The Crisis is Not Over, Keep Spending (Wisely)

IMF Blog, November 2, 2020

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The pandemic-induced economic crisis is set to leave deep scars: human capital erosion from prolonged high unemployment and school closures, value destruction from bankruptcies, and constraints on future fiscal policy from elevated public debt.
Groups that were already poor and vulnerable are set to see the largest setbacks.
The G20 has provided around US$11 trillion in necessary support to individuals, businesses, and the healthcare sector since the start of the pandemic.
Much fiscal support is gradually winding down; many benefits such as cash transfers to households, deferred tax payments, or temporary loans to businesses have expired or are set to expire by the end of this year.
Fiscal deficits in almost all G20 economies are projected to shrink next year, based on announced budgets and current policies.
In economies where deficits widened sharply this year, fiscal balances are now expected to narrow by more than 5 percent of GDP in 2021.
While part of the fiscal improvement reflects projected stronger growth, the largest contributor is a sharp withdrawal of “discretionary” support—relief measures introduced to counter the effects of the crisis.
Employment losses remain sizable, evidenced by massive shortfalls in projected employment relative to pre-pandemic trends.

Human capital erosion from prolonged unemployment and school closures.
Value destruction from bankruptcies leading to reduced productive capacity.
Elevated public debt constraining future fiscal policy space.
Disproportionate setbacks for already poor and vulnerable groups.
Premature withdrawal of support risks further harm to livelihoods, heightened bankruptcies, and deeper long-term scars that could jeopardize the recovery.

Maintain support throughout the crisis; resist tightening fiscal policy too early where possible.
Ensure continued support for healthcare, individuals, and firms during the recovery phase.
Where spending capacity is constrained, reprioritize spending to protect the most vulnerable.
Avoid premature withdrawal of discretionary relief measures that were instrumental in stabilizing economies.

Gear policies toward the post-pandemic reality and build resilience.
Promote investment and hiring in expanding sectors to strengthen and sustain the recovery.
Provide reskilling and training opportunities for the unemployed to address labor market shifts.
Invest to promote decarbonization, which can lift employment in the near term and increase resilience over the longer term.

The road to strong, sustainable, balanced, and inclusive growth will be long and difficult.
Now is the time to spend wisely and work together to build a better future.

Oya Celasun, Margaux MacDonald, Lone Engbo Christiansen — November 2, 2020