## EXECUTIVE SUMMARY

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### Chapter 1: Tailoring Fiscal Responses

- Global vaccination remains unequal; global inoculation is urgently needed and "would pay for itself with stronger employment and economic activity, leading to increased tax revenues and sizable savings in fiscal support."
- Fiscal policy should remain flexible and supportive of health care systems, households, viable firms, and the economic recovery until the pandemic is brought under control globally.
- Scope of support varies by country depending on pandemic impact and access to low-cost borrowing.
  - Many governments in advanced economies are implementing sizable spending and revenue measures in 2021 (6 percent of GDP, on average).
  - Support in emerging market economies and especially in low-income developing countries has been smaller and front-loaded, with a large share of measures expiring.
- Fiscal support has mitigated economic contraction and job losses but raised government deficits and debt to unprecedented levels across income groups.
  - Average overall deficits as a share of GDP in 2020:
    - 11.7 percent for advanced economies
    - 9.8 percent for emerging market economies
    - 5.5 percent for low-income developing countries
  - Drivers of deficits:
    - Advanced economies and several emerging markets: roughly equal increases in spending and declines in revenues.
    - Many emerging market economies and most low-income developing countries: primarily collapse in revenues from the downturn.
  - Fiscal deficits in 2021 are projected to shrink in most countries as pandemic-related support expires or winds down, revenues recover somewhat, and unemployment claims decline.
- Public debt and financing dynamics:
  - Average public debt worldwide reached 97 percent of GDP in 2020 and is projected to stabilize at around 99 percent of GDP in 2021.
  - Despite higher debt, average interest payments are generally lower in advanced economies and many emerging markets due to the trend decline in market interest rates.
  - Central banks have lowered policy rates and purchased government bonds, facilitating fiscal responses.
  - Low-income countries face constrained financing for large deficits because of limited market access and little near-term scope to raise revenue; they need grants, concessional financing, or debt restructuring in some cases.
  - Over the medium term, fiscal deficits are projected to shrink in all income groups and debt-to-GDP ratios in most countries are projected to stabilize or decline, though public debt will continue to increase in a few countries due to aging and development needs.
- Uncertainty in the fiscal outlook is unusually high with upside and downside risks:
  - Upside: faster-than-expected vaccinations could expedite an end to the pandemic, boost revenues, and reduce need for fiscal support.
  - Downside: protracted downturn, abrupt tightening of financing conditions amid high debt, surge in corporate bankruptcies, commodity price volatility, or rising social discontent could inhibit recovery.
  - "The longer the pandemic lasts, the larger the challenge for the public finances."
- Fiscal policy priorities and recommended actions:
  - Continue support as needed while vaccinations proceed and recovery strengthens.
  - Promptly implement announced fiscal measures with upgraded project execution capacities and procurement procedures.
  - Pursue a green, digital, and inclusive transformation of the economy.
  - Tackle long-standing public finance weaknesses once recovery is firmly in place.
  - Develop medium-term fiscal strategies to manage fiscal and financing risks.
  - Renew efforts to achieve the Sustainable Development Goals.
- Specific recommendations and considerations:
  - Scale up global cooperation to contain the pandemic, especially accelerated vaccination at affordable cost in all countries.
    - In an upside scenario in which the pandemic is controlled sooner in all countries, stronger economic growth would yield more than $1 trillion in additional tax revenues in advanced economies, cumulatively, by 2025, and save trillions more in fiscal support measures.
    - "Vaccination will, thus, more than pay for itself."
  - Improve targeting of measures and tailor them to countries’ administrative capacity to maintain support over the crisis; consider synchronized green public investment by countries with fiscal space in the low-interest environment.
  - Balance risks from large and growing public and private debt with risks from premature withdrawal of fiscal support.
    - Credible medium-term fiscal frameworks are critical to set a path for rebuilding fiscal buffers at a pace contingent on the recovery.
    - Support measures include improving fiscal rules design or recalibrating their limits, and legislation such as "preapproving" future tax reforms.
    - Improving fiscal transparency and governance practices will enhance benefits of fiscal support.
  - Consider temporary COVID-19 recovery contributions levied on high incomes or wealth to help meet pandemic-related financing needs.
  - As recovery gains momentum, pursue domestic and international tax reforms to accumulate resources to improve access to basic services, enhance safety nets, and reinvigorate efforts to achieve the Sustainable Development Goals.

### Chapter 2: A Fair Shot

- The pandemic has exacerbated preexisting inequalities and poverty and highlighted the importance of social safety nets and access to basic services (health care, quality education, digital infrastructure).
- Universal access to vaccines and vaccination progress will be decisive for the recovery and future equality of opportunity.
- Preexisting inequalities worsened pandemic effects, and the crisis has escalated inequalities in turn:
  - Countries with better access to health care have had lower mortality rates, controlling for population age and case counts.
  - Countries with higher relative poverty have had more reported infections, especially with greater urbanization.
- Education impacts:
  - Unprecedented school closures have resulted in education losses equivalent to about one-quarter of the school year in advanced economies and one-half in emerging market and developing economies.
  - Largest losses have accrued to children from poorer and less-educated families.
  - In 2021, net school enrollment rates in emerging market and developing economies could drop by 1 percentage point (or about 6 million children dropping out of school).
  - Children who drop out will experience major learning losses.
- Inequality dimensions (income, wealth, opportunity) are mutually reinforcing; policy interventions must combine predistributive and redistributive approaches.
- Policy responses recommended:
  - Invest more and invest better in education, health, and early childhood development.
    - Additional spending on education can reduce enrollment gaps between children from poor and rich households.
    - Tackle inefficiencies: in emerging markets and low-income developing countries, the difference between a country’s spending efficiency and that of best performers ranges from 8 percent to 11 percent for health care and 25 percent to 50 percent for education.
  - Strengthen social safety nets by expanding coverage of the most vulnerable households and increasing benefit adequacy; also reallocate spending to the most effective programs and improve beneficiary identification and delivery.
  - Muster necessary revenues:
    - Advanced economies can increase progressivity of income taxation and increase reliance on inheritance/gift taxes and property taxation; consider COVID-19 recovery contributions and "excess" corporate profits taxes; consider wealth taxes if needed.
    - Emerging market and developing economies should focus on strengthening tax capacity to finance more social spending.
  - Act transparently and anchor reforms in medium-term fiscal frameworks as early as possible; strengthen public financial management and improve transparency and accountability, including for COVID-19 response measures.
  - Support lower-income countries facing daunting challenges:
    - Meeting the Sustainable Development Goals by 2030 would require $3 trillion for 121 emerging market economies and low-income developing countries (2.6 percent of 2030 world GDP).
    - Immediate international priority: affordable access to vaccines.
- Public sentiment and political economy:
  - Popular support for better public services was significant before the pandemic and has likely risen.
  - Surveys before the pandemic show respondents in advanced and emerging market economies favored more tax-financed spending on education, health care, and old-age care, and more progressive taxation.
  - A recent survey suggests that if a household member becomes ill with COVID-19 or loses employment, the probability of favoring progressive taxation rises by 15 percentage points.
  - Meeting rising demand for basic public services and more inclusive policies is crucial to strengthen public trust and social cohesion.

*International Monetary Fund | April 2021*

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_Source: https://www.imf.org/-/media/files/publications/fiscal-monitor/2021/april/english/execsum.pdf_