The International Monetary Fund has said member states should spend whatever it takes to fight the Covid-19 pandemic and ignore the major damage that support packages will cause to already-fragile public finances.
But the Washington-based fund urged governments to keep close track of what they were spending and to make sure that multitrillion-dollar spending commitments did not cause permanent damage.
Kristalina Georgieva, the fund’s managing director, said it was right that the organisation’s 189 members were boosting spending on health and protecting livelihoods but warned that the $8tn (£6.4tn) already mobilised should be accounted for properly.
“Spend what you can but keep the receipts,” Georgieva said, in a clear warning to countries that there was a risk that a chunk of the $8tn already committed would vanish as a result of corruption. “We don’t want accountability and transparency to take a back seat.”
The IMF used its half-yearly fiscal monitor to stress that the economic and financial costs of the pandemic would “cause a major increase in fiscal deficits and public debt ratios”.
Georgieva said that “exceptional times call for exceptional measures”, noting that more than 100 countries had sought her organisation’s help in recent weeks.
With the IMF expecting the global economy to contract by 3% this year – a postwar record – the fiscal monitor said public finances were set to deteriorate in almost all countries.
It said particularly big increases in budget deficits – the gap between what states secure in tax revenue and what they spend – would be evident in parts of the world badly affected so far by Covid-19: China and other Asian countries, the US and some European nations.
The US budget deficit is projected to more than triple from 3% of gross domestic product in 2019 to 10.7% this year, while China’s deficit is estimated to almost double from 6.4% to 11.2% of GDP. The IMF thinks the UK’s deficit will rise from 2.1% of GDP to 8.3%, the same as in Spain but slightly lower than Italy’s 9.5% of GDP shortfall.
The fiscal monitor also said there was likely to be a sharp increase in national debt ratios for governments as a result of the hefty budget deficits they would run in order to cope with the twin health and economic emergency. “Although a sizeable increase in deficits this year is necessary and appropriate for many countries, the starting position in some cases presents vulnerabilities (global public debt was 83% of GDP in 2019).”
Global debt is expected to rise from 83.3% to 96.4% of global GDP, with only Germany (68.7%) and the UK (95.7%) of the G7 group of major industrialised nations having ratios below the world average. The US national debt is projected to rise from 109% to 131% of GDP; Italy’s from 134.8% to 155.5%.
While the budgetary position is predicted to deteriorate sharply in developed countries, the IMF said the situation was more concerning for emerging market and developing economies because they faced multiple shocks that include the pandemic, an abrupt worsening in financing conditions, weak external demand and, for commodity exporters, lower commodity prices.
“Even after the global community’s efforts to alleviate such financing constraints, these countries will need to reprioritise expenditure toward the health sector while safeguarding key public services (transport, energy, communications) and social protection.”
Georgieva said the IMF was responding to the pleas for help from more than half its membership. “We have just doubled access to our emergency facilities, which will allow us to meet the expected demand of about $100bn in financing. Lending programmes have already been approved at record speed for over 20 countries, with many more to come.”
The G20 group of developed and developing nations threw a six-month lifeline to more than 70 of the world’s poorest nations on Wednesday by agreeing to suspend sovereign debt payments until the end of the year, and urged private creditors to join the initiative on a voluntary basis.
