The International Monetary Fund (IMF), the global financial organization, warned Group of 20 (G20) major economies that the COVID-19 crisis is not over and called on the United States, Britain and other countries to raise the amount of fiscal spending currently planned.
In a recent blog post, senior IMF officials warned that early withdrawal of fiscal support at a time of continued high unemployment rates would “impose additional harm on livelihoods and increase the likelihood of widespread bankruptcies, which in turn could jeopardize recovery.”
The blog, entitled, “The Crisis Is Not Over, Keep Spending (Wisely),” said that rapid and unprecedented intervention by the G20 and emerging market economies had avoided an even deeper crisis. G20 countries alone had provided $11 trillion in COVID-19 support.
Last month, the IMF predicted a 4.4 percent global contraction in 2020 and a 5.2 percent return to growth in 2021, but cautioned that the situation remained grim and that policymakers should not withdraw stimulus prematurely.
It said that even though COVID-19 infections are continuing to spread, most of the fiscal support provided is now being winded down, with cash transfers to households, deferred tax payments and temporary business loans either expiring or set to expire by the end of the year.
Fiscal balances are projected to narrow by more than 5% of GDP in 2021 in economies where deficits fell by 10% of gross domestic product (GDP) this year, mainly because of the sharp withdrawal of relief measures, they said.
“Larger support than currently projected is desirable next year in some economies,” the IMF said in a longer report to G20 countries also published recently. It singled out Brazil, Mexico, Britain and the United States, citing large drops in employment in these economies and projected fiscal contractions.
The IMF said that countries should retain funding for the poor and disadvantaged groups hit especially hard by the crisis, as well as targeted support for the maintenance of employment relationships for viable firms. As an example, it listed India, Mexico, Russia, Saudi Arabia, Turkey and the United States.
It warned, however, against providing support to companies that have hindered the transition of resources from sectors that might permanently shrink to those sectors that will expand.
The Group of Twenty (G20) is an international forum of governments and central bank governors from 19 countries and European Union (EU). Since its formulation in 1999 the group has discussed financial and socioeconomic issues. G20 members represent 80 percent of the global economic output, two third of world’s population and three quarters of international trade.