Debt, deficits dramatically increased due to Covid – IMF

Differences in vaccine access and the ability to deploy policy support are creating a growing divergence between advanced economies from many emerging market and developing economies, the International Monetary Fund (IMF) has said.

Faced with high deficits and historic levels of debt, countries with limited access to financing are walking a fiscal tightrope between providing adequate support and preserving financial stability, a paper prepared by IM’s Vitor Gaspar and Gita Gopinath, said.

Without resolute measures to address this growing divide, COVID‑19 will continue to claim lives and destroy jobs, inflicting lasting damage to investment, productivity, and growth in the most vulnerable countries. The pandemic will further disrupt the lives of the most vulnerable, and countries will see a rise in extreme poverty and malnutrition, shattering all hope of attaining the Sustainable Development Goals.

Narrowing the pandemic divide thus requires collective action to boost access to vaccines, secure critical financing, and accelerate the transition to a greener, digital, and more inclusive world.

Securing finance

As a result of the pandemic, debt and deficits have dramatically increased from already historically high levels. Average overall fiscal deficits as a share of GDP in 2021 have reached 9.9 percent for advanced economies, 7.1 percent for emerging market economies, and 5.2 percent for low-income developing countries. Global government debt is projected to approach 99 percent of GDP by the end of 2021.

In this context, IMF lifelines have made a critical difference in saving lives and livelihoods. To respond to the crisis, the IMF has extended $117 billion in new financing and debt service relief to 85 countries. This includes financial assistance to 53 low-income countries and grant-based debt service relief to 29 of its poorest and most vulnerable members. We estimate that in 2020, IMF support allowed for additional spending of about 0.5 percent of GDP in emerging market economies and nearly 1.0 percent of GDP in developing countries. IMF support focused most where it mattered the most.

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The favorable global financial conditions have allowed countries with low credit risk to deploy a sizable and durable expansion in government spending to respond to the pandemic. In those countries with more limited access to external financing, however, primary spending is now projected to be even lower than forecast before the pandemic.


A decisive moment

Multilateral action is urgently needed to close gaps in access to vaccines and bring about an end to the pandemic. IMF staff’s recent $50 billion proposal in this regard, endorsed by the World Health Organization, World Bank, and World Trade Organization, sets a goal of vaccinating at least 40 percent of the population in every country by the end of 2021 and at least 60 percent by mid-2022, alongside ensuring adequate diagnostics and therapeutics. Progress has been made across several fronts, but a stronger push is needed. The Taskforce on COVID-19 Vaccines has also launched a dashboard to clearly identify and urgently address gaps in access to COVID-19 tools. 


Source:| with additional files from the IMF