjustment Plans and Medium-Term Fiscal Outlook — November 2010, Chapter 3
- Assessing Fiscal Risks — November 2010, Chapter 4
- Are Sovereign Spreads Linked to Fundamentals? — November 2010, Appendix 2
- Risks to Medium-Term Public Debt Trajectories; Methodological and Statistical Appendix — November 2010, Appendix 4
- The Near- and Medium-Term Fiscal Outlook — May 2010, Chapter 1
- The Impact of the Crisis on Subnational Governments — May 2010, Appendix 4
- Update on Crisis-Related Discretionary Fiscal Stimulus in G-20 Economies — May 2010, Appendix 1
- The G-20 Economies: Crisis-Related Discretionary Fiscal Stimulus — November 2010, Box 1.1

### Themes and topics referenced within the chapter (as listed)
- Fiscal adjustment and distributional effects in advanced and emerging economies
- Fiscal policy outlook, adjustment needs, and planned measures
- Gross and net debt targets and fiscal adjustment requirements
- Fiscal risks and their assessment, including methodological and statistical appendices
- Crisis-related discretionary fiscal stimulus in G-20 economies and updates
- The near- and medium-term fiscal outlook, including subnational government impacts
- Linkages between sovereign spreads and fundamentals

### Cross-references to broader Fiscal Monitor coverage (items appearing alongside or in relation to Chapter 3)
- Numerous related chapters, boxes, and appendices spanning May 2010 and November 2010 publications, including but not limited to fiscal governance, debt dynamics, sovereign financing, and crisis-related fiscal measures.

*Source: Chapter 3, "To Tighten or Not to Tighten: This Is the Question," November 2010.*

### Appendix 1

### Appendix 1

### IMF Executive Board Discussion of the Outlook, APRIL 2020
- Context and overall assessment
  - The outlook is dominated by the global health crisis from the COVID-19 pandemic and extreme uncertainty about its course, intensity, and impact.
  - The expected sharp contraction of the global economy in 2020 is likely much worse than during the 2008–09 global financial crisis (GFC), as a significant portion of the global economy has been shut down.
  - The projected global recovery in 2021 is predicated on the pandemic fading in the second half of 2020 and the effectiveness of policy actions to contain its economic fallout.
  - Directors noted that, amid exceptionally large uncertainty, risks of a worse outcome predominate.

- Key risk factors highlighted
  - The economic fallout depends on factors that interact in ways that are hard to predict, including the pathway of the pandemic, the intensity and efficacy of containment efforts, the extent of supply disruptions, and repercussions of the substantial tightening in global financial conditions.
  - Many countries face a multi-layered crisis comprising a health shock, domestic economic disruptions, plummeting external demand, and capital flow reversals.
  - For many low-income developing countries, challenges are compounded by high and rising debt levels, capacity constraints, and a collapse in commodity prices.

- Immediate policy priorities and fiscal recommendations
  - Immediate priority: reduce contagion and protect lives, especially by fully accommodating additional health care expenditures to strengthen the capacity and resources of the health sector.
  - Fiscal policy needs: large, timely, temporary, and targeted fiscal support lifelines to protect the most-affected people and viable firms, including:
    - government-funded paid sick and family leaves,
    - cash or in-kind transfers,
    - unemployment benefits,
    - wage subsidies,
    - tax relief, and
    - deferral of tax payments.
  - Emphasized the need for good governance, including transparency in budget execution and communication, to manage fiscal risks and maintain public trust.
  - Most Directors: broad-based, coordinated fiscal stimulus will be more effective in boosting aggregate demand during the recovery phase, while preserving sound public finances and debt sustainability.
  - Supporting measures should be scaled back gradually and flexibly as the pandemic fades; once containment measures can be lifted, policy focus should shift to securing a robust recovery while ensuring debt overhangs do not weigh on activity over the medium term.

- Monetary, financial-stability, and market measures
  - Directors welcomed extraordinary central bank actions to ease monetary policy, provide ample liquidity to financial institutions and markets, including through enhanced U.S. dollar swap lines, and maintain the flow of credit to households and firms by setting up emergency facilities.
  - Authorities could consider extending these measures to a broader range of market segments.
  - Some Directors called for extending swap lines to provide foreign currency liquidity to a broader group of countries; a few encouraged utilizing regional financing arrangements.
  - Banks generally have larger capital and liquidity buffers now relative to the GFC; they should be encouraged to use existing buffers to absorb losses and prudently re-negotiate loan terms for firms and individuals, using flexibility within existing regulatory frameworks. Any regulatory relief would need to be reassessed once conditions permit.

- External sector and capital flow recommendations
  - The pandemic triggered a record reversal of portfolio flows from emerging and frontier markets.
  - Recommended, where feasible and appropriate, allowing exchange rates to act as a shock absorber and intervening in foreign exchange markets as needed to reduce excessive volatility and ease liquidity constraints.
  - Macroprudential measures, and in near-crisis situations temporary capital flow management measures, may be necessary as part of the policy package and should be phased out as global financial sentiment recovers.
  - Sovereign debt managers should develop contingency plans to deal with limited access to external financing.

- Multilateral cooperation and IMF role
  - Containment and recovery will require strong multilateral cooperation to complement national policy efforts, especially to channel aid and medical resources to countries with weak health systems and help financially constrained countries facing twin health and funding shocks.
  - Multilateral cooperation is necessary to ensure a strong global financial safety net and better access to international liquidity across countries.
  - Directors stressed the critical role for the IMF in supporting its member countries, in collaboration with other international financial institutions.
  - Directors welcomed the IMF’s crisis response package, including the enhancement of the emergency financing toolkit, provision of debt service relief for the poorest members, and fund-raising for the Catastrophe, Containment and Relief Trust.

- Procedural note
  - The following remarks were made by the Chair at the conclusion of the Executive Board’s discussion of the Fiscal Monitor, Global Financial Stability Report, and World Economic Outlook on April 7, 2020.

### IMF response highlights and policy tracking
- IMF operational and information resources
  - The IMF has secured $1 trillion in lending capacity, serving and responding fast to an unprecedented number of emergency financing requests from over 90 countries so far.
  - Tools and resources referenced:
    - Policy Tracker: IMF.org/COVID19policytracker
    - Emergency Financing list: IMF.org/COVID19lendingtracker
    - IMF COVID-19 Notes: IMF.org/COVID19notes
    - IMF COVID-19 Hub: IMF.org/COVID19
  - The notes are produced by IMF experts to provide guidance and help members address the economic effects of COVID-19.

- Communication tagline
  - “A global crisis like no other needs a global response like no other.” — Kristalina Georgieva

*Source: Appendix 1, IMF Fiscal Monitor: Policies to Support People During the COVID-19 Pandemic, April 2020.*

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_Source: https://www.imf.org/-/media/files/publications/fiscal-monitor/2020/april/english/text.pdf_