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---

### Overview
- The Global Financial Crisis (GFC) began in 2008 and the COVID-19 pandemic began in 2020; both were associated with the largest increases in public debt ratios since World War II.
- The intervening period (the “interlude”, 2010-19) saw debt ratios broadly stable or rising, and the pandemic produced another step increase beyond GFC levels.
- The two crises differed in source (financial versus health-related), incidence across countries, and causes and duration of recessions, but both generated large unexpected increases in public debt ratios.
- G20 countries account for 68 percent of global GDP; focus years are 2009 (GFC) and 2020 (pandemic) when output losses were most pronounced.

### Methodology and Scope
- Decomposes unexpected changes in debt ratios into contributions from surprises in:
  - real growth,
  - inflation,
  - effective interest rates,
  - fiscal policy measures,
  - residual factors (stock-flow adjustments such as exchange rate depreciations and fiscal cost of bailouts).
- Compares actual outcomes with pre-crisis projections:
  - GFC: projections from WEO April 2008; actual change in debt for 2009 computed based on WEO April 2010.
  - COVID-19: projections from WEO January 2020; actual change in debt for 2020 from WEO April 2022.
- “No policy change” scenario: revenues rise in line with nominal GDP and primary expenditures rise in line with the GDP deflator (elasticity for revenues = 1; for expenditures = 0). Fiscal measures are measured as the difference between the primary surplus and the “no policy change” scenario.
- Annex I describes the analytical framework and sensitivity to elasticity assumptions.

### Key Findings (summary)
- During both crises, lower-than-expected output was the largest factor driving higher-than-expected debt ratios, with almost equal contributions via:
  - the denominator effect (smaller GDP),
  - and lower revenues (weaker primary surplus).
- Fiscal policy measures also accounted for a significant portion of the rise in debt ratios, particularly for advanced countries with ample access to market financing.
- Stock-flow adjustments played a role during both crises when support was provided to banks (GFC) and nonfinancial corporations (GFC and pandemic).
- The overall size of fiscal policy measures (recorded in the public deficit) beyond those envisaged pre-crisis was similar in the GFC and the pandemic.
  - Announced measures were larger during the pandemic, but implemented measures were about the same in the two crises.

### Debt Developments During the GFC and the COVID-19 Pandemic
- Global general government debt (ratio to GDP) movement:
  - 61 percent in 2007,
  - 75 percent in 2009,
  - 84 percent in 2019,
  - 99 percent following the onset of the COVID-19 pandemic.
- Debt rose in both advanced economies (AEs) and emerging market economies (EMEs), with different drivers:
  - AEs: rapid accumulation from 2007 to 2012, stabilization thereafter until the pandemic spike; developments occurred alongside monetary accommodation and low interest rates.
  - EMEs: debt increased less than in AEs during the GFC but continued rising through the 2010s (partly due to China’s deficit financing).
  - Low-income economies: debt also rose in the 2010s, though by less.
- Unexpected inflation in 2021-22 had a larger effect on AEs, where a larger share of debt is denominated in domestic currency.

### Drivers Behind Surprise Changes in Debt
- Surprise change in government debt is defined as the difference between actual and projected changes in the debt-to-GDP ratio for a given year or period.
- Main decomposition components: unexpected real growth, inflation, effective interest rates, fiscal policy measures, and residual (stock-flow) factors.
- The framework accounts for the full impact of economic growth through both the denominator and the primary surplus.

### Debt Surprises During the GFC and COVID-19
- At an aggregated level, unexpected growth outcomes accounted for a major part of surprise increases in debt, especially during the COVID-19 lockdowns.
- Unexpected changes in debt were larger in AEs and EMEs at the peak of COVID-19 compared to the GFC; the opposite held for low-income countries.
- Lower-than-expected output was the leading driver of debt surprises across income groups for both crises, except for low-income countries during the GFC where stock-flow adjustments dominated.
- Stock-flow adjustments include exchange rate depreciations, realized contingent liabilities, and differences between actual and projected benchmark year debt levels.
- Interest and inflation surprises contributed little to debt changes during the height of the crises.
- Country examples and magnitudes:
  - Saudi Arabia’s fiscal measures reached 20 percent of GDP (G20 context).
  - Stock-flow adjustments added 19 percentage points of GDP to Argentina’s surprise increase in debt (reflecting large foreign-currency debt and local currency depreciation).
  - Stock-flow adjustments reduced Saudi Arabia’s debt ratio by 23 percentage points of GDP (reflecting financing of measures by drawing on sovereign wealth funds).
- In 2020 (pandemic), unexpectedly weak real growth outturns boosted debt by 10 percentage points or more of GDP in Argentina, France, India, Italy, Japan, and the United Kingdom.

### Overview and headline findings (country counts, vintages, aggregates)
- Country counts used in comparisons:
  - GFC: AE=33, EM=56, LIC=24.
  - COVID-19: AE=35, EM=84, LIC=54.
- Projections and actual vintages:
  - GFC debt projections for end-2009: April 2008 WEO; actual values for 2009: April 2010 WEO.
  - COVID-19 debt projections for end-2020: January 2020 WEO; actual values for 2020: April 2022 WEO.
- Aggregate comparison:
  - In April 2010 IMF staff projected global debt-to-GDP would be 107 percent in 2019; the actual turned out at 104 percent.
  - For advanced economies, actual debt ratios in 2019 were on average 3 percentage points below projections from April 2010.

### Role of Fiscal Measures and Discretionary Policy in Debt Surprises
- Distributional patterns:
  - The distribution of the magnitude of the contribution of fiscal measures to debt surprises was broadly similar within income groups following the GFC and COVID-19, but median contributions differed across income groups.
  - The median contribution for advanced and emerging market economies was significantly higher during both crises relative to low-income countries.
  - The medians for LIC of both crises are close zero; the fatter right tail of the GFC distribution is mainly driven by Guinea (36.8 percent) and Nigeria (17.5 percent).
- Announcements versus implementation (G-7 focus):
  - Announced budget measures at the onset of the COVID-19 pandemic by G-7 countries were significantly larger relative to GDP than those announced when the GFC began.
  - United States example:
    - Announced measures following the start of the GFC (late 2008): about 5 percent of GDP.
    - Announced measures following the COVID-19 pandemic (early 2020): close to 20 percent of GDP.
  - Estimated contribution of measures to surprise changes in debt:
    - Two years after the GFC started (2009-10): 16 percent of GDP.
    - Two years after COVID-19 lockdowns commenced (2020-21): 14 percent of GDP.
  - Two factors for the pandemic episode:
    - (i) implementation was lower than the announcement; the budget impact as a ratio of the announcement is 0.77, which applied to the announcement would imply an estimated impact of 15.5 percent of GDP for two years.
    - (ii) Federal government support sent to sub-national governments was saved.
  - Central government deficit estimates:
    - Estimated measure of the central government deficit for 2020 is 10.2 percent of GDP, larger than 8.2 percent of GDP in 2009.
- Robustness and contingent liabilities:
  - Robustness checks using structural primary balance and WEO-reported primary balance give similar results: policy measures are similar during the two crises.
  - Perception of more generous fiscal support during COVID-19 may be partly due to announcement of large contingent liability support (guarantees) in some countries.

### Interlude (2010–19) — findings and normative scenario
- IMF staff normative scenario (2010):
  - Envisaged returning debt ratios to 60 percent (the median across advanced economies in 2007) by 2030.
  - Required improving the cyclically adjusted primary balance from a deficit of 3½ percent of GDP in 2010 to a surplus of 4½ percent of GDP in 2020 — an 8-percentage point adjustment — and keeping it at that level for the subsequent 10 years.
- Actual policy versus recommendation:
  - Fiscal policy in advanced economies, as a group, fell well short of the recommended consolidation.
  - Relative to recommendations, the weighted average of fiscal adjustment was about 5 percent of GDP less contractionary.
- Drivers of debt surprises (advanced economies, 2010–19):
  - Largest single favorable contributor: lower-than-anticipated effective interest rates — cumulative impact over 2011-19 shaved off 13 percentage points of GDP from end-2019 debt.
    - Actual effective interest rate trended from 2.5 percent in 2011 to 2 percent in 2019, compared with a projected rise to 3.9 percent by 2019.
  - Adverse contributors:
    - Lower-than-projected real growth: cumulative contribution to 2019 debt ratio of 5 percent of GDP.
    - Lower-than-projected inflation: 3 percent of GDP.
    - Larger-than-projected fiscal expansion: 1 percent of GDP.
- Country examples:
  - Germany, Japan, Spain, United States: actual debt-to-GDP in 2019 turned out lower than projected; unexpectedly low effective interest rates were important across these countries.
  - France, Greece, Italy, United Kingdom: actual debt-to-GDP in 2019 exceeded projections.
    - Greece: negative growth surprises added about 55 percentage points to the debt-to-GDP ratio, more than offsetting sizable tightening measures.
    - In Italy and Greece, debt rose despite fiscal consolidations.

### Policy Discussions and Implications
- Rationale for reducing debt when conditions allow:
  - Reducing debt and unnecessary fiscal risks gives governments greater scope to act in future shocks.
  - The case for fiscal restraint is even stronger when inflation is above target.
- Challenges post-COVID-19:
  - Containing or reducing debt after the COVID-19 spike could be hard given tightening global financial conditions as central banks unwind quantitative easing and raise interest rates.
  - Reliance on below-the-line and contingent measures (guarantees) during COVID-19 could add to future government debt burdens.
- How to reduce debt:
  - Reducing debt is not simply fiscal consolidation on autopilot; growth, inflation, interest rate developments, and stock-flow adjustments all influence debt dynamics and are uncertain.
  - Gradual and steady fiscal tightening, mindful of growth effects, is less disruptive than abrupt fiscal adjustment triggered by market confidence loss.
  - A consistent medium-term, post-pandemic policy framework (potentially involving a fiscal rule) is crucial to add credibility.
  - Illustration: with nominal GDP growth equal to the average real growth over the past two decades in advanced economies plus 2 percent inflation, balanced budgets would be sufficient to cut debt ratios from 100 to 65 percent in 10 years — but higher initial debt or higher interest rates increases the required primary surplus.

### Analytical Framework and Sensitivity Analysis
- Baseline decomposition model:
  - Uses extended Mauro-Zilinsky (2016) framework to disentangle contributions of real growth (g), GDP deflator inflation (π), effective nominal interest rate (i), primary balance (p), and stock-flow adjustments (f) to unexpected changes in debt (debt surprises).
  - Projection versus actual are denoted with superscript * for projected values; debt surprise is d_{t+1} − d^*_{t+1}.
  - The model incorporates the impact of real growth on the primary surplus as a share of GDP, producing larger estimated growth contributions than the traditional approach.
  - For advanced economies, the extended approach shows the cumulative growth impact is almost double that of the traditional approach.
- Elasticity assumptions and sensitivity:
  - Baseline elasticities:
    - Revenue elasticity 훿τ = 1.
    - Expenditure elasticity 훿e = 0.
  - Alternative elasticities considered:
    - 훿τ = 1.05 and 훿e = −0.14 (OECD, 2015 estimate).
    - 훿τ = 1.12 (VAT revenue elasticity to output gap for advanced economies).
  - Sensitivity test uses largest absolute magnitudes: 훿τ = 1.12 and 훿e = −0.14.
    - These amplify the impact of automatic stabilizers on the primary balance relative to baseline, reducing the estimated discretionary measures.
    - Overall amplification of growth impact on debt surprises is generally less than one percentage point.
- Decomposition of primary balance surprises:
  - The model decomposes (p_{t+1} − p^*_{t+1}) into terms reflecting automatic stabilizers and policy measures, with formulae that explicitly incorporate revenue and expenditure elasticities, growth, and projected values.

### Annex II — Robustness Check of the Magnitude of the Crisis Fiscal Policy Measures
- Comparison of fiscal responses across crises:
  - The magnitude of fiscal measures undertaken in response to the GFC was broadly similar to the magnitude of measures undertaken in response to the COVID-19 pandemic based on the paper’s framework.
  - Framework-derived fiscal policy responses were calculated as the difference between projected and actual WEO Structural Primary Balances.
- Alternative check using WEO Primary Balances:
  - The comparison broadly holds when fiscal policy measures are calculated as the difference between projected and actual WEO Primary Balances.
  - Notes:
    - For the GFC, the structural primary balance is equal to the structural balance plus interest expenses for GFC as no structural primary balance were reported in the WEOs for 2008 and 2010.
    - The measures are calculated as the difference between actual and projected primary balance.
- Perceptions of larger COVID-19 fiscal response and contingent liabilities:
  - One possible factor behind perceptions of a larger fiscal response to the COVID-19 lockdown than to the GFC is substantial contingent support offered in the form of guarantees to business following the onset of COVID-19 lockdowns, particularly by some G7 countries.
  - These contingent liabilities (guarantees and quasi-fiscal operations) are not reflected in budget balances unless the borrower fails to repay the loans.
  - Figure A2.3 summarizes announced fiscal measures in response to the COVID-19 pandemic expressed as Percent of 2020 GDP; measures are for multiple years and below-the-line items include equity injections, loans, asset purchase or debt assumptions. Source dataset: COVID-19 Fiscal Response Database, IMF.
- Country-specific observation (United Kingdom):
  - Actual structural primary balance for 2020 reported in the WEO April 2022 is a positive 1.48 percent of GDP while the projected one reported in WEO 2020 is -0.48 percent of GDP. That is, fiscal policy was tighter than projected.
- Data sources and vintages used in robustness checks:
  - IMF WEO April 2008, WEO April 2010, and IMF staff estimates (GFC figures).
  - IMF WEO Jan 2020, WEO April 2022 and IMF staff estimates (COVID-19 figures).

*IMF Working Papers — Fiscal Anatomy of Two Crises and an Interlude (Introduction).*

### Introduction ...........................................................................................................

### Introduction

### Overview
- The Global Financial Crisis (GFC) began in 2008 and the COVID-19 pandemic began in 2020; both were associated with the largest increases in public debt ratios since World War II.
- The intervening period (the “interlude”, 2010-19) saw debt ratios broadly stable or rising, and the pandemic produced another step increase beyond GFC levels.
- The two crises differed in source (financial versus health-related), incidence across countries, and causes and duration of recessions, but both generated large unexpected increases in public debt ratios.

### Methodology and Scope
- The paper decomposes unexpected changes in debt ratios into contributions from surprises in real growth, inflation, effective interest rates, fiscal policy measures, and residual factors (stock-flow adjustments such as exchange rate depreciations and fiscal cost of bailouts).
- The analysis compares actual outcomes (as measured today) with pre-crisis projections:
  - For the GFC: projections from WEO April 2008; actual change in debt for 2009 computed based on WEO April 2010.
  - For the COVID-19 pandemic: projections from WEO January 2020; actual change in debt for 2020 from WEO April 2022.
- G20 countries account for 68 percent of global GDP; focus years are 2009 (GFC) and 2020 (pandemic) when output losses were most pronounced.
- “No policy change” scenario: revenues rise in line with nominal GDP and primary expenditures rise in line with the GDP deflator (elasticity for revenues = 1; for expenditures = 0). Fiscal measures are measured as the difference between the primary surplus and the “no policy change” scenario.
- Annex I describes the analytical framework and sensitivity to elasticity assumptions.

### Key Findings (summary)
- During both crises, lower-than-expected output was the largest factor driving higher-than-expected debt ratios, with almost equal contributions via:
  - the denominator effect (smaller GDP),
  - and lower revenues (weaker primary surplus).
- Fiscal policy measures also accounted for a significant portion of the rise in debt ratios, particularly for advanced countries with ample access to market financing.
- Stock-flow adjustments played a role during both crises when support was provided to banks (GFC) and nonfinancial corporations (GFC and pandemic).
- The overall size of fiscal policy measures (recorded in the public deficit) beyond those envisaged pre-crisis was similar in the GFC and the pandemic.
  - Announced measures were larger during the pandemic, but implemented measures were about the same in the two crises.

### Debt Developments During the GFC and the COVID-19 Pandemic
- Global general government debt (ratio to GDP) movement:
  - 61 percent in 2007,
  - 75 percent in 2009,
  - 84 percent in 2019,
  - 99 percent following the onset of the COVID-19 pandemic.
- Debt rose in both advanced economies (AEs) and emerging market economies (EMEs), with different drivers:
  - AEs: rapid accumulation from 2007 to 2012, stabilization thereafter until the pandemic spike; developments occurred alongside monetary accommodation and low interest rates.
  - EMEs: debt increased less than in AEs during the GFC but continued rising through the 2010s (partly due to China’s deficit financing).
  - Low-income economies: debt also rose in the 2010s, though by less.
- Unexpected inflation in 2021-22 had a larger effect on AEs, where a larger share of debt is denominated in domestic currency.

### Drivers Behind Surprise Changes in Debt
- Surprise change in government debt is defined as the difference between actual and projected changes in the debt-to-GDP ratio for a given year or period.
- Main decomposition components: unexpected real growth, inflation, effective interest rates, fiscal policy measures, and residual (stock-flow) factors.
- The framework accounts for the full impact of economic growth through both the denominator and the primary surplus.

### Debt Surprises During the GFC and COVID-19
- At an aggregated level, unexpected growth outcomes accounted for a major part of surprise increases in debt, especially during the COVID-19 lockdowns.
- Unexpected changes in debt were larger in AEs and EMEs at the peak of COVID-19 compared to the GFC; the opposite held for low-income countries.
- Lower-than-expected output was the leading driver of debt surprises across income groups for both crises, except for low-income countries during the GFC where stock-flow adjustments dominated.
- Stock-flow adjustments include exchange rate depreciations, realized contingent liabilities, and differences between actual and projected benchmark year debt levels.
- Interest and inflation surprises contributed little to debt changes during the height of the crises.
- Country examples and magnitudes:
  - Saudi Arabia’s fiscal measures reached 20 percent of GDP (G20 context).
  - Stock-flow adjustments added 19 percentage points of GDP to Argentina’s surprise increase in debt (reflecting large foreign-currency debt and local currency depreciation).
  - Stock-flow adjustments reduced Saudi Arabia’s debt ratio by 23 percentage points of GDP (reflecting financing of measures by drawing on sovereign wealth funds).
- In 2020 (pandemic), unexpectedly weak real growth outturns boosted debt by 10 percentage points or more of GDP in Argentina, France, India, Italy, Japan, and the United Kingdom.

### The Interlude (2010–19) — brief summary of findings
- Compared with projections (WEO April 2010), countries generally experienced substantially lower interest payments; economic growth turned out much worse than expected in some countries (notably those affected by the European debt crisis).
- Fiscal policy measures on average added to debt burdens, though some countries tightened to limit debt increases while others with better growth expanded somewhat.
- Compared with IMF staff’s normative policy scenario (Cottarelli and Vinals 2010) that advised ambitious fiscal tightening, such tightening largely did not materialize; instead, debt ratios generally remained stable, helped by lower interest payments.

### Policy Discussions and Implications
- A reduction in fiscal deficits is advisable both to reverse the rise in debt ratios and to help monetary authorities curb inflation in the post-lockdown context, where demand recovery has outstripped supply and contributed to rapid inflation.
- Rapid inflation post-lockdowns has reduced debt ratios somewhat in countries with non-indexed, long-maturity debt denominated in domestic currency.
- Although nominal interest rates are rising rapidly, it remains difficult to judge whether real interest rates will rise above real economic growth—a key differential for future debt dynamics.
- Real economic growth, which is difficult to predict, is likely to remain a decisive determinant of future debt ratio developments.
- Caution: attempts to boost growth solely through fiscal expansion may backfire if assumed growth effects of spending or tax cuts do not materialize, particularly when monetary policy is not accommodative.

*IMF Working Papers — Fiscal Anatomy of Two Crises and an Interlude (Introduction).*

### 2010. COVID-19 (2020) projections from WEO January 2020; actual values from

### wpiea2023117-print-pdf - 2010. COVID-19 (2020) projections from WEO January 2020; actual values from

### Overview and headline findings
- Country counts used in comparisons:
  - GFC: AE=33, EM=56, LIC=24.
  - COVID-19: AE=35, EM=84, LIC=54.
- Projections and actual vintages:
  - GFC debt projections for end-2009: April 2008 WEO; actual values for 2009: April 2010 WEO.
  - COVID-19 debt projections for end-2020: January 2020 WEO; actual values for 2020: April 2022 WEO.
- Aggregate comparison:
  - In April 2010 IMF staff projected global debt-to-GDP would be 107 percent in 2019; the actual turned out at 104 percent.
  - For advanced economies, actual debt ratios in 2019 were on average 3 percentage points below projections from April 2010.

### Role of fiscal measures and discretionary policy in debt surprises
- Distributional patterns:
  - The distribution of the magnitude of the contribution of fiscal measures to debt surprises was broadly similar within income groups following the GFC and COVID-19, but median contributions differed across income groups.
  - The median contribution for advanced and emerging market economies was significantly higher during both crises relative to low-income countries.
  - The medians for LIC of both crises are close zero; the fatter right tail of the GFC distribution is mainly driven by Guinea (36.8 percent) and Nigeria (17.5 percent).
- Announcements versus implementation (G-7 focus):
  - Announced budget measures at the onset of the COVID-19 pandemic by G-7 countries were significantly larger relative to GDP than those announced when the GFC began.
  - Example, United States:
    - Announced measures following the start of the GFC (late 2008): about 5 percent of GDP.
    - Announced measures following the COVID-19 pandemic (early 2020): close to 20 percent of GDP.
  - Estimated contribution of measures to surprise changes in debt:
    - Two years after the GFC started (2009-10): 16 percent of GDP.
    - Two years after COVID-19 lockdowns commenced (2020-21): 14 percent of GDP.
  - Two factors for the pandemic episode:
    - (i) implementation was lower than the announcement; the budget impact as a ratio of the announcement is 0.77, which applied to the announcement would imply an estimated impact of 15.5 percent of GDP for two years.
    - (ii) Federal government support sent to sub-national governments was saved.
  - Central government deficit estimates:
    - Estimated measure of the central government deficit for 2020 is 10.2 percent of GDP, larger than 8.2 percent of GDP in 2009.
- Robustness and contingent liabilities:
  - Robustness checks using structural primary balance and WEO-reported primary balance give similar results: policy measures are similar during the two crises.
  - Perception of more generous fiscal support during COVID-19 may be partly due to announcement of large contingent liability support (guarantees) in some countries.

### Interlude (2010–19): debt dynamics, normative scenario, and outcomes
- IMF staff normative scenario (2010):
  - Envisaged returning debt ratios to 60 percent (the median across advanced economies in 2007) by 2030.
  - Required improving the cyclically adjusted primary balance from a deficit of 3½ percent of GDP in 2010 to a surplus of 4½ percent of GDP in 2020 — an 8-percentage point adjustment — and keeping it at that level for the subsequent 10 years.
- Actual policy versus recommendation:
  - Fiscal policy in advanced economies, as a group, fell well short of the recommended consolidation.
  - Relative to recommendations, the weighted average of fiscal adjustment was about 5 percent of GDP less contractionary.
- Drivers of debt surprises (advanced economies, 2010–19):
  - Largest single favorable contributor: lower-than-anticipated effective interest rates — cumulative impact over 2011-19 shaved off 13 percentage points of GDP from end-2019 debt.
    - Actual effective interest rate trended from 2.5 percent in 2011 to 2 percent in 2019, compared with a projected rise to 3.9 percent by 2019.
  - Adverse contributors:
    - Lower-than-projected real growth: cumulative contribution to 2019 debt ratio of 5 percent of GDP.
    - Lower-than-projected inflation: 3 percent of GDP.
    - Larger-than-projected fiscal expansion: 1 percent of GDP.
  - Country examples:
    - Germany, Japan, Spain, United States: actual debt-to-GDP in 2019 turned out lower than projected; unexpectedly low effective interest rates were important across these countries.
    - France, Greece, Italy, United Kingdom: actual debt-to-GDP in 2019 exceeded projections.
      - Greece: negative growth surprises added about 55 percentage points to the debt-to-GDP ratio, more than offsetting sizable tightening measures.
      - In Italy and Greece, debt rose despite fiscal consolidations.

### Policy implications and recommendations
- Rationale for reducing debt when conditions allow:
  - Reducing debt and unnecessary fiscal risks gives governments greater scope to act in future shocks.
  - The case for fiscal restraint is even stronger when inflation is above target.
- Challenges post-COVID-19:
  - Containing or reducing debt after the COVID-19 spike could be hard given tightening global financial conditions as central banks unwind quantitative easing and raise interest rates.
  - Reliance on below-the-line and contingent measures (guarantees) during COVID-19 could add to future government debt burdens.
- How to reduce debt:
  - Reducing debt is not simply fiscal consolidation on autopilot; growth, inflation, interest rate developments, and stock-flow adjustments all influence debt dynamics and are uncertain.
  - Gradual and steady fiscal tightening, mindful of growth effects, is less disruptive than abrupt fiscal adjustment triggered by market confidence loss.
  - A consistent medium-term, post-pandemic policy framework (potentially involving a fiscal rule) is crucial to add credibility.
  - Illustration: with nominal GDP growth equal to the average real growth over the past two decades in advanced economies plus 2 percent inflation, balanced budgets would be sufficient to cut debt ratios from 100 to 65 percent in 10 years — but higher initial debt or higher interest rates increases the required primary surplus.

### Analytical framework and sensitivity analysis
- Baseline decomposition model:
  - Uses extended Mauro-Zilinsky (2016) framework to disentangle contributions of real growth (g), GDP deflator inflation (π), effective nominal interest rate (i), primary balance (p), and stock-flow adjustments (f) to unexpected changes in debt (debt surprises).
  - Projection versus actual are denoted with superscript * for projected values; debt surprise is d_{t+1} − d^*_{t+1}.
  - The model incorporates the impact of real growth on the primary surplus as a share of GDP, producing larger estimated growth contributions than the traditional approach.
  - For advanced economies, the extended approach shows the cumulative growth impact is almost double that of the traditional approach.
- Elasticity assumptions and sensitivity:
  - Baseline elasticities:
    - Revenue elasticity 훿τ = 1.
    - Expenditure elasticity 훿e = 0.
  - Alternative elasticities considered (OECD-based and literature estimates):
    - 훿τ = 1.05 and 훿e = −0.14 (OECD, 2015 estimate).
    - 훿τ = 1.12 (VAT revenue elasticity to output gap for advanced economies).
  - Sensitivity test uses largest absolute magnitudes: 훿τ = 1.12 and 훿e = −0.14.
    - These amplify the impact of automatic stabilizers on the primary balance relative to baseline, reducing the estimated discretionary measures.
    - Overall amplification of growth impact on debt surprises is generally less than one percentage point.
- Decomposition of primary balance surprises:
  - The model decomposes (p_{t+1} − p^*_{t+1}) into terms reflecting automatic stabilizers (shown in red in the source) and policy measures (shown in blue in the source), with formulae that explicitly incorporate revenue and expenditure elasticities, growth, and projected values.

*Source: https://www.imf.org/-/media/files/publications/wp/2023/english/wpiea2023117-print-pdf.pdf*

### Annex II.  Robustness Check of the Magnitude of

### Annex II. Robustness Check of the Magnitude of the Crisis Fiscal Policy Measures

### Comparison of fiscal responses across crises
- Based on the analytical framework applied in this paper, the magnitude of fiscal measures undertaken in response to the GFC was broadly similar to the magnitude of measures undertaken in response to the COVID-19 pandemic.
- The framework-derived fiscal policy responses were calculated as the difference between projected and actual WEO Structural Primary Balances.
- The unexpected change in the structural primary balance displays a similar pattern across the two crises to the framework-derived policy responses shown in Figure 8 in the main text.

### Alternative check using WEO Primary Balances
- The comparison broadly holds when fiscal policy measures are calculated as the difference between projected and actual WEO Primary Balances (Figure A2.2).
- Notes on calculation:
  - For the GFC, the structural primary balance is equal to the structural balance plus interest expenses for GFC as no structural primary balance were reported in the WEOs for 2008 and 2010.
  - The measures in Figure A2.2 are calculated as the difference between actual and projected primary balance.

### Perceptions of larger COVID-19 fiscal response and contingent liabilities
- One possible factor behind perceptions of a larger fiscal response to the COVID-19 lockdown than to the GFC is substantial contingent support offered in the form of guarantees to business following the onset of COVID-19 lockdowns, particularly by some G7 countries.
- These contingent liabilities (guarantees and quasi-fiscal operations) are not reflected in budget balances unless the borrower fails to repay the loans.
- Figure A2.3 summarizes announced fiscal measures in response to the COVID-19 pandemic expressed as Percent of 2020 GDP; measures are for multiple years and below-the-line items include equity injections, loans, asset purchase or debt assumptions. Source dataset: COVID-19 Fiscal Response Database, IMF.

### Country-specific observation (United Kingdom)
- For the United Kingdom, the actual structural primary balance for 2020 reported in the WEO April 2022 is a positive 1.48 percent of GDP while the projected one reported in WEO 2020 is -0.48 percent of GDP. That is, fiscal policy was tighter than projected.

### Data sources and vintages used in robustness checks
- Sources referenced for figures and calculations include:
  - IMF WEO April 2008, WEO April 2010, and IMF staff estimates (GFC figures).
  - IMF WEO Jan 2020, WEO April 2022 and IMF staff estimates (COVID-19 figures).

*Source: Annex II, "Robustness Check of the Magnitude of the Crisis Fiscal Policy Measures," IMF Working Paper.*

---


_Source: https://www.imf.org/-/media/files/publications/wp/2023/english/wpiea2023117-print-pdf.pdf_