The immediate focus of governments during the COVID-19 crisis thus far has appropriately 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, foster recovery in employment and economic activity, and facilitate transformation to a post-pandemic economy that, with the right policies, can be more resilient, more inclusive, and greener. Public investment can make a crucial contribution toward these goals (see a discussion of the fiscal strategy for the recovery in Chapter 1 and Table 2.1).1 This chapter outlines how governments can undertake public investment in a timely manner while safeguarding quality, estimates the potential for public investment to create jobs and boost growth, and sets out priorities for the types of investment that will strengthen resilience and sustainability.
Countries have made ample use of fiscal measures to protect lives and livelihoods against the health and economic fallout from the coronavirus disease 2019 (COVID-19) pandemic and to nurture the nascent reopening of economies in a highly uncertain environment. The drastic fiscal measures taken so far have been necessary, state-dependent, diverse, and costly. In general, these fiscal measures have mitigated the negative effects of the pandemic on health and economic outcomes. Although public debt levels are at record highs, further support is necessary to protect people who cannot make a living under the current circumstances and to promote a strong recovery. Fiscal policy should be tailored to different phases of the pandemic, adapting to evolving needs to protect people, support demand, facilitate the transformation to the post-pandemic economy, and ensure debt sustainability.
Chapter 1 of the report draws some early lessons from governments’ fiscal responses to the pandemic and provides a roadmap for the recovery. Governments’ measures to cushion the blow from the pandemic total a staggering $12 trillion globally. These lifelines and the worldwide recession have pushed global public debt to an all-time high. But governments should not withdraw lifelines too rapidly. Government support should shift gradually from protecting old jobs to getting people back to work and helping viable but still-vulnerable firms safely reopen. The fiscal measures for the recovery are an opportunity to make the economy more inclusive and greener. Chapter 2 of this report argues that governments need to scale up public investment to ensure successful reopening, boost growth, and prepare economies for the future. Low interest rates make borrowing to invest desirable. Countries that cannot access finance will, however, need to do more with less. The chapter explains how investment can be scaled up while preserving quality. Increasing public investment by 1 percent of GDP in advanced and emerging economies could create 7 million jobs directly, and more than 20 million jobs indirectly. Investments in healthcare, housing, digitalization, and the environment would lay the foundations for a more resilient and inclusive economy.