The International Monetary Fund has predicted global public debt will rise to its highest levels in history as a result of the economic fallout from the COVID-19 pandemic.
In the face of a sharp decline in global output, a massive fiscal response has been necessary to increase health capacity, replace lost household income and prevent large-scale bankruptcies.
However, the IMF said, the policy response has also contributed to global public debt reaching its highest level in recorded history, at over 100 percent of global GDP, in excess of post-World War II peaks.
"The ongoing COVID-19 pandemic has already prompted an unprecedented fiscal policy response of close to $11 trillion worldwide," the IMF said.
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"But with confirmed cases and fatalities still rising fast, policymakers will have to keep the public health response their No. 1 priority while retaining supportive and flexible fiscal policies and preparing for transformational economic change."
The IMF's fiscal monitor database revealed the total global fiscal support so far has been split almost evenly between above-the-line - measures with a direct effect on revenue and expenditure such as deferral of taxes and cash transfers- and below-the-line support, which includes public sector loans, equity injections and government guarantees.
"The need for fiscal action does not end here, as we are not out of the woods. Even as many countries tentatively exit the Great Lockdown, in the absence of a solution to the health crisis, huge uncertainties remain about the path of the recovery," the IMF said.
"The top priority is still public health. Policies that attenuate health risks contribute substantially to the restoration of confidence and trust, thereby helping economic activity and employment and reducing strains on public finances."
The IMF stressed that timely and comprehensive data on health and socio-economic outcomes are essential to monitor outbreaks and react swiftly to them, and provide confidence to people that future waves of contagion can be handled.
It said fiscal policy will need to remain supportive and flexible until a safe and durable exit from the crisis is secured.
"While the trajectory of public debt could drift up further in an adverse scenario, an earlier-than-warranted fiscal retrenchment presents an even greater risk of derailing the recovery, with larger future fiscal costs," it said.
"Policymakers should prepare contingent plans that can be flexibly scaled to manage the health, economic and fiscal risks from recurrent outbreaks."
The fund also said the nature of this crisis is that it will be "transformational" as jobs have been destroyed that may never return.
"It will be necessary to facilitate the transfer of resources from sectors that may permanently shrink, such as air travel, to sectors that will be expanding, such as digital services," the IMF said.
"Support should move from maintaining jobs to supporting people as they retrain or relocate across sectors. It will be necessary to distinguish illiquid but solvent firms from insolvent ones.
"Many countries will also need to take swift and determined actions to improve legal mechanisms for resolving debt overhang and preventing long-run economic scarring."
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