WASHINGTON (Reuters) – The COVID-19 pandemic will continue to inflate global public debt in 2021, but spending more money to speed up vaccinations is the fastest way to start normalizing public finances, the Monetary Fund said on Wednesday international.
The IMF said in its 2021 Fiscal Monitor report that if faster global vaccinations brought the virus under control earlier, more than $ 1 trillion in additional global tax revenue could be collected through 2025 in advanced economies.
If that same upward scenario in the Fund’s economic forecast materializes, global GDP output could increase by $ 9 trillion in the same time period as businesses reopen and hire faster, the IMF said.
“Immunization will therefore be more than cost effective, offering excellent value for money for the public funds invested in accelerating the global production and distribution of vaccines,” the IMF said in the report.
The IMF and the World Bank, in their spring virtual meetings this week, urge member countries to maintain fiscal support to their economies and vulnerable citizens and businesses until the pandemic is firmly under control.
The Fund estimates that governments have deployed some $ 16 trillion in financial support related to the pandemic from the onset of the pandemic until March 17 of this year. This includes $ 10 trillion in additional spending and lost revenue, and $ 6 trillion in government loans, guarantees and capital injections for businesses.
In 2021, the Fund predicts that budget deficits will decline slightly in most countries as support for the pandemic expires or ends, jobless claims plummet, and incomes begin to recover as businesses reopen. .
Average overall budget deficits reached 11.7% of GDP for advanced economies in 2020 – quadruple their share from 2.9% in 2019 – but they are expected to narrow to 10.4% in 2021, the IMF said.
Emerging economy deficits will also decline slightly in 2021 to 7.7% of GDP for emerging market economies and 4.9% for low-income economies.
Average global public debt is expected to reach a record 99% of GDP in 2021 and stabilize at this level after increasing slightly from 97% in 2020. For advanced economies, debt will peak at 122.5% in 2021, against 120.1% in 2020..
The IMF has called for more targeted support for vulnerable households, including minorities, women and workers in low-paying jobs in the informal sectors in many economies. More targeted support for small businesses is also needed, according to the report.
But he said some advanced countries with high debt levels might need to start rebuilding fiscal buffers to prepare for future shocks. He said these countries should develop multi-year frameworks to increase income and streamline spending, prioritizing investments to tackle climate change and reduce economic inequalities.
In a chapter of the Fiscal Monitor released last week, the IMF said advanced economies could use more progressive income, inheritance and property taxes, as well as taxes on “excess” corporate profits to help to reduce the inequalities exposed by the COVID-19 pandemic.
Reporting by David Lawder; Edited by Ana Nicolaci da Costa