The contraction in the global economy is much worse than the 2008-09 financial crisis, a top IMF official said on Wednesday, urging the governments to take swift concerted action with fiscal tools taking a prime role to contain the COVID-19 spread and limit the damage to livelihoods.
Speaking to PTI ahead of the annual spring meeting of the IMF and the World Bank here, Vitor Gaspar, Director of Fiscal Affairs Department, International Monetary Fund, said the COVID-19 pandemic was hitting economies through multiple channels.
"The pandemic outbreak is causing supply disruptions and the social distancing efforts necessary to contain the spread of the virus have imposed a large burden on workers and their families," he said.
"The expected speed and depth of the contraction in the global economy is unprecedented, much worse than during the 200809 financial crisis. As such, there is no doubt that the government needs to take swift concerted action with fiscal tools taking a prime role to contain the virus' spread and limit the damage to livelihoods of people," Gasper said.
The governments can offer emergency lifelines to save lives by preventing, controlling, treating and containing the virus help families by protecting jobs and income, and support firms especially to avoid bankruptcies.
Countries are already taking significant fiscal measures amounting to about USD 8 trillion globally. Moving forward, governments can play a role to enable a recovery once the pandemic is contained, he said.
Noting that the coronavirus is having a profound impact around the globe, he said the human cost of the pandemic has intensified at an alarming rate, with confirmed cases in almost every part of the world.
It is affecting the productive capacity of countries as the containment measures implies less people working and disruptions to supply chains.
It is affecting demand, as fewer jobs and less income means less spending locally and globally.
Countries are also affected by the tightening of global financial conditions and some are hit by capital outflows. Finally, the large fall in commodity prices is hurting commodity (especially oil) exporters. What started as a health crisis is now a major global economic crisis, he said.
When asked what steps needed to be taken, Gasper said the first priorities are containment measures and support for health systems should continue.
Defeating the virus and defending people's health are necessary.This requires fully accommodating additional spending on health and emergency services. Global coordination is necessary to support countries with limited health capacity, including by providing medical supplies and expertise, grants, and concessional emergency financing, and to develop universally low-cost vaccines and medicine, he said.
"Meanwhile, large, timely, temporary, and targeted fiscal measures are needed to protect the most-affected people and viable firms, including in hard-to-reach informal sectors. Such support can provide cushion to output and essential consumption because it alleviates income drops for people with limited savings and reduces the likelihood of bankruptcies," he said.
As the virus is contained and people return to work, broad-based fiscal measures become more effective. Depending on access to markets and the availability of fiscal space, such broad-based fiscal stimulus could facilitate the recovery.
Monetary accommodation and liquidity facilities will also play an important role in reducing stress in financial systems. Central banks' liquidity support to the private sector, including loan and guarantees, should be transparently managed to mitigate potential risks, Gasper said.
"Our key message for policymakers is to do whatever it takes to save lives and livelihoods, but make sure to keep the receipts," he said.
In the near term, the priority for all countries is to accommodate health sector spending needs. They should also provide emergency lifelines to support families and firms affected by the crisis. But these measures can have sizable and long-lasting effects on government budgets and debts, he said.
There are three guiding principles countries should follow. First, target support to households to ensure access to basic goods and services and to a decent standard of living. To avoid permanent scarring, target support to viable businesses to limit layoffs and bankruptcies, he said.
Second, resources should be deployed in a temporary and efficient way and reflect the costs in multi-year fiscal reports. It is critical to ensure good governance in the use of resources. That should include accurate accounting; frequent, timely and complete disclosure of information; and the adoption of procedures to allow for ex-post evaluation and accountability.
Third assess, monitor, and disclose the fiscal risks of all the measures and programs. For example, government guarantees extended on loans to firms may have no upfront impact on the deficit or public debt, but the costs will eventually fall on the government if businesses fail to repay the loans, the IMF official said.
"Another key message is that this is a global crisis and comprehensive and coordinated action is necessary, including to support countries with limited health capacity and financing constraints through grants, concessional loans, and medical aid, as well as to develop a universally low-cost vaccine," he said.
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