IMF: New Fiscal Policy Needed

Building resilience, strengthening cooperation

Amid the uncertain outlook and sizeable challenges to public finances, governments need to act on several fronts:


Calibrate policies to the pandemic and to economic developments and prospects. Support should be unwound gradually, and fiscal actions should aim at containing risks to public finances and at preserving price and financial stability.


Prioritize the transformation of the economy to make it smarter, greener, and more resilient and inclusive. This means greater investment in physical capital, education, and social safety nets, as well as more support for retraining and reallocating workers to new and better jobs.


Gradually increase tax revenues where necessary and improve the efficiency of spending. These steps are all the more urgent in low-income developing countries given the prospects for a persistent fall in revenues, which could reduce available financing for achieving the Sustainable Development Goals.


Strengthen the credibility of fiscal policy to create room for further support in the short term without jeopardizing public credit. Emergency spending needs to be accompanied by measures that ensure transparency and accountability. Medium-term fiscal frameworks can reassure lenders that governments are fiscally responsible and lower financing costs.


Although the international community has provided critical support so far to help alleviate fiscal vulnerabilities in low-income countries, more is needed. The IMF’s recent General Allocation of Special Drawing Rights contributes to international liquidity. Its beneficial effects can be amplified if higher-income economies could channel some of the resources gained through the SDR allocation to low-income developing countries—and in this way, contribute to sustainable development. But with the expiration at end-2021 of the Debt Service Suspension Initiative—which offers a temporary suspension of official sector debt payments for qualifying low-income countries—ensuring the effective functioning of the G20 Common Framework to provide debt relief will be essential to helping the world’s poorest and most heavily indebted countries cope with the continued fallout of the COVID-19 crisis.


Source: https://blogs.imf.org/2021/10/13/fiscal-policy-for-an-uncertain-world/?utm_medium=email&utm_source=govdelivery