IMF raising global economic growth outlook for 2021
The economic growth from controlling the global pandemic in all countries via vaccination would generate more than US$1 trillion in additional tax revenue in advanced economies by 2025, underlining the benefit of investing in shots, according to the International Monetary Fund.
Nations should continue to spend to support health-care systems and households until COVID-19 spread is curbed globally and the economic recovery strengthens, the IMF said in its Fiscal Monitor report released on Wednesday.
Vaccination will “more than pay for itself, providing excellent value for public money invested in ramping up global vaccine production and distribution,” the IMF said.
Spurred by spending to combat the virus and buffer economies, average public debt globally reached a record 97 per cent of gross domestic product in 2020, 13 percentage points higher than predicted before the pandemic. Debt to GDP is projected to stabilize at around 99 per cent this year, the IMF said. Over the medium term, those ratios in most countries are projected to stabilize or decline as growth rebounds.
Countries have announced US$16 trillion in fiscal actions in the past year, the fund said. The average fiscal deficit in advanced economies surged fourfold to 11.7 per cent in 2020 from 2.9 per cent of GDP in 2019. In emerging markets, it doubled to 9.8 per cent of GDP from 4.7 per cent. Low-income developing countries saw deficits grow to 5.5 per cent of GDP on average from 3.9 per cent.
Policy makers will need to balance the risks from large and growing public and private debt against prematurely withdrawing fiscal support in a way that slows the recovery. To help meet pandemic financing needs, the IMF suggested that policy makers could consider temporary taxes on high incomes or wealth.
While advanced and many emerging markets have seen lower average interest payments, low-income countries face financing challenges given limited market access and little scope to raise revenue, the IMF said. Those nations need help through grants, concessional financing and in some cases debt restructuring.
Uncertainty on fiscal outlooks is unusually high, with faster-than-expected vaccinations holding the potential to hasten the end of the pandemic, boost revenue collection and reduce the need for fiscal support. On the other hand, a deeper economic downturn or an abrupt tightening in financial conditions could hold back the recovery.
Last week the IMF warned that the pandemic may leave deep scars, with the world economy in 2024 about 3 per cent smaller than anticipated before the COVID-19 outbreak.