Disclaimer: The Fiscal Monitor is a survey by the IMF staff published twice a year, in the spring and fall. The report analyzes the latest public finance developments, updates medium-term fiscal projections, and assesses policies to put public finances on a sustainable footing. The report was prepared by IMF staff and has benefited from comments and suggestions from Executive Directors following their discussion of the report on September 30, 2020. The views expressed in this publication are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Directors or their national authorities.
Recommended citation: International Monetary Fund (IMF). 2020. Fiscal Monitor: Policies for the Recovery. Washington, October.
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Chapter 1. Fiscal Policies to Address the COVID-19 Pandemic
Fiscal Developments and the Outlook: Doing Whatever It Takes
Fiscal Response to the Pandemic: A Preliminary Assessment
Magnified Fiscal Risks
Fiscal Roadmap for the Recovery
Box 1.1. Private Debt and Public Sector Risk
Box 1.2. How Green Is the Fiscal Response to the COVID-19 Crisis?
Box 1.3. An Unprecedented Fiscal Response: A Closer Look
Chapter 2. Public Investment for the Recovery
A Timely and Effective Push to Investment
Fiscal Multipliers in the COVID-19 Crisis and Recovery
Investment in Resilience and the Role of the International Community
Box 2.1. Estimating Public Investment Needs for Climate Change Adaptation
Methodological and Statistical Appendix
Data and Conventions
Fiscal Policy Assumptions
Definition and Coverage of Fiscal Data
Table A. Economy Groupings
Table B. Advanced Economies: Definition and Coverage of Fiscal Monitor Data
Table C. Emerging Market and Middle-Income Economies: Definition and Coverage of Fiscal Monitor Data
Table D. Low-Income Developing Countries: Definition and Coverage of Fiscal Monitor Data
List of Tables
Advanced Economies (A1–A8)
Emerging Market and Middle-Income Economies (A9–A16)
Low-Income Developing Countries (A17–A22)
Structural Fiscal Indicators (A23–A25)
Fiscal Monitor Selected Topics
IMF Executive Board Discussion of the Outlook, October 2020
Figure 1.1. Discretionary Fiscal Response to the COVID-19 Crisis in Selected Economies
Figure 1.2. Historical Patterns of General Government Debt
Figure 1.3. Central Bank Purchases of Government Debt
Figure 1.4. G20 Total Public and Private Debt, 2002–19
Figure 1.5. General Government Interest Expenditure-to-GDP Ratio, 2001–20
Figure 1.6. Average Remaining Maturity of Government Bonds, 2002–19
Figure 1.7. Forecasts for General Government Gross Debt and Fiscal Balances, 2020
Figure 1.8. Change in G20 Deficits, 2020
Figure 1.9. Change in Public Debt, 2020
Figure 1.10. Composition and Evolution of Fiscal Support, April 2020 versus June 2020
Figure 1.11. Revenue and Expenditure, 2019–20
Figure 1.12. Debt Service, 2019–21
Figure 1.13. Discretionary Fiscal Response to the COVID-19 Crisis and Country Preconditions
Figure 1.14. Global Extreme Poverty Rate
Figure 1.15. Increase in the Coverage of Social Assistance
Figure 1.16. Take-Up of Job Retention Schemes
Figure 1.17. Take-Up of Guaranteed Loans
Figure 1.18. Pace of Fiscal Adjustment, 2013–25
Figure 1.19. Economic Growth, 2013–25
Figure 1.20. Fiscal Support and Scarring
Figure 1.21. Targeted Measures Have a Greater Impact (Fiscal Multipliers) on Output
Figure 1.22. Impact of a Fiscal Package on Output and Government Debt
Figure 1.23. Adequacy and Coverage of Social Protection Programs
Figure 1.1.1. Total Debt in G20 Countries, 2019
Figure 1.2.1. Climate Relevance of Fiscal Measures in the G20 Related to the COVID-19 Crisis
Figure 1.3.1. Breakdown of Fiscal Support, by Type
Figure 1.3.2. Distribution of Fiscal Support, by Beneficiary
Figure 2.1. Public Capital Stocks, 1992, 2007, and 2017
Figure 2.2. Public Investment/GDP in Advanced Economies and Emerging Market Economies, 2000–18
Figure 2.3. Public Investment Spending, March–June 2020
Figure 2.4. Government Effectiveness and Speed of Execution in Europe
Figure 2.5. Duration of Infrastructure Projects
Figure 2.6. Cost Overruns and Delays
Figure 2.7. Job Content Per US$1 Million of Additional Investment
Figure 2.8. Uncertainty and the Fiscal Multiplier of Public Investment in Advanced and Emerging Market Economies
Figure 2.9. Response of Private Firms’ Net Investment to Public Investment
Figure 2.10. The Effect of Public Investment on Private Firms’ Net Investment
Figure 2.11. Spending on Medical Products and World Health Organization Index of Pandemic Preparedness
Figure 2.12. Public Investment in Adaptation to Climate Change: Needs and Aid Flows
Figure 2.1.1. Annual Upgrading, Retrofitting, and Protection Investment Costs
Table 1.1. General Government Fiscal Balance, 2012–25: Overall Balance
Table 1.2. General Government Debt, 2012–25
Table 1.3. Fiscal Strategies during Different Phases of the Pandemic
Table 2.1. Public Investment in the Strategy for the Recovery
Online Annex 1.1. How Will the COVID-19 Pandemic Affect Poverty and Inequality?
Online Annex 1.2. Smart Strategies to Contain the COVID-19 Pandemic
Online Annex 1.3. From Lockdown to Recovery: Spending Measures to Support Livelihoods during the COVID-19 Crisis
Online Annex 1.4. Determining the Size of Fiscal Stimulus for Sustained Recovery
Online Annex 1.5. Policy Options to Support the Economic Recovery
Online Annex 2.1. Financing Constraints and the Strategy for Investment
Online Annex 2.2. Assessing the Impact of the COVID-19 Crisis on Monthly Investment Budgets
Online Annex 2.3. Maintaining Quality When Scaling Up Public Investment
Online Annex 2.4. The Direct Labor Impact of Public Investment
Online Annex 2.5. Public Investment Fiscal Multiplier and Macroeconomic Uncertainty
Online Annex 2.6. Investing in Resilience
Online Annex 2.7. Estimating the Adaptation Costs of Investing in the Resilience of Physical Assets
Fiscal Monitor Database of Country Fiscal Measures in Response to the COVID-19 Pandemic
Assumptions and Conventions
The following symbols have been used throughout this publication:
... to indicate that data are not available
— to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist
– between years or months (for example, 2008–09 or January–June) to indicate the years or months covered, including the beginning and ending years or months
/ between years (for example, 2008/09) to indicate a fiscal or financial year
“Billion” means a thousand million; “trillion” means a thousand billion.
“Basis points” refers to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
“n.a.” means “not applicable.”
Minor discrepancies between sums of constituent figures and totals are due to rounding.
As used in this publication, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.
Corrections and Revisions
The data and analysis appearing in the Fiscal Monitor are compiled by IMF staff at the time of publication. Every effort is made to ensure their timeliness, accuracy, and completeness. When errors are discovered, corrections and revisions are incorporated into the digital editions available from the IMF website and on the IMF eLibrary. All substantive changes are listed in the Table of Contents of the online PDF of the report.
Print and Digital Editions
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The projections included in this issue of the Fiscal Monitor are drawn from the same database used for the October 2020 World Economic Outlook and Global Financial Stability Report (and are referred to as “IMF staff projections”). Fiscal projections refer to the general government, unless otherwise indicated. Short-term projections are based on officially announced budgets, adjusted for differences between the national authorities and the IMF staff regarding macroeconomic assumptions. The fiscal projections incorporate policy measures that are judged by the IMF staff as likely to be implemented. For countries supported by an IMF arrangement, the projections are those under the arrangement. In cases in which the IMF staff has insufficient information to assess the authorities’ budget intentions and prospects for policy implementation, an unchanged cyclically adjusted primary balance is assumed, unless indicated otherwise. Details on the composition of the groups, as well as country-specific assumptions, can be found in the Methodological and Statistical Appendix.
The Fiscal Monitor is prepared by the IMF Fiscal Affairs Department under the general guidance of Vitor Gaspar, Director of the Department. The project was directed by Paolo Mauro, Deputy Director; and Catherine Pattillo, Assistant Director. The main authors of Chapter 1 of this issue are Paulo Medas, John Ralyea, Elif Ture (team leaders), Paul Elger, Alexandra Fotiou, Jean-Marc Fournier, Andresa Lagerborg, Raphael Lam, Delphine Prady, Baoping Shang with contributions from the green tracker team: Katja Funke (team lead), Chuling Chen, Khaled Eltokhy, Guohua Huang, Yujin Kim, Jay Rappaport, and Genet Zinabou; and Raphael Espinoza (lead), Matthieu Bellon, William Gbohoui, Fabien Gonguet, Xuehui Han, Sandra Lizarazo, Mariano Moszoro, Andrea Presbitero, Mouhamadou Sy, and Claude Wendling for Chapter 2. Excellent research contributions were provided by Juliana Gamboa, Sureni Weerathunga, Andrew Womer and Yuan Xiang. The Methodological and Statistical Appendix was prepared by Yuan Xiang. Joni Mayfield and Meron Haile provided excellent coordination and editorial support. Rumit Pancholi from the Communications Department led the editorial team and managed the report’s production, with editorial assistance from David Einhorn, Susan Graham, Devlan O’Connor, Grauel Group, and Vector Talent Resources.
Inputs, comments, and suggestions were received from other departments in the IMF, including area departments— namely, the African Department, Asia and Pacific Department, European Department, Middle East and Central Asia Department, and Western Hemisphere Department—as well as the Communications Department, Institute for Capacity Development, Legal Department, Monetary and Capital Markets Department, Research Department, Secretary’s Department, Statistics Department, and Strategy, Policy, and Review Department. Chapter 2 of the Fiscal Monitor also benefited from comments by Christopher Adam (University of Oxford), César Calderón (World Bank), and Maria Vagliasindi (World Bank). Both projections and policy considerations are those of the IMF staff and should not be attributed to Executive Directors or to their national authorities.
On March 11, 2020, the WHO declared COVID-19 a pandemic. It has now claimed more than 1 million lives. But already in March, economic activity and financial markets were hit in a sudden and violent way. Economic policy responses were prompt. They helped restore orderly financial market conditions, eased access to financing and limited the downside adjustment in employment, economic activity, and living standards. The overall size and speed of fiscal action was unprecedented at about $12 trillion globally, contributing to extending critical lifelines to households and firms.
More than six months into the pandemic, the Fiscal Monitor emphasizes the importance of not pulling the plug of fiscal support too soon, in spite of the high levels of debt prevailing worldwide. It evaluates the difficult policy trade-offs that different countries face. Finally, it makes the case for public investment.
Prior to the pandemic, public and private debt were already high and rising in most countries, reaching 225 percent of GDP in 2019, 30 percentage points above the level prevailing before the global financial crisis. Global public debt rose faster over the period, standing at 83 percent of GDP in 2019. And despite access to financing varying sharply across countries, medium- to long-term fiscal strategies were needed virtually everywhere. On one extreme, there were countries—mostly advanced economies like the United States, participants in the euro area, and Japan—benefitting from exceptionally easy financing conditions. But these also faced long-term fiscal challenges associated with the implications from population aging. On the other extreme, there were countries—often low-income developing countries, many in sub-Saharan Africa—with no access to international financial markets. These countries were facing binding constraints on their ability to put public finances and state capacity at the service of growth and development. Those limits were particularly relevant in the context of the 2030 SDGs.
In 2020, global general government debt is estimated to make an unprecedented jump up to almost 100 percent of GDP. The major increase in the primary deficit and the sharp contraction in economic activity of 4.7 percent projected in the latest World Economic Outlook, are the main drivers of this development. But 2020 is an exceptional year in terms of debt dynamics, and public debt is expected to stabilize to about 100 percent of GDP until 2025, benefiting from negative interest-growth differentials.
These high levels of public debt are hence not the most immediate risk. The near-term priority is to avoid premature withdrawal of fiscal support. Support should persist, at least into 2021, to sustain the recovery and to limit long-term scarring. Health and education should be given prime consideration everywhere. Fiscally constrained economies should prioritize the protection of the most vulnerable and eliminate wasteful spending. To manage the intertemporal tradeoffs in fiscal policy, a medium- to long-term fiscal framework is recommended. The intertemporal trade-offs between short-term support and medium-term risks are also an important theme of the latest Global Financial Stability Report.
COVID-19 has confronted policymakers with painful and urgent trade-offs. Living standards will be falling in most of the world. We estimate that the number of people in extreme poverty will increase by 80 to 90 million. The risk of malnutrition is on the rise. Access to health and education are problematic for important segments of the population.
The international community must act with debt relief, access to grants and concessional financing— now and going forward—to help the poorest countries tackle these urgent and painful trade-offs. More broadly, confidence in the stability of the global financial system requires that international resources be available for all countries facing temporary financing challenges. That is the purpose of the lending capacity of the IMF that now stands at $1 trillion, of which about one-fourth is already committed. For countries with unsustainable debt, options for orderly debt restructuring must be considered.
The Fiscal Monitor makes the case for public investment. The relevant macroeconomic context includes very low interest rates, high precautionary savings, weak private investment, and a gradual erosion of the public capital stock over time. But the novel argument in the Fiscal Monitor relates to uncertainty. Investment multipliers are particularly high when macroeconomic uncertainty is elevated—and uncertainty in the current World Economic Outlook is “unusually large.” Under such conditions, public investment acts as a catalyst for private investment to take off.
The Fiscal Monitor estimates that a 1 percent of GDP increase in public investment, in advanced economies and emerging markets, has the potential to push GDP up by 2.7 percent, private investment by 10 percent and, most importantly, to create between 20 and 33 million jobs, directly and indirectly. Investment in health and education and in digital and green infrastructure can connect people, improve economy-wide productivity, and improve resilience to climate change and future pandemics.
Fiscal policy can be a bridge to smart, resilient, sustainable, and inclusive growth.
Director of the Fiscal Affairs Department
Chapter 1: Fiscal Policies to Address the COVID-19 Pandemic
The COVID-19 pandemic and associated lockdowns have prompted unprecedented fiscal actions that amounted to $11.7 trillion, or close to 12 percent of global GDP, as of September 11, 2020. Half of the fiscal actions consisted of additional spending or forgone revenue, including temporary tax cuts, and the other half liquidity support, including loans, guarantees, and capital injections by the public sector. This forceful response by governments has saved lives, supported vulnerable people and firms, and mitigated the fallout on economic activity. However, the consequences of the crisis for public finances, combined with the revenue loss from the output contraction, have been massive. In 2020, government deficits are set to surge by an average of 9 percent of GDP, and global public debt is projected to approach 100 percent of GDP, a record high. Under the baseline assumptions of a healthy rebound in economic activity and low, stable interest rates, the global public debt ratio is expected to stabilize in 2021, on average, except in China and the United States. Yet, more needs to be done to address rising poverty, unemployment, and inequality and to foster the economic recovery.
Chapter 1 of this edition of the Fiscal Monitor reviews the state of public finances across the world in this unprecedented time and examines the scale, scope, and effectiveness of fiscal policy responses to the COVID-19 crisis. It then offers a roadmap for the overall fiscal strategy to promote a strong recovery.
Although the global fiscal response has been unparalleled, the pandemic has laid bare major differences in the ability of countries to finance emergency spending to protect their people. That ability has been determined in part by countries’ fiscal space, and by public and private debt levels, heading into the crisis. In many advanced economies and some emerging markets, massive liquidity provision and asset purchases by central banks have facilitated fiscal expansions. However, in many emerging markets and especially in low-income developing countries—more than half of which are at a high risk of debt distress or in debt distress—financing constraints have been binding. Official support to alleviate such constraints has been overwhelmed by financing needs. Based on the projected fall in per capita incomes, 100–110 million people globally would be expected to enter extreme poverty, reversing the decades-long declining trend. Additional social assistance—supporting directly the poor and cushioning the recession—is expected to have a modest impact reflecting limited support and capacity constraints in some countries, containing the increase in poverty to 80 million to 90 million people.
With limited fiscal space, countries need to assess the benefits, costs, and risks of support measures. Early insights suggest that public health policies that quickly contained the spread of the disease also allowed for an earlier and safer reopening, restoration of confidence, and economic recovery, reducing overall social and fiscal costs. Targeted cash transfers were vital for poor individuals, who spent them on necessities. Likewise, unemployment benefits supported necessary consumption for people who lost their jobs. Many policies that provided essential support in the short-term have longer-term implications. For example, wage subsidies preserved employment relationships but may slow labor market reallocation when new vacancies emerge. Temporary tax deferrals and cuts have supported liquidity but risk becoming permanent at the expense of government revenues. Equity injections have often been necessary to prevent bankruptcies, particularly in hard-hit strategic firms, but they could delay sectoral reallocation that is crucial for the recovery. Direct or guaranteed loans have so far had low take-up, reflecting some success in restoring confidence, but also administrative constraints and conditionality, as well as the private debt overhang.
Fiscal risks are also unprecedented. They stem from uncertainty about the course of the pandemic, the shape of the recovery, the extent of scarring and the required resource reallocation, the outlook for commodity prices and global financial conditions, and the contingent liabilities from implicit and explicit guarantees. It is crucial to ensure the full transparency, good governance, and costing of all fiscal measures, especially given their size, exceptional nature, and speed of deployment.
A Roadmap for Fiscal Policies during the Different Phases of the Pandemic
Global efforts to develop and ensure universal access to an affordable and effective vaccine or treatment are the highest priority to contain the human, economic, and fiscal costs of the pandemic. National actions are also vital to address the health crisis, including smart, well-informed, and localized containment policies. High levels of precautionary savings by households and limited private investment in an uncertain environment imply that interest rates will remain low for a long time in advanced and some emerging market economies. These factors provide the scope and motivation for fiscal policy to remain a crucial and powerful tool to foster the recovery. Other emerging market economies and low-income developing countries facing tighter financing constraints will need to reprioritize expenditures and deliver more with less by enhancing efficiency, and will need further official financial support and debt relief.
Policymakers need a toolkit of flexible fiscal measures to navigate lockdowns and tentative reopenings, and to facilitate structural transformation to the new post-pandemic economy. In the acute outbreak phase, when lockdowns are pervasive, fiscal policies should be geared to do whatever it takes to save lives and livelihoods. As lockdowns ease and become more selective, governments should ensure that lifelines are not withdrawn too rapidly. Improvements in the ability of social protection systems to reach, target, and deliver benefits to vulnerable people should be preserved. When health risks diminish and a durable recovery is foreseeable, support should shift from protecting employee-firm relationships to helping workers find new jobs, helping viable but still-vulnerable firms reopen, and supporting structural transformation toward the post-pandemic economy.
When the pandemic is under control through effective vaccines or treatments, governments will need to foster the recovery while addressing the legacies of the crisis—including elevated private and public debt levels, high unemployment, and rising inequality and poverty. The scope for stimulus or the appropriate pace of fiscal adjustment is country-specific, depending especially on the depth of a country’s recession, how many people are unemployed, and how easy it is to access financing. Countries with fiscal space and major scarring from the crisis should provide temporary stimulus, including through public investment, as discussed in Chapter 2.
Measures to support low-income households—including good-quality jobs—will be critical to reducing poverty. Countries with limited fiscal space and less access to financing should protect public investment and transfers to lower-income households while increasing progressive taxation and ensuring highly profitable firms are appropriately taxed, aiming at a growth-friendly and equitable adjustment.
Policies for the new post-pandemic economy should focus on tackling poverty and inequality to ensure social peace and sustainable growth, and on building resilience against future epidemics and other shocks. This includes policies to ensure that all people have access to basic goods (for example, food) and services (for example, health and education). Finally, reducing emissions will remain a core long-term challenge after the pandemic. This will call for policies to increase carbon prices and catalyze investment in low-carbon technologies.
Chapter 2: Public Investment for the Recovery
The immediate focus of governments during the COVID-19 crisis thus far has been to address the health emergency and provide lifelines for vulnerable households and businesses. Governments now also need to prepare economies for safe and successful reopening, design policies to create jobs and boost economic activity, and facilitate the transformation to more resilient, inclusive, and greener economies. Spending on digital infrastructure will be essential to support social distancing and to narrow the digital gap that exacerbates disparities in access to information, education, and work opportunities.
Chapter 2 discusses the appropriate role of public investment in fostering such a recovery. Before the COVID-19 crisis, public-investment-to-GDP ratios were already declining and the growth in infrastructure had not kept up with needs. Priorities include developing well-resourced and better-prepared healthcare systems, expanding digital infrastructure, and addressing climate change and environmental protection.
In advanced and some emerging market economies, where interest rates are near their effective lower bound, scaling up of quality public investment can have a powerful impact on employment and activity, crowd in private investment, and absorb excess private savings without causing a rise in borrowing costs. For many low-income countries and several emerging market economies—particularly those borrowing in foreign currency—investment is highly constrained by financing conditions, despite massive needs to attain the Sustainable Development Goals. In these countries, policymakers will need to safeguard public investment, to the extent compatible with saving lives and livelihoods, and enhance its efficiency. Moreover, the crisis makes a global response even more necessary to avoid slipping further behind on the Sustainable Development Goals.
Even with social distancing, public investment is feasible and can be delivered quickly if governments take four steps: (1) invest right now in maintenance; (2) review and restart promising projects that were delayed in preparation or implementation; (3) speed up projects in the pipeline to bring them to fruition within the next two years; and (4) start planning immediately for new projects aligned with postcrisis priorities.
Strengthened public investment management practices and governance are essential because delays, cost overruns, and disappointing projects are common and could be more frequent when investment is scaled up—the cost of an individual project can increase by 10 percent when public investment in the country is high. Satisfying these conditions may not be possible everywhere. But for countries with easy access to finance, borrowing to finance public investments of good quality will be an effective strategy because the global decline in interest rates has set a lower bar for investment projects to be beneficial. For countries with financing constraints, the bar is higher to pass because governments with limited resources face competing spending priorities.
Empirical estimates based on a cross-country data set and a sample of 400,000 firms show that public investment can have a powerful impact on GDP growth and employment during periods of high uncertainty—which is a defining feature of the current crisis. For advanced and emerging market economies, the fiscal multiplier peaks at over 2 in two years. Increasing public investment by 1 percent of GDP in these economies would create 7 million jobs directly, and between 20 million and 33 million jobs overall when considering the indirect macroeconomic effects.
Crowding in private investment is particularly strong in industries critical for the resolution of the health crisis (communications and transport) or for the recovery (construction and manufacturing), but it would have to be accompanied by complementary policies to address high leverage and liquidity constraints faced by private firms.
New investments in healthcare, social housing, digitalization, and environmental protection would lay the foundation for a more resilient and inclusive economy. Because rates of return on investments in adaptation to climate change are often greater than 100 percent, official aid for adaptation is an effective use of public money. Official aid for climate change adaptation would have to more than double the $10 billion allocated currently to around $25 billion to finance the public investments required for adaptation to climate change in low-income countries.