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### Role of government and resilience
- Governments foster resilience—the ability for households and firms to recover from or successfully adjust to challenges such as macroeconomic crises, pandemics, climate change, or the cost-of-living squeeze associated with spikes in food and energy prices.
- Major crises such as the COVID-19 pandemic present the ultimate test of societal resilience; many fiscal measures launched during the pandemic aimed to preserve the ability of people and firms to return to their activities before the crisis and to lay the foundations for a swift individual and collective bounceback.
- Fiscal interventions during major crises:
  - Shored up private sector balance sheets and stimulated aggregate demand when monetary policy was constrained.
  - Were rapid, diverse, and novel during the pandemic, including government and central bank actions as financers of last resort, guarantees of firms’ credit and liquidity, and broad cash transfers to households.

### Scope and focus of the analysis
- This Fiscal Monitor explores how fiscal policy and institutions can make society more resilient to current and future large adverse shocks.
- Focus on policies that help bounce back from large, widespread real income losses, organized into three categories:
  - Support to households and workers who have lost, or are at risk of losing, their jobs or incomes.
  - Measures to limit the adverse impact of large spikes in food and energy prices on real incomes of households (especially low-income families).
  - Public support to firms to bolster liquidity and solvency through direct lending, guarantees, and equity injections to prevent bankruptcies.
- Emphasis on costs, timeliness, and effectiveness of policies; and on the need for a longer-term perspective, including building greater fiscal buffers in normal times and preparing a comprehensive fiscal strategy in advance.

### Fiscal activism in large crises (findings)
- The increase in deficits (as a fraction of GDP) for each percentage point drop in real GDP growth was bigger during the global financial crisis and the COVID-19 pandemic than during typical recessions.
- Fiscal activism is stronger when including measures not immediately recorded in the deficit (government loans, guarantees, equity injections).
- Advanced economies mounted larger fiscal responses than emerging markets or low-income countries, reflecting easier access to financing and smaller informal sectors; limited fiscal space in emerging market and developing economies constrained deployment and likely contributed to some scarring in growth prospects relative to prepandemic levels.

### Automatic stabilizers and discretionary measures: empirical findings
- Automatic stabilizers designed to be timely, targeted, and temporary include unemployment income support, social assistance, and income-tax responsiveness.
- Microsimulations (EU context) estimate tax and benefit systems compensated households for nearly 40 percent of a large market income loss on average during 2011−19 (compared with 32 percent for the United States before 2011).
- Degree of consumption stabilization estimated to have been 85 percent in the European Union on average (meaning EU households reduced consumption by 15 percent for each unit drop in market income).
- For low-income households, social benefits represented 40 percent of overall income stabilization in the tax and benefit system (absorbing 16 percent of the market income shock on average); for higher-income households, progressivity of direct taxes was more important.
- Pandemic responses increased protections:
  - Job-retention and unemployment-income-support schemes expanded; take-up rates rose to a median of 13 percent of the working age population at the peak of the crisis.
  - The United States stepped up its federal unemployment support by about 3 percent of GDP (weekly supplements, expanded eligibility, extended duration).
- EU microsimulations including pandemic measures:
  - Tax and benefit systems (including pandemic measures) absorbed about 75 percent of the market income loss—much larger than the 40 percent before the crisis.
  - Job-retention schemes alone absorbed almost 40 percent of the market income shock at the EU level, at a fiscal cost of about 2 percent of GDP.
  - In the absence of job-retention schemes, the tax and benefit system would have absorbed only 47 percent of market income losses.
  - Income stabilization coefficient: 85 percent for households in the lowest income quintile, compared with 65 percent for those in the top income quintile.
  - Simulations suggest households might have stabilized more than 90 percent of their consumption on average (interpretation requires caution).
- Real per capita consumption declined by 7 percent among EU countries on average in 2020, partly because of lockdown restrictions.
- Pandemic-related measures affected income inequality:
  - Gini coefficient of income inequality would have increased by 0.65 percentage point in the European Union in 2020 before taxes and transfers, whereas the Gini coefficient of inequality in disposable income (after taxes and transfers) would have declined by 0.24 percentage point.

### Discretionary fiscal support — cash transfers: design, strengths, and constraints
- Cash transfers advantages:
  - Flexible because usually not tied to past or current work status.
  - Typically progressive because they generally consist of a flat amount per individual or household with eligibility often capped for higher incomes.
  - Useful when other measures are insufficient or less feasible (high informality limits job-retention schemes).
- Constraints:
  - Disbursement depends on ability to identify and verify eligible recipients and deliver payments—a constraint especially relevant for many low-income countries.
  - Programs are less effective if information and capacity are lacking regarding destitute people with limited ties to the formal economy.

### Brazil: Emergency Aid (Auxilio Emergencial) — outcomes and cost
- Coverage and benefits:
  - Initially covered almost one-third of the population, including 90 percent of the households in the bottom 40 percent of the income distribution.
  - Benefits were three times higher than the standard social benefit and more than half of the national minimum wage.
- Impact on household income (BraSim microsimulations):
  - Per capita disposable income in Brazil edged up by 2.1 percent in 2020.
  - Disposable income increased in more than 60 percent of households.
  - Disposable income rose by more than 20 percent in low-income households.
  - Stabilization coefficients including the Emergency Aid program for the bottom 60 percent of households are larger than 230.
- Poverty and inequality:
  - Poverty rate and Gini index of disposable income inequality fell temporarily in 2020.
  - Poverty defined as per capita household income less than half of minimum wage (US$6.30 per day in 2011 PPP terms).
  - Extreme poverty is US$2.25 per day at 2011 PPP, defined using the Bolsa Familia eligibility thresholds.
- Counterfactual and fiscal cost:
  - Counterfactual without Emergency Aid: the prepandemic tax and benefit system would have absorbed only one-quarter of the market income loss, and average per capita disposable income would have declined by 4.1 percent.
  - The cumulative fiscal cost for the Emergency Aid program, in 2020–21, was approximately 4 percent of GDP.
  - An alternative simulation suggests a lower benefit level (at one-third of the initial benefit amounts) would still have effectively protected income for the population at large, at about half the cost.

### United States: Economic Impact Payments and household outcomes
- Economic Impact Payments:
  - Three rounds disbursed between April 2020 and December 2021 amounted to $800 billion in total.
  - Payments covered most of the population, phasing out beginning with an adjusted gross income of $75,000 for singles and $150,000 for married persons.
  - First round mandated under the CARES Act, signed into law on March 27, 2020; about half of first-round payments were delivered by mid-April 2020, and nearly 90 percent were delivered by early June 2020.
- Income and consumption outcomes:
  - Real disposable income for households in the bottom 50 percent rose on average by 9 percent in 2020 and by 17 percent in 2021, compared with 2019 levels.
  - Disposable income for middle- and higher-income families rose by about 8 percent in 2020 and 2021, relative to 2019.
  - Higher-income families saved most of the additional income in 2020 due to social distancing constraints, reducing consumption in 2020.
  - Studies found transfers were effective at supporting consumption levels of low-income households soon after receipt, though consumption effects were smaller than in some prior cash-transfer episodes.

### Emerging market and developing economies: delivery approaches and constraints
- Fiscal constraints limited scale of discretionary responses; reliance on preexisting social safety nets was common.
- Automatic stabilizers less prevalent and provide limited coverage where informality is high.
- Digital and data-driven approaches used to target and deliver transfers:
  - Colombia: harmonized payment system; beneficiaries withdrew benefits from designated bank accounts.
  - Indonesia and Thailand: dedicated websites for direct registration of new beneficiaries.
  - Togo: Novissi system used machine-learning based on geospatial, survey, and phone metadata to select households.
  - Nigeria: satellite imagery combined with census data to map poorest urban areas.
- Challenges:
  - Transfers were often delayed and reaching those most in need remained difficult, per World Bank surveys of more than 50 developing countries.

### Takeaways and policy recommendations for household support
- Job-retention schemes and unemployment income support:
  - Both can be timely and effective buffers once their architecture is in place, reducing labor income loss—especially for vulnerable workers (youth, low-skilled).
  - Job-retention schemes useful for deep but short-lived disruptions; unemployment support preferred if shocks are persistent and reallocation is needed.
  - Model analysis calibrated to a typical advanced economy:
    - Productivity loss from unemployment calibrated to 0.12 percentage points in the quarter following a negative shock.
    - A persistent productivity loss from unemployment would reduce the consumption stabilization coefficient by 80 percent, even when unemployed workers receive unemployment income support.
    - Job-retention schemes can avert such large productivity loss, containing the decline in the consumption stabilization coefficient to only 10 percent.
- Targeting and preparatory strategies:
  - Better targeting would raise impact and save fiscal resources; integrate social registries updated with current information and use high-frequency household surveys to facilitate targeting.
  - Broad-based support was necessary at the onset; as conditions improved, generosity could have been scaled back faster.
  - Preparing a strategy in advance—setting out likely actions and policy responses under different scenarios—enables timely response without delaying fiscal support.
  - Semi-automatic stabilizers (prelegislated increases in benefits or eligibility with agreed triggers) can combine timely and targeted support with flexibility.

### Semi-automatic stabilizers and timing of fiscal support (model scenario)
- Scenario: a severe adverse shock that, absent fiscal response, would raise unemployment rate by 7 percentage points.
- Three policy scenarios:
  - (1) timely and anticipated fiscal support (semi-automatic stabilizers);
  - (2) large but short-lived discretionary fiscal support;
  - (3) delayed discretionary response.
- Key findings:
  - Fiscal support tends to be more effective if it is timely and short-lived than if it is smaller and delayed.
  - At a similar fiscal cost, a timely fiscal support stabilizes consumption one-third more than a delayed response.
  - The “semi-automatic” mechanism is more effective in stabilizing consumption and employment than the other two scenarios.
- Operational detail from model note:
  - The semi-automatic unemployment income support features a time-varying replacement rate that increases by 2 percentage points for each 1 percentage point deviation of unemployment rate from its natural rate.
- Fiscal costs across scenarios are cumulative over 2½ years and are expressed in percent of GDP.

### Social safety nets: scalability, prerequisites, and trade-offs
- Capabilities required for rapid scaling:
  - large-scale and dynamic information systems, including universal and robust identification systems;
  - ability to collect and verify up-to-date socioeconomic information while addressing information quality, privacy, and security concerns;
  - strong implementation capacity to deliver payments and coordination among government entities.
- Complementary points:
  - Social safety nets are compatible with a diverse set of shocks and can reach a targeted segment of the population if governments can identify those in need and deliver assistance in a timely manner.

### Responses to surging food and energy prices: context, effects, and recommendations
- Context and magnitude:
  - Sharp rise in food and energy prices began in 2021 and was exacerbated by Russia’s invasion of Ukraine.
  - Since early last year, global oil prices have doubled, natural gas prices in Europe have increased sharply, and prices for fertilizers have more than tripled.
  - These developments have placed more than 340 million people at risk of food shortage in the short term (World Food Programme).
- Policy responses observed (IMF survey of 174 countries, measures taken January–June 2022):
  - Advanced economies: cash and semi-cash transfers (including vouchers and utility bill discounts); reductions in VAT for some energy products (Belgium, Italy); reductions in excise taxes (France, Korea).
  - Emerging market and developing economies: price subsidies and reductions in VAT and excise taxes (Poland, Thailand, Türkiye).
  - Prevalence of price subsidies explains lower pass-through of global spikes to domestic energy prices in some emerging market and developing economies, especially in the Middle East, North Africa, and sub-Saharan Africa.
- Effectiveness and risks of energy price subsidies:
  - Energy pricing subsidies do not insulate the domestic economy from the shock when many countries implement them at the same time because commodity price increases lead to a negative terms-of-trade shock and a fall in real income for commodity importers.
  - Globally, energy price subsidies enacted broadly would translate one to one into a higher global energy price while leaving the domestic (subsidized) price relatively unchanged.
  - Price subsidies on energy across countries will be costly but ineffective at protecting the most vulnerable individuals.
  - Pricing subsidies complicate the green transition toward renewable energy sources and provide greater benefits to high-income individuals in most countries, resulting in a net transfer of fiscal resources from commodity-importing countries to commodity exporters.
- Policy recommendations:
  - Protect vulnerable households by strengthening social safety nets to deliver temporary targeted cash transfers.
  - Fiscal cost can be offset by other measures, including taxes; consider whether taxes on windfall profits from fuel extractions are appropriate.
  - A permanent tax on windfall profits from fossil fuel extraction based on economic rents can be considered if an adequate fiscal instrument is not already in place; it helps raise revenue without reducing investment or increasing inflation.
  - Targeted cash transfers are preferred to blanket price subsidies on fuel to allow cost pass-through, facilitate energy conservation and switching out of fossil fuels.
  - Low-income countries should prioritize food security within the existing fiscal envelope.
  - Countries without strong social safety nets can expand existing social programs (public transportation and school feeding programs) to provide relief.
  - A gradual adjustment of food prices may help reduce food waste, especially in advanced economies.
  - At the global level, facilitate trade and lift export restrictions on purchase of food for humanitarian assistance to support low-income countries at risk of a food crisis.
  - Strengthen domestic and international efforts to transition to a more diverse, renewable energy mix.

### Ensuring the resilience of firms during extraordinary times
- Scale and instruments:
  - Government support to firms expanded massively during the COVID-19 pandemic and the global financial crisis beginning in 2008.
  - Direct lending, public guarantees, subsidized private bank lending, and equity support were used on an unprecedented scale; some countries (Germany, Italy, Japan) announced public guarantee envelopes reaching about 30 percent of GDP.
  - Emerging market and developing economies intervened in distressed state-owned enterprises, used deferrals on taxes and social security contributions, and implemented job-retention schemes.
- Rationale:
  - Exceptional interventions can avert collapse when banks become reluctant to extend liquidity even to viable firms; failure of systemic firms could disrupt supply chains or credit relationships and spread to other firms.
  - Public interventions can restore market confidence, preserve firm-creditor links, and reduce lasting effects from systemic bank failures; benefits larger in deeper crises.
- Risks and downsides:
  - Difficult to distinguish between illiquid but viable and nonviable firms under uncertainty.
  - Processing or monitoring support for many small and medium-sized enterprises can strain administrative capacity.
  - For countries with limited fiscal space, borrowing costs may rise during crises, increasing opportunity cost of public funds.
  - Prolonged support can delay reallocation of resources and crowd out funding for new businesses.
  - Costs likely outweigh benefits in most circumstances for countries with large informal sectors, weak governance, and scant information about firms’ balance sheets.
- Empirical outcomes and program design issues:
  - Bankruptcy rates declined by 11 percent on average across 42 advanced economies and emerging markets during the pandemic.
  - Some programs were generous and entailed large fiscal risks; untargeted programs allowed nonviable pre-pandemic firms to obtain benefits.
  - In the United States, some firms used Paycheck Protection Program loans for non-payroll payments or to build savings, leading to small employment effects; many small businesses did not receive support loans.
  - Firm-level survey results across 74 emerging market and developing economies suggest about one-fifth of firms that were not much affected during the pandemic received some form of government support.
  - In low-income developing countries, the majority of firms that did not receive (but likely qualified for) policy support missed out because firm owners were not aware of those support measures.
- Better practice recommendations:
  - Strive for good targeting and communication; triage support based on assessment of firms’ viability.
  - Establish well-defined exit strategies, sound legal frameworks, good governance, and sound management of fiscal risks.
  - Limit duration of support programs to contain fiscal costs.
  - Share risks with private banks through partial guarantees to reduce government exposure.
  - Estimate and manage fiscal risks from support to firms on an ongoing basis by establishing regular surveys or registries to obtain timely information about firms.
  - Use valuation approaches reflective of the fair value of support: measure the fair value of the subsidy component as the difference between actual disbursement of loans and guarantees and the net present value of expected future cash flows (including loan principal repayment, interest, and guarantee fees) over program duration; discount using market interest rates.
- Quantitative result:
  - Governments subsidized a median of 30 percent of loan principal during the pandemic (seven advanced economies).
  - Cross-country variation in subsidy component ranged from 24 percent to 100 percent; longer maturities or higher guarantee rates raise the subsidy component, whereas higher fees or interest rates reduce it.
  - Guarantees were often more generous for small enterprises, leading to higher subsidies and associated fiscal risks.
  - The US Paycheck Protection Program is estimated to have been fully subsidized (essentially amounting to grants to firms).

### Preparing a strategy ready to deploy and building resilience infrastructure
- Preparatory steps and principles:
  - Preparation helps governments protect households and firms more effectively during large adverse shocks.
  - Building fiscal buffers in normal times is a prerequisite for flexible crisis response without jeopardizing access to financing.
  - Fiscal adjustments to build buffers should generally be gradual and differentiated according to circumstances, under a medium-term fiscal framework to promote credibility.
  - Develop a strategy that sets out desirable policy responses under various scenarios and relate high-frequency indicators of economic conditions to such scenarios to facilitate responses.
  - Semi-automatic stabilizers (preagreed responses) can be timely and attuned to economic conditions; anticipation of policy support guides expectations and increases policy effectiveness, limiting net fiscal costs.
  - Transparency integrates measures into medium-term fiscal frameworks, promotes fiscal credibility, and reduces short-term political pressure.
- Social protection as resilience infrastructure:
  - Social protection systems are part of resilience infrastructure and compatible with a broad set of negative shocks.
  - Safety nets can be expanded quickly, often leveraging new technologies; preparation is necessary to make them more readily scalable and well targeted.

### Targeted and temporary support to households — tools and macro policy interactions
- For emerging market and developing economies without strong safety nets, existing social programs (child benefits, public transportation, school feeding) can be expanded to provide relief while strengthening social protection.
- When inflationary pressures are high:
  - Fiscal policy should protect the most vulnerable while maintaining a tightening stance to facilitate monetary policy’s price stability objective.
  - Scaling up existing means-tested cash transfers is preferable to enacting energy pricing subsidies.
- Appropriate fiscal tools by nature of adversity:
  - Automatic stabilizers and unemployment income support appropriate for output or employment shocks.
  - For large spikes in food and energy prices, scale up social protection and use progressive taxes; pricing subsidies are less appropriate.
  - For major natural disasters, job-retention schemes, targeted transfers, and financing measures can be appropriate when severe externalities exist; pricing subsidies generally less appropriate.
- Fiscal responses need a clear exit strategy to ensure measures are temporary.
- To manage fiscal risks from measures without immediate budget impact, strengthen governance, transparency, and quantification of contingent liabilities.
- Global cooperation needed to:
  - Step up vaccinations and pandemic preparedness.
  - Support investment in climate adaptation in vulnerable countries and transition toward green energy.
  - Eliminate export restrictions and avoid food hoarding; increase aid and humanitarian support to low-income developing countries.
  - Provide emergency finance, humanitarian assistance, affordable food supply and production support, and safeguards on access to finance for low-income developing countries.

### Building resilience: health, opportunities, and climate adaptation
- Health and pandemic preparedness:
  - A resilient health system helps people recover quickly without excessive expenditures that lead to financial distress.
  - The COVID-19 pandemic led to 25 million children missing out on regular immunizations in 2021, nearly 6 million more than in 2019.
  - Investments in nutrition, clean water, improved sanitation, and basic health services are critical in many low-income countries.
- Equitable access to opportunities:
  - Public investment in basic services such as education can build opportunities for disadvantaged individuals; additional resources are needed for students—especially those from lower-income families—who missed schooling during the pandemic.
  - Active labor market policies (vocational training, job search assistance, hiring subsidies) and support for entrepreneurship can aid worker adjustment; making childcare more affordable and narrowing gender gaps can help women realize full economic potential.
- Climate adaptation pillars:
  1. Investment in physical and information infrastructure (hard and soft measures).
  2. Strengthening financial resilience by (1) building fiscal buffers, (2) transferring risk through private insurance or regional mechanisms, (3) arranging credit lines or contingent financing, or (4) accessing concessional financing and humanitarian assistance when risk transfer is not cost-effective.
  3. Ensuring prompt response and recovery through contingency planning and related investments; social protection systems and primary care networks can be scaled up speedily for humanitarian needs.

### Designing government support to firms during a crisis: operational guidance
- Prioritize sequencing:
  - At crisis onset, a swift broad-based response can buy time; as recovery proceeds, shift toward more targeted measures to contain fiscal cost and avoid supporting nonviable firms.
- Assessing firms’ viability and targeting support:
  - Support should be directed to viable firms facing temporary difficulties; involve private financial institutions or development banks as intermediaries when government capacity is limited.
  - For micro, small, and medium-sized enterprises, standardized temporary support by sector or extent of losses may be necessary given limited administrative capacity and informality.
- Exit strategy and monitoring:
  - Exit strategies should be contingent on observable indicators rather than preannounced timetables; gradual withdrawal could narrow new loans, reduce benefit generosity, and increase private risk exposure.
  - Raise guarantee fees or reduce guarantee ratios to facilitate exit from credit guarantee programs.
- Managing fiscal risks:
  - Strengthen reporting of contingent liabilities and fiscal risks; use robust oversight, sound legal frameworks, good governance, and transparency.
  - Prepare frameworks in advance for financing measures.
- Supporting institutions:
  - Easing bank capital and provisioning requirements, strengthening insolvency frameworks (including out-of-court restructurings), and bolstering insolvency regimes can complement firm support.
  - Strong social protection systems are an important backstop for microenterprises and informal firms.

### Figures and survey notes (selected numeric items as presented)
- Children missing regular immunizations in 2021: 25 million (nearly 6 million more than in 2019).
- Survey months for firm support data varied across countries from January to October.
- Numeric sequence from Figure 1.2.1 area: 30; 67; 42; 66; 48; 58; 52; 53.

*Source: Chapter 1 — Introduction and related annexes, Fiscal Monitor: Helping People Bounce Back, International Monetary Fund | October 2022.*

### Introduction

### Introduction

### Role of government and resilience
- Governments foster resilience—the ability for households and firms to recover from or successfully adjust to challenges such as macroeconomic crises, pandemics, climate change, or the cost-of-living squeeze associated with spikes in food and energy prices.
- Major crises such as the COVID-19 pandemic present the ultimate test of societal resilience. Many fiscal measures launched during the pandemic aimed to preserve the ability of people and firms to return to their activities before the crisis and to lay the foundations for a swift individual and collective bounceback.
- Views on the appropriate fiscal response have been reshaped by the COVID-19 pandemic and the global financial crisis that began in 2008. Fiscal interventions during those crises:
  - Shored up private sector balance sheets and stimulated aggregate demand when monetary policy was constrained.
  - Were rapid, diverse, and novel during the pandemic, including government and central bank actions as financers of last resort, guarantees of firms’ credit and liquidity, and broad cash transfers to households.

### Scope and focus of the analysis
- This Fiscal Monitor explores how fiscal policy and institutions can make society more resilient to current and future large adverse shocks.
- Focus narrowed to policies that help bounce back from large, widespread real income losses, organized into three categories:
  - Support to households and workers who have lost, or are at risk of losing, their jobs or incomes.
  - Measures to limit the adverse impact of large spikes in food and energy prices on real incomes of households (especially low-income families).
  - Public support to firms to bolster liquidity and solvency through direct lending, guarantees, and equity injections to prevent bankruptcies.
- Emphasis on costs, timeliness, and effectiveness of policies; and on the need for a longer-term perspective, including building greater fiscal buffers in normal times and preparing a comprehensive fiscal strategy in advance.

### Fiscal activism in large crises (findings)
- Fiscal policy has been more active during large crises: the increase in deficits (as a fraction of GDP) for each percentage point drop in real GDP growth was bigger during the global financial crisis and the COVID-19 pandemic than during typical recessions.
- Fiscal activism is even stronger when including measures not immediately recorded in the deficit (government loans, guarantees, equity injections).
- Advanced economies mounted larger fiscal responses than emerging markets or low-income countries, reflecting easier access to financing and smaller informal sectors; limited fiscal space in emerging market and developing economies constrained deployment and likely contributed to some scarring in growth prospects relative to prepandemic levels.

### Key themes for fiscal policies arising from recent crises
- A wider range of tools is deployed during major crises than in typical business cycles (e.g., broad-based cash transfers, job-retention schemes, expanded unemployment support).
- Cost-effectiveness requires determining eligible recipients and assessing distributional implications in addition to aggregate impact.
- The case for fiscal interventions must be assessed alongside other policies (monetary policy, financial regulation); fiscal expansions interact with monetary policy and may be necessary to backstop private sector weaknesses.
- Preparing in advance with a clear rationale for each instrument facilitates timely deployment and limits adverse long-term effects (market distortions, growth hampering).

### Automatic stabilizers and discretionary measures
- Automatic stabilizers are designed to be timely, targeted, and temporary; examples include unemployment income support, social assistance, and income-tax responsiveness.
- Automatic stabilizers may be unavailable or insufficient in large crises, especially in developing countries with widespread informality; discretionary measures can tailor assistance but may be delayed and harder to unwind without prior planning.
- Microsimulations (EU context) estimate that the tax and benefit systems compensated households for nearly 40 percent of a large market income loss on average during 2011−19 (compared with 32 percent for the United States before 2011).
- The degree of consumption stabilization is estimated to have been 85 percent in the European Union on average (meaning that EU households reduced their consumption by 15 percent for each unit drop in market income).
- For low-income households, social benefits represented 40 percent of the overall income stabilization in the tax and benefit system (or absorbing 16 percent of the market income shock on average); for higher-income households, progressivity of direct taxes was more important.
- Pandemic responses increased protections:
  - Job-retention and unemployment-income-support schemes expanded; many EU countries had job-retention schemes in place pre-pandemic (some activated automatically, e.g., Kurzarbeit in Germany).
  - Take-up rates of these schemes rose to a median of 13 percent of the working age population at the peak of the crisis, before subsiding.
  - The United States stepped up its federal unemployment support by about 3 percent of GDP (weekly supplements, expanded eligibility, extended duration).
- Microsimulations for the EU suggest:
  - Tax and benefit systems (including pandemic measures) absorbed about 75 percent of the market income loss—much larger than the 40 percent before the crisis.
  - Job-retention schemes alone absorbed almost 40 percent of the market income shock at the EU level, at a fiscal cost of about 2 percent of GDP.
  - In the absence of job-retention schemes, the tax and benefit system would have absorbed only 47 percent of market income losses.
  - Income stabilization coefficient: 85 percent for households in the lowest income quintile, compared with 65 percent for those in the top income quintile (with significant variation across countries).
  - Simulations suggest households might have stabilized more than 90 percent of their consumption on average, although interpretation requires caution.
- Real per capita consumption declined by 7 percent among EU countries on average in 2020, partly because of lockdown restrictions.
- Higher income stabilization rates among the poorest indicated targeting toward those most in need; stabilization stronger for the young, less-educated workers, and those in sectors relying on personal contact.
- Pandemic-related measures affected income inequality: microsimulations show that the Gini coefficient of income inequality would have increased by 0.65 percentage point in the European Union in 2020 before taxes and transfers, whereas the Gini coefficient of inequality in disposable income (after taxes and transfers) would have declined by

*Source: Chapter 1 — Introduction, Fiscal Monitor. International Monetary Fund | October 2022.*

### 0.24 percentage point (Online Annex 1.2).

### Discretionary Fiscal Support

### Cash transfers: design, strengths, and constraints
- Cash transfers were widely used to provide direct income support to households during the pandemic, especially broad-based cash transfers.
- Advantages:
  - Flexible because usually not tied to past or current work status.
  - Typically progressive because they generally consist of a flat amount per individual or household with eligibility often capped for higher incomes.
  - Useful when other measures are insufficient (crisis too severe) or less feasible (high informality limits job-retention schemes).
- Constraints:
  - Can be disbursed only if the government can identify and verify eligible recipients and deliver payments—a constraint especially relevant for many low-income countries.
  - Programs are likely less effective if information and capacity are lacking regarding destitute people with limited ties to the formal economy.

### Brazil: Emergency Aid (Auxilio Emergencial) case study
- Coverage and benefits:
  - Initially covered almost one-third of the population, including 90 percent of the households in the bottom 40 percent of the income distribution.
  - Benefits were three times higher than the standard social benefit and more than half of the national minimum wage.
- Impact on household income (microsimulations using BraSim):
  - Per capita disposable income in Brazil edged up by 2.1 percent in 2020.
  - Disposable income increased in more than 60 percent of households.
  - Disposable income rose by more than 20 percent in low-income households.
  - Stabilization coefficients including the Emergency Aid program for the bottom 60 percent of households are larger than 230 (and are not drawn to scale in the figure).
- Poverty and inequality:
  - The poverty rate and the Gini index of disposable income inequality fell temporarily in 2020.
  - Poverty is defined as per capita household income less than half of minimum wage (US$6.30 per day in 2011 PPP terms).
  - Extreme poverty is US$2.25 per day at 2011 PPP, defined using the Bolsa Familia eligibility thresholds.
- Counterfactual and fiscal cost:
  - Counterfactual without Emergency Aid: the prepandemic tax and benefit system would have absorbed only one-quarter of the market income loss, and average per capita disposable income would have declined by 4.1 percent.
  - The cumulative fiscal cost for the Emergency Aid program, in 2020–21, was approximately 4 percent of GDP.
  - An alternative simulation suggests a lower benefit level (at one-third of the initial benefit amounts) would still have effectively protected income for the population at large, at about half the cost.

### Advanced economies: United States example and consumption effects
- United States Economic Impact Payments:
  - Three rounds disbursed between April 2020 and December 2021 amounted to $800 billion in total.
  - Payments covered most of the population, phasing out beginning with an adjusted gross income of $75,000 for singles and $150,000 for married persons.
  - The first round was mandated under the CARES Act, signed into law on March 27, 2020; about half of first-round payments were delivered by mid-April 2020, and nearly 90 percent were delivered by early June 2020.
- Income and consumption outcomes:
  - Real disposable income for households in the bottom 50 percent rose on average by 9 percent in 2020 and by 17 percent in 2021, compared with 2019 levels.
  - Disposable income for middle- and higher-income families rose by about 8 percent in 2020 and 2021, relative to 2019.
  - Higher-income families saved most of the additional income in 2020 due to social distancing constraints, reducing consumption in 2020.
  - Studies found transfers were effective at supporting consumption levels of low-income households soon after receipt, though consumption effects were smaller than in some prior cash-transfer episodes, possibly due to lockdown restrictions and ample liquidity.

### Emerging market and developing economies: reliance on safety nets and digital innovations
- Fiscal constraints limited the scale of discretionary responses in many emerging market and developing economies; reliance on preexisting social safety nets was common.
- Automatic stabilizers (for example, unemployment income support) are less prevalent and provide limited coverage where informality is high.
- Most countries lack mechanisms to automatically scale up benefits in response to adverse shocks, so many relied on discretionary measures.
- Digital and data-driven approaches used to target and deliver transfers:
  - Colombia: harmonized payment system; beneficiaries withdrew benefits from designated bank accounts.
  - Indonesia and Thailand: dedicated websites for direct registration of new beneficiaries.
  - Togo: Novissi system used machine-learning based on geospatial, survey, and phone metadata to select households.
  - Nigeria: satellite imagery combined with census data to map poorest urban areas.
  - Examples in Table 1.1 show country-specific measures and digital innovations (selected entries include Bolivia, Brazil, Chile, China, Colombia, Egypt, India, Indonesia, Peru, Rwanda, Togo).
- Challenges: transfers were often delayed and reaching those most in need remained difficult, per World Bank surveys of more than 50 developing countries.

### Takeaways and policy recommendations
- Job-retention schemes and unemployment income support:
  - Both can be timely and effective buffers once their architecture is in place, reducing labor income loss—especially for vulnerable workers (youth, low-skilled).
  - Best used in different conditions: job-retention schemes useful for deep but short-lived disruptions (as in the pandemic); unemployment support preferred if shocks are persistent and reallocation is needed.
  - Model analysis calibrated to a typical advanced economy:
    - Productivity loss from unemployment calibrated to 0.12 percentage points in the quarter following a negative shock.
    - A persistent productivity loss from unemployment would reduce the consumption stabilization coefficient by 80 percent, even when unemployed workers receive unemployment income support.
    - Job-retention schemes can avert such large productivity loss, containing the decline in the consumption stabilization coefficient to only 10 percent.
- Targeting and preparatory strategies:
  - Better targeting would raise impact and save fiscal resources; integrate social registries updated with current information and use high-frequency household surveys to facilitate targeting.
  - Broad-based support was necessary at the onset; as conditions improved, generosity could have been scaled back faster.
  - Preparing a strategy in advance—setting out likely actions and policy responses under different scenarios—enables timely response without delaying fiscal support.
  - Semi-automatic stabilizers (prelegislated increases in benefits or eligibility with agreed triggers, e.g., employment decline thresholds) can combine timely and targeted support with flexibility to adjust generosity and coverage to shock severity.
- Model results:
  - Results from a dynamic stochastic general equilibrium model show that semi-automatic stabilizers could stabilize household consumption better than conventional automatic stabilizers (with fixed generosity and coverage), at a modest fiscal cost.

*CHAPTER 1 HeLpINg peOpLe BOuNCe BACk, International Monetary Fund | October 2022.*

### Annex 1.4). Additional stabilization comes from greater

### Annex 1.4). Additional stabilization comes from greater

### Semi-automatic stabilizers and timing of fiscal support
- Scenario setup: a severe adverse shock that, in the absence of a fiscal response, would raise the unemployment rate by 7 percentage points (see Figure 1.8; Online Annex 1.4).
- Three policy scenarios considered:
  - (1) timely and anticipated fiscal support—in the form of expanding the benefit levels of unemployment income support—tailored to aggregate economic conditions (such as semi-automatic stabilizers);
  - (2) large but short-lived discretionary fiscal support;
  - (3) delayed discretionary response.
- Key findings:
  - Fiscal support tends to be more effective if it is timely and short-lived than if it is smaller and delayed.
  - At a similar fiscal cost, a timely fiscal support stabilizes consumption one-third more than a delayed response.
  - The “semi-automatic” mechanism is more effective in stabilizing consumption and employment than the other two scenarios.
- Design considerations and limitations:
  - Semi-automatic stabilizers are difficult to prespecify because the nature of shocks differs; ideal triggers would be based on observable variables available at high frequency and that co-move strongly with underlying economic conditions.
  - Putting policy support in place for too long could generate work disincentives (Grosh and others 2008; Landais, Michaillat, and Saez 2018).
- Operational detail from model note: the semi-automatic unemployment income support features a time-varying replacement rate that increases by 2 percentage points for each 1 percentage point deviation of unemployment rate from its natural rate.
- Fiscal costs across scenarios are cumulative over 2½ years and are expressed in percent of GDP (see Figure 1.8).

### Social safety nets: scalability, prerequisites, and trade-offs
- Third takeaway: social safety nets can be scaled up quickly but require preparatory work ahead of future crises.
- Capabilities required for rapid scaling:
  - large-scale and dynamic information systems, including universal and robust identification systems;
  - ability to collect and verify up-to-date socioeconomic information while addressing information quality, privacy, and security concerns (Aiken and others 2022);
  - strong implementation capacity to deliver payments and coordination among government entities.
- Complementary points:
  - Social safety nets are compatible with a diverse set of shocks and can reach a targeted (but potentially large or specific) segment of the population if governments can identify those in need and deliver assistance in a timely manner.

### Responses to surging food and energy prices
- Context and magnitude:
  - Sharp rise in food and energy prices began in 2021 and was exacerbated by Russia’s invasion of Ukraine.
  - Since early last year, global oil prices have doubled, natural gas prices in Europe have increased sharply, and prices for fertilizers have more than tripled.
  - These developments have placed more than 340 million people at risk of food shortage in the short term, according to the World Food Programme.
- Distributional impacts:
  - A surge in food prices hurts low-income households especially, who spend a greater share of their income on food; rising prices of necessities and basic staples can cause devastating, long-lasting harm.
  - Impact differs across countries depending on whether they are net importers or exporters of commodities; some emerging markets and low-income developing countries may be at risk of a food crisis.
- Policy responses observed (based on IMF survey of 174 countries, measures taken January–June 2022; Figure 1.9):
  - Advanced economies: cash and semi-cash transfers (including vouchers and utility bill discounts); reductions in VAT for some energy products (Belgium, Italy); reductions in excise taxes (France, Korea).
  - Emerging market and developing economies: price subsidies and reductions in VAT and excise taxes (Poland, Thailand, Türkiye).
  - Prevalence of price subsidies explains lower pass-through of global spikes to domestic energy prices in some emerging market and developing economies, especially in the Middle East, North Africa, and sub-Saharan Africa.
- Effectiveness and risks of energy price subsidies:
  - Energy pricing subsidies do not insulate the domestic economy from the shock when many countries implement them at the same time because commodity price increases lead to a negative terms-of-trade shock and a fall in real income for commodity importers.
  - Globally, energy price subsidies enacted broadly would translate one to one into a higher global energy price while leaving the domestic (subsidized) price relatively unchanged.
  - Price subsidies on energy across countries will be costly but ineffective at protecting the most vulnerable individuals (Online Annex 1.5; Figure 1.10).
  - Pricing subsidies complicate the green transition toward renewable energy sources.
  - Pricing subsidies provide greater benefits to high-income individuals in most countries.
  - Result: a net transfer of fiscal resources from commodity-importing countries to commodity exporters.
- Policy recommendations:
  - Protecting vulnerable households is best achieved by strengthening social safety nets to deliver temporary targeted cash transfers (Online Annex 1.4; Amaglobeli and others 2022).
  - Fiscal cost can be offset by other measures, including taxes; consider carefully whether taxes on windfall profits from fuel extractions are appropriate.
  - A permanent tax on windfall profits from fossil fuel extraction based on economic rents (that is, excess profits) can be considered if an adequate fiscal instrument is not already in place; it helps raise revenue without reducing investment or increasing inflation and avoids distortions from a temporary tax on windfall profits (Baunsgaard and Vernon 2022).
  - Targeted cash transfers are preferred to blanket price subsidies on fuel because they allow rise in fuel costs to pass through to end users to facilitate energy conservation and switching out of fossil fuels.
  - Low-income countries should prioritize food security within the existing fiscal envelope.
  - Countries without strong social safety nets can expand existing social programs (for example, public transportation and school feeding programs) to provide relief to vulnerable households.
  - A gradual adjustment of food prices may help reduce food waste, especially in advanced economies.
  - At the global level, facilitate trade and lift export restrictions on the purchase of food for humanitarian assistance to support low-income countries at risk of a food crisis.
  - Stronger domestic and international efforts to transition to a more diverse, renewable energy mix would reduce vulnerabilities to fossil fuel price shocks.

### Ensuring the resilience of firms during extraordinary times
- Scale of interventions during crises:
  - Government support to firms expanded massively during the COVID-19 pandemic and the global financial crisis beginning in 2008.
  - Direct lending, public guarantees, subsidized private bank lending, and equity support were used on an unprecedented scale; some countries (Germany, Italy, Japan) announced public guarantee envelopes reaching about 30 percent of GDP.
  - Many emerging market and developing economies intervened in distressed state-owned enterprises, used deferrals on taxes and social security contributions, and implemented job-retention schemes.
- Rationale for public support to firms during deep crises:
  - Exceptional interventions can avert an economic collapse when banks become reluctant to extend liquidity even to viable firms; failure of systemic firms could disrupt supply chains or credit relationships and spread to other firms, causing sizable job and income losses.
  - Public interventions—along with monetary or financial policies—can restore market confidence, preserve firm-creditor links, and reduce lasting effects from systemic bank failures.
  - Benefits include confidence channels that break self-reinforcing pessimistic expectations and reduce the share of viable firms forced to downsize; benefits are larger in deeper crises.
- Risks and downsides of public support to firms:
  - Difficult to distinguish between illiquid but viable and nonviable firms under great uncertainty (Ebeke and others 2021).
  - Processing or monitoring support for many small and medium-sized enterprises can strain governments’ administrative capacity (Diez and others 2021).
  - For countries with limited fiscal space, borrowing costs may rise during crises, increasing the opportunity cost of public funds for other needed spending.
  - Prolonged support can delay reallocation of resources to more productive uses or crowd out funding for new businesses.
  - Costs likely outweigh benefits in most circumstances for countries with large informal sectors, weak governance, and scant information about firms’ balance sheets.
- Empirical outcomes and program design issues:
  - Bankruptcy rates declined by 11 percent on average across 42 advanced economies and emerging markets during the pandemic (Araujo and others 2022).
  - Some programs appeared generous and entailed large fiscal risks; untargeted programs allowed nonviable pre-pandemic firms to obtain benefits.
  - In the United States, some firms used Paycheck Protection Program loans to make non-payroll payments or build up savings, leading to small employment effects (Granja and others 2020); many small businesses did not receive support loans (Kaplan, Mills, and Sarkar 2022).
  - Firm-level survey results across 74 emerging market and developing economies suggest about one-fifth of firms that were not much affected during the pandemic received some form of government support.
  - In low-income developing countries, the majority of firms that did not receive (but likely qualified for) policy support missed out because firm owners were not aware of those support measures (World Bank 2021).
- Better practice recommendations:
  - Strive for good targeting and communication; triage support based on assessment of firms’ viability.
  - Establish well-defined exit strategies, sound legal frameworks, good governance, and sound management of fiscal risks (Box 1.2).
  - Limit the duration of support programs to contain fiscal costs.
  - Share risks with private banks through partial guarantees to reduce government exposure.
  - Estimate and manage fiscal risks from support to firms on an ongoing basis by establishing regular surveys or registries to obtain timely information about firms.
  - Recognize that some measures (public guarantee programs without immediate budget impact) make estimation difficult; countries use different approaches to report costs, including contingent liabilities, but often underestimate true cost (Battersby and others 2022).
  - Use valuation approaches reflective of the fair value of support (Hong and Lucas, forthcoming): measure the fair value of the subsidy component as the difference between actual disbursement of loans and guarantees and the net present value of expected future cash flows (including loan principal repayment, interest, and guarantee fees) over program duration; discount using market interest rates.
- Quantitative result from seven advanced economies (Hong and Lucas, forthcoming):
  - Governments subsidized a median of 30 percent of loan principal during the pandemic (Figure 1.11).
  - Cross-country variation in subsidy component ranged from 24 percent to 100 percent; longer maturities or higher guarantee rates raise the subsidy component, whereas higher fees or interest rates reduce it.
  - Guarantees were often more generous for small enterprises, leading to higher subsidies and associated fiscal risks.
  - Example: the US Paycheck Protection Program is estimated to have been fully subsidized (essentially amounting to grants to firms), partly reflecting lenient requirements on repayment.

### Preparing a strategy ready to deploy
- Preparatory steps and principles:
  - Preparation can help governments protect households and firms more effectively during large adverse shocks.
  - Building fiscal buffers in normal times is a prerequisite for policies to respond flexibly during crises without jeopardizing access to financing.
  - Fiscal adjustments to build buffers should generally be gradual and differentiated according to circumstances, under a medium-term fiscal framework to promote credibility.
  - Preparation can ameliorate trade-offs between the risk of doing too much and the risk of doing too little by improving targeting and limiting incentives for shirking or excessive risk-taking.
  - Develop a strategy that sets out desirable policy responses under various scenarios and relate high-frequency indicators of economic conditions to such scenarios to facilitate responses.
  - In some instances, it may be feasible to put in place “semi-automatic” stabilizers (preagreed responses) that are timely and attuned to economic conditions; anticipation of policy support guides expectations and increases policy effectiveness, limiting net fiscal costs.
  - Transparency of such an approach integrates measures into medium-term fiscal frameworks, promotes fiscal credibility, and reduces short-term political pressure.
- Social protection as resilience infrastructure:
  - Social protection systems are part of resilience infrastructure and compatible with a broad set of negative shocks.
  - Recent crises show safety nets can be expanded quickly, often leveraging new technologies; preparation is necessary to make them more readily scalable and well targeted to deliver cash or in-kind support to those who truly need it.
  - Gathering information about beneficiaries and systems in peacetime facilitates rapid scaling during crises.

*Source: IMF staff estimates and analysis from Annex 1.4 and Chapter 1, Fiscal Monitor: Helping People Bounce Back (October 2022).*

### CHAPTER 1 HeLpINg peOpLe BOuNCe BACk

### CHAPTER 1 HeLpINg peOpLe BOuNCe BACk

### Targeted and Temporary Support to Households
- Soaring food and energy prices have squeezed household budgets; countries can provide targeted and temporary support to vulnerable households.
- For emerging market and developing economies without strong social safety nets, existing social programs (for example, child benefits, public transportation, or school feeding programs) can be expanded to provide relief while strengthening the social protection system.
- Existing targeting methods in developing countries, although imperfect, can provide more on a per beneficiary basis, compared with universal programs (Hanna and Olken 2018).
- Improved legal frameworks and administrative capacity can facilitate targeting, leveraging digital innovations to verify eligibility and deliver payments, while limiting leakage and fraud.
- When inflationary pressures are high:
  - Fiscal policy should protect the most vulnerable while maintaining a tightening stance to facilitate the monetary policy’s price stability objective.
  - Scaling up existing means-tested cash transfers is preferable to enacting energy pricing subsidies because the rise in fuel costs passes on to end users, facilitating energy conservation and switching out of fossil fuels.
- For low-income countries, food security should be prioritized within the existing fiscal envelope.

### Appropriate Fiscal Tools by Nature of Adversity
- Different types of adversity require a different mix of policy tools; choice depends on the nature of the event, available policy space, and the extent of resilience in the private sector.
- Automatic stabilizers and unemployment income support are generally appropriate for output or employment shocks.
- For major disruptions in key goods and services (for example, large spikes in food and energy prices), scaling up social protection (ready to scale up as needed) and progressive taxes are appropriate; pricing subsidies are less appropriate.
- For major natural disasters (temporary or longer lasting), job-retention schemes, targeted transfers, and financing measures (for example, direct lending and public guarantees) can be appropriate when severe externalities exist; pricing subsidies are generally less appropriate.
- Fiscal tools are not mutually exclusive; governments can use multiple tools simultaneously depending on fiscal space, institutional capacity, debt sustainability, and private sector risk-sharing.
- Fiscal responses need a clear exit strategy to ensure measures are temporary.
- To manage fiscal risks from measures without immediate budget impact, governments should focus on good governance, transparency, and quantification of risks and contingent liabilities.
- Exceptional support to viable firms should be preceded by identification of externalities that warrant public intervention and clear assessment of trade-offs; involve private sector in sharing risks where possible.
- Global cooperation is needed to:
  - Step up vaccinations and pandemic preparedness.
  - Support investment in climate adaptation in vulnerable countries and transition toward green energy.
  - Eliminate export restrictions and avoid food hoarding; increase aid and humanitarian support to low-income developing countries.
  - Provide emergency finance, humanitarian assistance, affordable food supply and production support, and safeguards on access to finance for low-income developing countries.

### Building Resilience: Health, Opportunities, and Climate Adaptation
- Investment in Health Care and Pandemic Preparedness:
  - A resilient health system helps people recover quickly without excessive expenditures that lead to financial distress.
  - The COVID-19 pandemic and associated disruptions led to 25 million children missing out on regular immunizations in 2021, nearly 6 million more than in 2019, according to the World Health Organization (Figure 1.1.1).
  - Investments in nutrition, clean water, improved sanitation, and basic health services such as primary care and immunizations are critical in many low-income countries with financing and fiscal space constraints.
- Equitable Access to Opportunities:
  - Societies are more resilient if individuals have similar access to opportunities irrespective of birth conditions; lower scarring after adversity reduces inequality and supports social and macroeconomic stability.
  - Public investment in basic services such as education can build opportunities for disadvantaged individuals; additional resources are needed for students—especially those from lower-income families—who missed out on schooling during the pandemic.
  - In countries with more developed tax systems, child tax credits to lower-income households can boost children’s school attendance, performance, and future earnings.
  - Policies to help workers adjust to economic transformation include active labor market policies—vocational training, job search assistance, hiring subsidies—and support for entrepreneurship or independent workers; making childcare more affordable and narrowing gender gaps in work can help women realize full economic potential.
- Adaptation to Climate Change and Resilience to Natural Disasters:
  - Climate change raises frequency and severity of extreme weather and natural disasters, causing major fiscal costs and irreversible economic losses.
  - Adaptation strategies should be built on three pillars:
    1. Investment in physical and information infrastructure, including regulations (hard measures such as upgrading infrastructure resilience and soft measures such as early warning systems and low-emission building codes and zoning rules).
    2. Strengthening financial resilience by (1) building fiscal buffers to self-insure, (2) transferring risk through private sector insurance or regional mechanisms, (3) arranging credit lines or other contingent financing, or (4) accessing concessional financing and humanitarian assistance when risk transfer is not cost-effective.
    3. Ensuring prompt response and recovery through contingency planning and related investments; social protection systems, including primary care networks, can be scaled up speedily for humanitarian needs.

### Designing Government Support to Firms during a Crisis
- Public support for firms should generally be reserved for exceptional adverse shocks; such support entails sizable risks and difficult trade-offs.
- Design considerations:
  - Policy priorities and sequencing: At crisis onset, a swift broad-based response can buy time; as recovery proceeds, shift toward more targeted measures to contain fiscal cost and avoid supporting nonviable firms.
  - Assessing firms’ viability and targeting support: Support should be directed to viable firms facing temporary difficulties; governments often lack capacity to assess viability, so involving private financial institutions or development banks as intermediaries can help.
  - To better target credit programs as recovery takes hold, apply stricter credit underwriting standards, focus on addressing effects of negative externalities on loan portfolios, and encourage differentiated credit spreads among supported firms.
  - Choice of fiscal instruments depends on policy space and administrative capacity:
    - Large strategic viable firms: support tends to be arranged on an individual, ad hoc basis; may include direct solvency support and incentives for private participation (for example, debt-to-equity conversion).
    - Micro, small, and medium-sized enterprises: governments generally lack capacity to assess every firm; temporary standardized support by sector or extent of losses may allow differentiation but full tailoring is impractical; large informality makes reaching firms challenging—support can be provided through social protection to limit household income losses.
- Exit strategy:
  - Government support should include an exit strategy to avoid prolonged fiscal cost and delayed resource reallocation.
  - Exit can be contingent on observable indicators rather than preannounced timetables; gradual withdrawal could narrow new loans, reduce benefit generosity, and increase private risk exposure; raising guarantee fees or reducing guarantee ratios can facilitate exit from credit guarantee programs.
- Managing fiscal risks:
  - Many financing support measures are outside traditional budgets; strengthen reporting of contingent liabilities and fiscal risks and quantify such risks.
  - Robust oversight, sound legal frameworks, good governance, and transparency about benefits and costs of support to firms are crucial.
  - Preparing a framework in advance for financing measures is important.
- Supporting institutions:
  - Support to firms can involve easing bank capital and provisioning requirements and strengthening insolvency frameworks, including out-of-court restructurings and bolstering insolvency regimes.
  - Strong social protection systems are an important backstop for microenterprises and informal firms because targeted support to these firms is often not practical.

### Figure and Survey Notes (as presented in source)
- Figure 1.1.1: "Children Missing Out on Non–COVID-19 Immunization" — 25 million children missed regular immunizations in 2021, nearly 6 million more than in 2019.
- Figure 1.2.1: "Firms Receiving Public Support" — the source lists group-average numbers and notes: "The numbers are group averages based on the latest wave of the survey for 2021. The survey months varied across countries from January to October." The following numeric sequence appears in the figure area as presented in the source:
  - 30
  - 67
  - 42
  - 66
  - 48
  - 58
  - 52
  - 53

*Source: IMF staff compilation from the chapter titled “CHAPTER 1 HeLpINg peOpLe BOuNCe BACk.”*

### Box 1.2 (continued)

### Box 1.2 (continued)

### Scope of the references list
- Contains bibliographic entries cited in Chapter 1, covering academic articles, IMF working papers and notes, World Bank reports, policy papers, books, and discussion papers.
- Sources span publication years from 2001 through 2022 and include forthcoming works noted as "Forthcoming."
- Institutional authors and publishers include: International Monetary Fund (IMF), World Bank, National Bureau of Economic Research (NBER), OECD, IPCC, Brookings Institution, European Commission, Deutsche Bundesbank, and others.

### Major topical areas represented
- COVID-19 policy responses and long-term risks (examples: Agarwal et al. 2022; Ahuja et al. 2021; Battersby et al. 2022).
- Fiscal policy design, automatic stabilizers, and fiscal multipliers (examples: Blanchard and Summers 2020; Auerbach et al. 2022; McKay and Reis 2016, 2021).
- Social protection, income stabilization, and safety nets (examples: Grosh et al. 2008; Lam and Solovyeva Forthcoming; Hanna and Olken 2018).
- Support to firms, solvency and restructuring, and public guarantees (examples: Balibek et al. 2020; Diez et al. 2021; Ebeke et al. 2021; World Bank 2021).
- Household finance, consumption responses, and inequality during the pandemic (examples: Barnes et al. 2022; Chetty et al. 2020; Meyer et al. 2022).
- Health, long-term labor market effects, and human capital impacts of health shocks (examples: Almond 2006; Black et al. 2007; Weil 2014).
- Climate change adaptation and fiscal mainstreaming (examples: Bellon and Massetti 2022; IPCC 2022; Global Commission on Adaptation 2019).
- Methodological and assessment tools relevant to public investment and public finance (examples: IMF 2022b PIMA Handbook; Schwartz et al. 2020).

### Representative cited works and exact bibliographic details (selected)
- Agarwal, Ruchir, Jeremy Farrar, Gita Gopinath, Richard Hatchett, and Peter Sands. 2022. “A Global Strategy to Manage the Long-Term Risks of COVID-19.” IMF Working Paper 2022/68, International Monetary Fund, Washington, DC.
- Ahuja, Amrita, Susan Athey, Arthur Baker, Eric Budish, Juan Camilo Castillo, Rachel Glennerster, Scott Duke Kominers, Michael Kremer, Jean Lee, Canice Prendergast, Christopher M. Snyder, Alex Tabarrok, Brandon Joel Tan, and Witold Więcek. 2021. “Preparing for a Pandemic: Accelerating Vaccine Availability.” AEA Papers and Proceedings 111: 331–35.
- Auerbach, Alan, Yuriy Gorodnichenko, Peter McCrory, and Daniel Murphy. 2022. “Fiscal Multipliers in the COVID-19 Recession.” Journal of International Monetary and Finance 126 (102669).
- Blanchard, Olivier J., and Lawrence H. Summers. 2020. “Automatic Stabilizers in a Low-Rate Environment.” AEA Papers and Proceedings 110: 125–30.
- Grosh, Margaret, 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.
- IPCC. 2022. “Climate Change 2022: Impacts, Adaptation, and Vulnerability.” Working Group II Contribution to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change, Geneva, Switzerland.
- IMF. 2022b. PIMA Handbook Public Investment Management Assessment (1st ed.). Washington, DC: IMF.
- Meyer, Bruce D., Connacher Murphy, and James X. Sullivan. 2022. “Changes in the Distribution of Economic Well-Being during the COVID-19 Pandemic: Evidence from Nationally Representative Consumption Data.” NBER Working Paper 29878, National Bureau of Economic Research, Cambridge, MA.
- World Bank. 2022. Poverty and Shared Prosperity 2022: Toward Inclusive Recovery. Washington, DC: World Bank.

### Thematic overlaps and cross-cutting emphases
- Strong emphasis on evaluation of pandemic-era fiscal supports (income support, business support, public guarantees) and their distributional effects.
- Repeated focus on automatic stabilizers and optimal fiscal policy design in the context of low interest rates and pandemic recessions.
- Intersections between health shocks, labor market outcomes, and long-term human capital implications.
- Attention to climate resilience and mainstreaming adaptation within fiscal frameworks.

*Source: Box 1.2 (continued), CHAPTER 1, Fiscal Monitor: Helping People Bounce Back, October 2022.*

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