## FOREWORD

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### Pandemic shock and fiscal response
- On March 11, 2020, the WHO declared COVID-19 a pandemic. It has now claimed more than 1 million lives.
- Economic activity and financial markets were hit "in a sudden and violent way" in March 2020.
- Economic policy responses were prompt:
  - The overall size and speed of fiscal action was unprecedented at about $12 trillion globally.
  - These measures helped restore orderly financial market conditions, eased access to financing and limited the downside adjustment in employment, economic activity, and living standards.

### Debt levels, projections, and near-term priorities
- Pre-pandemic:
  - Public and private debt reached 225 percent of GDP in 2019, 30 percentage points above the level prevailing before the global financial crisis.
  - Global public debt stood at 83 percent of GDP in 2019.
- 2020 developments:
  - Global general government debt is estimated to make an unprecedented jump up to almost 100 percent of GDP in 2020.
  - The major increase in the primary deficit and the sharp contraction in economic activity of 4.7 percent projected in the latest World Economic Outlook are the main drivers.
- Medium-term outlook:
  - Public debt is expected to stabilize to about 100 percent of GDP until 2025, benefiting from negative interest-growth differentials.
- Policy implication:
  - These high levels of public debt are not the most immediate risk; the near-term priority is to avoid premature withdrawal of fiscal support.
  - Support should persist, at least into 2021, to sustain the recovery and to limit long-term scarring.
  - Health and education should be given prime consideration everywhere.
  - Fiscally constrained economies should prioritize the protection of the most vulnerable and eliminate wasteful spending.
  - To manage intertemporal tradeoffs, a medium- to long-term fiscal framework is recommended.

### Distributional and social impacts
- Living standards will be falling in most of the world.
- The Fiscal Monitor estimates that the number of people in extreme poverty will increase by 80 to 90 million.
- The risk of malnutrition is on the rise.
- Access to health and education are problematic for important segments of the population.

### International support, financing capacity, and debt restructuring
- The international community must act with debt relief, access to grants and concessional financing—now and going forward—to help the poorest countries tackle urgent trade-offs.
- Confidence in the stability of the global financial system requires that international resources be available for all countries facing temporary financing challenges.
- IMF lending capacity now stands at $1 trillion, of which about one-fourth is already committed.
- For countries with unsustainable debt, options for orderly debt restructuring must be considered.

### Case for public investment
- Macroeconomic context supporting public investment includes:
  - Very low interest rates, high precautionary savings, weak private investment, and a gradual erosion of the public capital stock over time.
- Novel argument relating to uncertainty:
  - Investment multipliers are particularly high when macroeconomic uncertainty is elevated—and uncertainty in the current World Economic Outlook is "unusually large."
  - Under such conditions, public investment acts as a catalyst for private investment to take off.
- Quantified potential impacts of increased public investment:
  - A 1 percent of GDP increase in public investment, in advanced economies and emerging markets, has the potential to push GDP up by 2.7 percent, private investment by 10 percent and to create between 20 and 33 million jobs, directly and indirectly.
- Priority areas:
  - Investment in health and education and in digital and green infrastructure can connect people, improve economy-wide productivity, and improve resilience to climate change and future pandemics.
- Conclusion:
  - Fiscal policy can be a bridge to smart, resilient, sustainable, and inclusive growth.

*Vitor Gaspar, Director of the Fiscal Affairs Department*

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