$14trn Covid-19 government support saves lives, livelihoods-IMF

Global fiscal support of $14 trillion has contributed to saving lives and livelihoods and has mitigated the effects of the pandemic on consumption and output; International Monetary Fund (IMF) said in its 2021 Fiscal Monitor released Thursday.

However, together with economic contraction causing lower revenues, such support has led to a rise in public debt and deficits.

Consequently, global public debt is estimated to reach 98 percent of GDP at the end of 2020, compared with 84 percent for the same date based on projections in the October 2019 Fiscal Monitor.

The Washington based Fund projected 34.3 percent gross debt to GDP for Nigeria, West Africa’s largest economy.

Fiscal responses have been shaped by access to financing: average overall deficits as a share of GDP in 2020 are projected at –13.3 percent for advanced economies, –10.3 percent for emerging market and middle-income economies, and –5.7 percent for low-income developing countries.

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In 2021, the average fiscal deficit is projected to decline to 5 percent of GDP from 5.7 percent in 2020. As economies recover, revenue collection is projected to improve, whereas pandemic-related spending is projected to decline. Capital spending in 2021 is expected to recover partially in most countries after the temporary cuts in 2020 (Guinea, Haiti, Malawi, Nigeria, Tajikistan).

However, deficits are expected to widen in a few countries as revenue-to-GDP ratios only partially recover, while spending and debt service costs are rising (Chad, Kenya, Myanmar).

The report noted that although prospects for market financing are improving in some frontier market economies, near-term debt vulnerabilities remain high in many countries. Financing large deficits remain challenging, given limited market access and restricted ability to increase revenues in the near term.

Average debt levels are projected to peak in 2021, with debt service relative to tax revenues exceeding 20 percent in Ghana, Kenya, Myanmar, Nigeria, and Zambia and an upward debt trajectory in some, especially oil-exporting countries, such as Nigeria.
Actions were taken to provide grants, concessional loans, and debt relief to address a steep rise in public debt of low-income developing countries in 2020, including the 38 countries (out of 70) assessed to be “at high risk” of or in debt distress, according to the IMF–World Bank Debt Sustainability Assessments.

Fiscal adjustments in several countries (Ethiopia, Vietnam) and debt restructuring (Chad, Republic of Congo) are expected to contribute to debt reduction. As of the end of December 2020, 45 countries, or more than 60 percent of eligible countries, had formally requested to join or extend the Debt Service Suspension Initiative, benefiting from the suspension of $5 billion total debt service as reported by the G20 economies for May–December 2020, the IMF said.