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The increase in the indebtedness of governments around the world as a result of the coronavirus pandemic will be “massive,” the IMF said on Wednesday, forecasting that the population blockade and economic contractions would drive budget deficits to levels well above those maximum levels during the financial crisis.
Globally, net public debt will rise from 69.4 percent of national income last year to 85.3 percent in 2020, the IMF said, expressing concern about the willingness of the private sector to finance governments with records to tables to pay your loans.
In its first attempt to quantify the magnitude of the damage caused to public finances by the coronavirus, the fund provisionally forecast that global public deficits will rise by 6.2 percentage points this year to reach 9.9 percent of national income, higher levels than seen in 2008-9.
Despite these concerns, the IMF supported increasing public debt in the short term, saying it was necessary to combat the spread of the virus.
“The government’s responses must be swift, concerted and proportional to the severity of the health crisis, with fiscal tools that play a key role,” he said in his annual fiscal monitor. “The human cost of the pandemic has escalated at an alarming rate, and the impact on production and public finances is projected to be massive.”
For countries with good access to lenders, the fund recommended that they should initially borrow to finance their health sectors and protect their businesses and households from falling earnings and income. Once the blockades were lifted, more loans would be needed to “facilitate recovery,” the IMF warned.
“As the virus is contained and people return to work, a broad-based fiscal stimulus becomes more effective,” said the IMF.
But in the long term, the fund warned that governments would need to implement higher taxes and curb public spending. “Once the economies recover, progress will need to be made to ensure debt sustainability,” said the IMF.
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The fund predicts that deficits will increase significantly worldwide. In the USA In the U.S., the public sector deficit will increase from 5.8 percent of national income in 2019 to 15.4 percent this year, and net public debt will increase from 84 percent of national income to 107 percent, he projected.
Deficits are likely to rise to 10 percent of gross domestic product in the eurozone, and net debt-to-GDP ratios will skyrocket in all countries, the fund said, and that could widen the big differences between the budgetary positions of Eurozone countries that have caused so much political tension in the bloc in the past.
Germany’s net debt is expected to rise 7.9 percentage points to the relatively low level of 49.2 percent of GDP, but in Italy net debt will increase 19.6 percentage points to 142.7 percent of GDP, the fund said, reflecting the the country’s deepest recession and further loss of tax revenue.
The IMF noted that many European countries had not loosened their budgets as much as the US. Although they benefited from broader automatic measures to increase spending in a recession, such as subsidies for unlicensed workers.
Public debt interest rates are at historically low levels in the main advanced economies, backed by central bank purchases of significant amounts of bonds in an attempt to maintain favorable financial conditions.
Emerging economies face a higher cost of servicing their debt, although they generally have much lower levels of indebtedness relative to the size of their economies, and any increase in borrowing costs could fuel capital flight, one perspective “worrying,” the fund warned. There is a high risk of “an abrupt worsening in financing conditions,” he said.
Countries in this position should do what they can to prioritize health spending while seeking to safeguard other services, the IMF recommended.
In low-income developing countries, the average interest bill on public debt stood at 20 percent of tax revenue in 2019. The IMF expects it to rise to more than 30 percent of revenue this year, which This highlights the financial constraint that many governments face. .
