## Fiscal Policy for an Unprecedented Crisis

_IMF Blog, October 14, 2020_

## Source details

**Canonical URL:** [Fiscal Policy for an Unprecedented Crisis](https://www.imf.org/en/blogs/articles/2020/10/14/blog-fiscal-policy-for-an-unprecedented-crisis)

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- [Markdown version](/en/blogs/articles/2020/10/14/blog-fiscal-policy-for-an-unprecedented-crisis/index.md)
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## Bibliographic details
- Authors: Vitor Gaspar, Paulo Medas, John Ralyea, Elif Ture
- Published: October 14, 2020

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### Overview
- Publication: October 14, 2020; authors: Vitor Gaspar, Paulo Medas, John Ralyea, Elif Ture.
- The COVID-19 crisis has caused severe harm to lives, jobs, and businesses.
- Governments worldwide implemented fiscal lifelines totaling $12 trillion.
- Global public debt rose to an all-time high of close to 100 percent of GDP.
- The pandemic is expected to push 80‑90 million people into extreme poverty in 2020 even after additional social assistance.
- The October 2020 Fiscal Monitor examines country experiences managing the crisis and outlines policy actions across different pandemic phases.

### Policies during the lockdown phase
- Primary goal: limit human and economic costs by protecting people and preserving jobs.
- Public health measures cited:
  - large-scale testing,
  - tracing,
  - public information campaigns.
- Income and employment support measures:
  - unemployment benefits and wage subsidies (noted as common in most European economies) helped preserve jobs or living standards,
  - cash transfers supported poor, informal workers, and self-employed who lost jobs,
  - liquidity support to firms prevented default waves and mass layoffs, particularly important for small-and medium-sized firms that represent a large share of employment.
- Responses varied by country access to borrowing and pre-crisis public and private debt levels:
  - In advanced economies and some emerging market economies, central bank purchases of government debt helped keep interest rates at historic lows and supported massive fiscal responses.
  - In many highly indebted emerging market and low-income economies, limited borrowing space hampered scaling up support, forcing these governments into tough choices.

### A fiscal roadmap for the recovery
- General guidance as economies reopen under uncertainty:
  - Avoid withdrawing exceptional fiscal support too rapidly; make support more selective.
  - Avoid impeding necessary sectoral reallocations as activity resumes.
  - Shift support gradually from protecting old jobs to getting people back to work:
    - reduce job retention programs (wage subsidies),
    - reintroduce job search requirements,
    - provide training for new skills.
  - Help viable but still-vulnerable firms safely reopen.
  - With low interest rates and high unemployment, boost public investment—starting with maintenance and ramping up projects—to create jobs and spur growth.
- For emerging market and low-income economies with tight financing:
  - Deliver more with less by reprioritizing spending and enhancing efficiency.
  - Some may need further official financial support and debt relief.
- Revenue measures:
  - Adopt measures to improve tax compliance.
  - Consider higher taxes for more affluent groups and highly profitable firms to finance critical services such as health and social safety nets.

### Medium-term adjustment and scenarios
- Once the pandemic is under control, address legacies of the crisis (large fiscal deficits and high public debt levels):
  - Countries with fiscal space and major scarring (e.g., large long-term unemployment):
    - should provide temporary fiscal stimulus while planning for an adjustment over the medium term.
  - Countries with high debt levels and less access to financing:
    - will also need to adjust over the medium term, striving to protect public investment and transfers to lower-income households.

### The post-pandemic reset
- Policy priorities moving forward:
  - Invest in healthcare systems and education.
  - Strengthen social safety nets to ensure access to food and other basic goods and services.
  - Accelerate transition to a low-carbon and digital economy; carbon pricing should be a key feature because it:
    - encourages reduced energy use and shifts to cleaner alternatives,
    - generates revenue that can partly support the most vulnerable.
- As governments ramp up public investment and fiscal measures to foster recovery, choices will have long-lasting effects:
  - Make a decisive push to make economies more inclusive and resilient.
  - Curb global warming through green measures that also boost growth and employment.

- Related IMF multimedia: IMF Podcasts · Unprecedented Fiscal Response to an Unprecedented Crisis

*Source: Fiscal Policy for an Unprecedented Crisis — October 14, 2020; Vitor Gaspar, Paulo Medas, John Ralyea, Elif Ture.*

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## References

- [October 2020 Fiscal Monitor](http://www.imf.org/fiscalmonitor)
- [boosting public investment](https://blogs.imf.org/2020/10/05/public-investment-for-the-recovery/)

_Source: https://www.imf.org/en/blogs/articles/2020/10/14/blog-fiscal-policy-for-an-unprecedented-crisis_