Government Support Is Vital as Countries Race to Vaccinate

IMF Blog, January 28, 2021

Source details

The COVID-19 pandemic is accelerating in many countries and uncertainty is unusually high.
Decisive government actions are necessary to ensure swift and extensive vaccine rollouts, protect the most vulnerable households and otherwise viable firms, and foster a durable and inclusive recovery.
The January 2021 Fiscal Monitor Update provides an overview of countries' support to people and firms during the latest resurgence in the pandemic and outlines what more governments can do to achieve a greener, fairer, and more durable recovery.

Global fiscal support reached nearly $14 trillion as of end-December 2020, up by about $2.2 trillion since October 2020.
Composition of support:
- $7.8 trillion in additional spending or (to a lesser extent) measures to forgo revenues.
- $6 trillion in guarantees, loans, and equity injections.
Variations across country groups:
- Advanced economies: fiscal actions cover several years (exceeding 4 percent of GDP in 2021 and beyond).
- Emerging markets and developing countries: support was frontloaded, with a large share of measures expiring.
- Low-income countries: fiscal policy response has been more limited owing to financing constraints and less developed welfare programs.
Debt impact:
- Average public debt worldwide approached 98 percent of GDP at end-2020, compared with 84 percent projected pre-pandemic for the same date.
Distributional and welfare risks:
- The pandemic risks leaving a lasting impact, including higher poverty and malnutrition, particularly in low-income countries.

Fiscal support needs to be available until the recovery is well under way.
Given unusually high uncertainty, policies should respond flexibly to changing economic and pandemic conditions, as needed and appropriately differentiated.
Most countries will need to do more with less, considering increasingly tight budget constraints.
Focus must be on the hardest-hit and most vulnerable, including the poor, women, informal workers, and firms that are likely to remain viable after the crisis or are systemically important.
Many low-income countries will face challenges even after doing their part and will need additional assistance.

Global cooperation on producing and widely distributing treatments and vaccines to all countries at low cost is crucial; vaccination is framed as a global public good that saves lives and will eventually save taxpayers’ money in all countries.
Assistance for low-income countries should include:
- Grants.
- Concessional financing.
- Extension of the Debt Service Suspension Initiative.
- In some cases, debt restructuring.
Quick operationalization of the Common Framework for Debt Treatments and expansion of the eligibility of debtor countries will be essential.

Invest in health systems (including vaccinations), education, and infrastructure.
- A coordinated green public investment push by economies with fiscal space can foster global growth.
- Projects—ideally with private sector participation—should aim at mitigating climate change and facilitating digitalization.
Help people return to work and transition between jobs through hiring subsidies, enhanced training, and job search programs.
Strengthen social protection systems to counter inequality and poverty.
Rethink tax systems to promote greater fairness and provide incentives to protect the environment.
Cut wasteful spending, strengthen the transparency of spending initiatives, and improve governance practices to maximize the benefits of fiscal support.
Develop credible multiyear frameworks for revenue and spending (including how to strengthen fiscal positions over the medium term), especially where debt is high and financing is tight.

Governments need to:
- Win the vaccination race.
- Respond flexibly to changing economic conditions.
- Set the stage for a greener, fairer, and more durable recovery.

Vitor Gaspar, Raphael Lam, Paolo Mauro, Mehdi Raissi; January 28, 2021

Extraordinary G20 Finance Ministers and Central Bank Governors’ Meeting — Statement
- Extraordinary G20 Finance Ministers and Central Bank Governors’ Meeting — Statement (Markdown version)
- Extraordinary G20 Finance Ministers and Central Bank Governors’ Meeting — Statement (PDF)