## EXECUTIVE SUMMARY

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### Chapter 1: Fiscal Policies to Address the COVID-19 Pandemic
- The COVID-19 pandemic and associated lock-downs prompted fiscal actions amounting to $11.7 trillion, or close to 12 percent of global GDP, as of September 11, 2020.
- Composition of fiscal actions:
  - Half consisted of additional spending or forgone revenue, including temporary tax cuts.
  - Half consisted of liquidity support, including loans, guarantees, and capital injections by the public sector.
- Outcomes of the fiscal response:
  - Saved lives, supported vulnerable people and firms, and mitigated the fallout on economic activity.
  - Consequences for public finances and revenue loss from the output contraction have been massive.
  - In 2020, government deficits are set to surge by an average of 9 percent of GDP.
  - Global public debt is projected to approach 100 percent of GDP, a record high.
  - Under baseline assumptions (healthy rebound in economic activity and low, stable interest rates), the global public debt ratio is expected to stabilize in 2021 on average, except in China and the United States.
- Distributional and financing constraints:
  - Major differences across countries in ability to finance emergency spending determined partly by fiscal space and pre-crisis public and private debt levels.
  - In many advanced economies and some emerging markets, massive liquidity provision and asset purchases by central banks facilitated fiscal expansions.
  - In many emerging markets and especially in low-income developing countries—more than half of which are at a high risk of debt distress or in debt distress—financing constraints have been binding.
  - Official support to alleviate such constraints has been overwhelmed by financing needs.
- Poverty impacts and social assistance:
  - Based on the projected fall in per capita incomes, 100–110 million people globally would be expected to enter extreme poverty, reversing the decades-long declining trend.
  - Additional social assistance—supporting directly the poor and cushioning the recession—is expected to have a modest impact, containing the increase in poverty to 80 million to 90 million people.
- Assessment of policy measures:
  - Public health policies that quickly contained the spread of the disease allowed earlier and safer reopening, restoring confidence and reducing social and fiscal costs.
  - Targeted cash transfers were vital for poor individuals, who spent them on necessities.
  - Unemployment benefits supported consumption for people who lost their jobs.
  - Many short-term policies have longer-term implications:
    - Wage subsidies preserved employment relationships but may slow labor market reallocation.
    - Temporary tax deferrals and cuts supported liquidity but risk becoming permanent at the expense of government revenues.
    - Equity injections prevented bankruptcies in strategic firms but could delay sectoral reallocation.
    - Direct or guaranteed loans have had low take-up, reflecting some restoration of confidence but also administrative constraints, conditionality, and private debt overhang.
- Fiscal risks and governance:
  - Fiscal risks are unprecedented, stemming from uncertainty about the pandemic, the shape of the recovery, scarring, commodity prices, global financial conditions, and contingent liabilities from guarantees.
  - Ensuring full transparency, good governance, and costing of all fiscal measures is crucial given their size, exceptional nature, and speed of deployment.

### A Roadmap for Fiscal Policies during the Different Phases of the Pandemic
- Highest priorities:
  - Global efforts to develop and ensure universal access to an affordable and effective vaccine or treatment.
  - National actions including smart, well-informed, and localized containment policies.
- Macroeconomic context:
  - High precautionary savings by households and limited private investment imply interest rates will remain low for a long time in advanced and some emerging market economies, providing scope for fiscal policy.
  - Other emerging market economies and low-income developing countries facing tighter financing constraints must reprioritize expenditures, enhance efficiency, and need further official financial support and debt relief.
- Phase-specific policy guidance:
  - Acute outbreak phase (pervasive lockdowns): fiscal policies should do whatever it takes to save lives and livelihoods.
  - Easing lockdowns: ensure lifelines are not withdrawn too rapidly; preserve improvements in social protection systems’ ability to reach, target, and deliver benefits.
  - When health risks diminish and durable recovery is foreseeable: shift support from protecting employee-firm relationships to helping workers find new jobs, helping viable but vulnerable firms reopen, and supporting structural transformation to the post-pandemic economy.
- Post-pandemic legacies and country-specific scope for action:
  - When pandemic is under control, governments must foster recovery while addressing elevated private and public debt levels, high unemployment, and rising inequality and poverty.
  - Scope for stimulus or pace of fiscal adjustment depends on recession depth, unemployment, and ease of access to financing.
  - Countries with fiscal space and major scarring should provide temporary stimulus, including through public investment.
  - Measures to support low-income households—including good-quality jobs—are critical to reducing poverty.
  - Countries with limited fiscal space and less access to financing should protect public investment and transfers to lower-income households while increasing progressive taxation and ensuring highly profitable firms are appropriately taxed, aiming at a growth-friendly and equitable adjustment.
- Long-term priorities for the new post-pandemic economy:
  - Tackle poverty and inequality to ensure social peace and sustainable growth.
  - Build resilience against future epidemics and other shocks, ensuring access to basic goods and services (for example, food, health, and education).
  - Reduce emissions through policies that increase carbon prices and catalyze investment in low-carbon technologies.

### Chapter 2: Public Investment for the Recovery
- Immediate government focus to date: address the health emergency and provide lifelines for vulnerable households and businesses.
- Additional government needs: prepare economies for safe reopening, create jobs, boost activity, and facilitate transformation to more resilient, inclusive, and greener economies.
- Priority investment areas:
  - Well-resourced and better-prepared healthcare systems.
  - Digital infrastructure to support social distancing and narrow the digital gap in access to information, education, and work opportunities.
  - Climate change and environmental protection.
- Pre-crisis trends and financing constraints:
  - Before COVID-19, public-investment-to-GDP ratios were already declining and growth in infrastructure had not kept up with needs.
  - In advanced and some emerging market economies with interest rates near their effective lower bound, scaling up quality public investment can boost employment and activity, crowd in private investment, and absorb excess private savings without raising borrowing costs.
  - In many low-income countries and several emerging market economies—particularly those borrowing in foreign currency—investment is highly constrained by financing conditions despite massive needs to attain the Sustainable Development Goals.
  - Policymakers in constrained countries need to safeguard public investment where feasible and enhance its efficiency; a global response is necessary to avoid slipping further behind on the Sustainable Development Goals.
- Delivering public investment quickly under social distancing: four steps
  1. Invest right now in maintenance.
  2. Review and restart promising projects that were delayed in preparation or implementation.
  3. Speed up projects in the pipeline to bring them to fruition within the next two years.
  4. Start planning immediately for new projects aligned with postcrisis priorities.
- Need for strengthened public investment management:
  - Delays, cost overruns, and disappointing projects are common and could be more frequent when investment is scaled up—the cost of an individual project can increase by 10 percent when public investment in the country is high.
  - For countries with easy access to finance, borrowing to finance high-quality public investments is an effective strategy given the global decline in interest rates; for countries with financing constraints, the bar for beneficial projects is higher.
- Empirical evidence on impacts:
  - Based on a cross-country data set and a sample of 400,000 firms, public investment can have a powerful impact on GDP growth and employment during periods of high uncertainty.
  - For advanced and emerging market economies, the fiscal multiplier peaks at over 2 in two years.
  - Increasing public investment by 1 percent of GDP in these economies would create 7 million jobs directly, and between 20 million and 33 million jobs overall when considering indirect macroeconomic effects.
  - Crowding in of private investment is particularly strong in communications, transport, construction, and manufacturing, but requires complementary policies to address high leverage and liquidity constraints faced by private firms.
- Long-run returns and international support:
  - New investments in healthcare, social housing, digitalization, and environmental protection lay the foundation for a more resilient and inclusive economy.
  - Rates of return on investments in adaptation to climate change are often greater than 100 percent.
  - Official aid for adaptation is currently $10 billion and would have to more than double to around $25 billion to finance the public investments required for adaptation to climate change in low-income countries.

*International Monetary Fund | October 2020*

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