Via IMF (Den Internationale Valutafond)

Transcript of the April 2020 Fiscal Monitor Press Briefing

April 15, 2020


Vitor Gaspar, Director, Fiscal Affairs Department, IMF

Ting Yan, Communications Officer, IMF


MS. YAN: Good morning, everyone. Welcome to this IMF press conference on
the fiscal monitor. Thank you for joining us today. I’m Ting Yan of the
Communications Department. I’m delighted to introduce to you our speaker
today, Mr. Vitor Gaspar, Director of Fiscal Affairs Department.

As we all know, this is an unprecedented time so we are doing things a
little bit differently today. Our press conferences are entirely virtual.
In this sense, I would encourage you to send your questions via our online
press center. And thanks to all of you who have already sent your questions
in advance.

With the same spirit, I would also like to let you know that we have
launched a mobile app that houses our latest flagship reports in an easy to
read format. So, you can read, search and discover our latest analysis on
the go. With that, let me invite Vitor to make some opening remarks and
then we will be happy to take your questions. Vitor, the floor is yours.

MR. GASPAR: Thank you, Ting. Welcome all to the fiscal monitor press
conference and thank you for your interest in fiscal policy. We are living
in a crisis like no other, a once in a century pandemic. It is a fight of
all humanity against a common and invisible enemy.

You have already heard yesterday from our chief economist that the crisis
is unprecedented both in nature, it’s a health emergency, and severity.
It’s much sudden and deeper than the global financial crisis. As for fiscal
policy, the basic principles are clear.

First, laid the financial ground for health systems, testing, facilities
and medical staff, to deal with the crisis support essential containment
measures. Second, provide emergency lifelines to households and firms made
vulnerable by the crisis. These lifelines also help avoid irreversible
damage to sustainable and inclusive growth. Third, once normal business
conditions resume, support the recovery with coordinated fiscal stimulus,
taking into account differences in countries circumstances including their
financing ability.

Let me now give you some more details but if you really want to go in
depth, you will have to read through the fiscal monitor. The first
principle of public finances is to enable health systems to tackle the
pandemic. An international joint effort is necessary for sharing
information, for testing, tracking and monitoring and for the development
and inclusive sharing of effective therapeutic fix and vaccines.

Timely international action is also necessary to enable countries that have
health systems ill-equipped to tackle the pandemic. Many of these countries
are in sub-Saharan Africa. It is necessary to mobilize financial means, for
example, in the form of grants and concessional loans, but also health
workers, medical equipment and supplies.

The IMF calls jointly with the World Bank for an immediate standstill for
official bilateral creditors for the poorest countries. A parallel
initiative by the private sector would also be welcome. A health emergency
is a call for unity and solidarity both within countries and among

The second principle is to save lives and livelihoods. In order to flatten
the curve that tracks the spread of the disease, it is necessary to adopt
exceptional containment measures. These measures have strong economic and
social impacts. It is imperative to use fiscal policies to protect people
and firms made vulnerable by the crisis. For households, the objectives are
to meet basic needs and avoid unnecessary hardship.

Actions include tax deferrals, cash transfers, extended unemployment
benefits and social assistance. These measures truly are emergency
lifelines aiming at preserving decent living standards and livelihoods. For
firms, the objective is to avoid permanent scarring. Fiscal policies can
help preserve employment and wages while maintaining capacity that will be
crucial for the recovery. That includes avoiding unnecessary bankruptcies
leading to job losses and liquidation of assets.

These lifelines are expensive. Authorities all around the world have jumped
into action. According to fiscal monitor estimates, discretionary policy
actions with direct impact on the budget sum up to $3.3 trillion. In
addition, loans and equity injections amount to $1.8 trillion. And finally,
guarantees represent $2.7 trillion. The sum is about $8 trillion which
corresponds to 9 and a half percent of world GDP. The bulk of these
measures were adopted by G-20 countries whose actions represent about 90
percent of the total.

In an emergency, it is crucial to act fast and decisively. Fiscal actions
have been announced on an enormous scale. That requires accurate
accounting, frequent timely and transparent disclosure and the adoption of
procedures ensuring ex-post evaluation and accountability. Principles of
good governance should be reinforced in a way commensurate with a scale of
the intervention. In order to make all of this memorable in a sentence,
there it goes: “Do whatever it takes but make sure to keep the receipts.”

Budget deficits and debts will sharply increase in 2020, substantially more
than in 2009 at the peak of the global financial crisis. Gross government
debt all over the world will jump up by more than 13 percentage points of
GDP to more than 96 percent of GDP. The contrast across country groups is
marked. In advanced economies, the effort is about 17 percentage points of
GDP, for emerging market economies about 9 percentage points and finally
for low income developing countries, about 4 and a half percentage points
of GDP.

The change in debt ratios in 2020 is a large one off jump up. For 2021, the
baseline points to stabilization of debt ratios at the new higher level. As
a matter of fact, if one excludes China and the U.S. from the world total,
gross general government debt would be falling by more than 1 percentage
point of GDP in 2021.

That reflects declining debt ratios in most countries. But don’t forget,
uncertainty is very hard and downside risks are quite considerable as our
chief economist emphasized yesterday. If the adverse scenarios presented at
the World Economic Outlook were to materialize, debt levels would be even
higher and debt dynamics more unfavorable.

Finally, the third and last principle prescribes that once COVID-19 has
been contained, a coordinated stimulus to strengthen demand and foster
recovery may be needed. Such international coordinated actions must reflect
differences in relevant circumstances among countries including in their
financing ability.

So to conclude, let me just repeat the key takeaways for fiscal policy.
First, provide the financing necessary to enable health systems to deal
with the crisis. Second, provide lifelines to vulnerable households and
firms. Such lifelines also help to avoid permanent damage to prospects for
sustainable and inclusive growth. Third, once normal business conditions
resume, support the recovery.

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Throughout international cooperation and coordination are crucial to
enhance effectiveness of policy actions and support all nations of the
world in the fight against the pandemic. But I would like to leave you with
a catch phrase that reminds us all of the importance of good governance. Do
whatever it takes but make sure to keep the receipts. Thank you very much
for your attention and now I’m ready to answer your questions.

MS. YAN: Thank you, Vitor. Thank you, everyone. Now we can take your
questions. Our first question is from Masaki Kondo, Jiji Press.

The Fiscal Monitor Report says that debt to GDP ratio will be stabilized
after 2021. Assuming people will not behave as we used to and therefore
less productive, less tax revenue for the government, why debt is going to
be flat?

MR. GASPAR: If you allow me there are two different questions in yours. One
has to do with the path of the debt to GDP ratio and what explains the path
that we have in our baseline projection. And the second question is what
can we expect for the period of recovery after the epidemic is gone.

So on the first, what is going on is the epidemic is a severe, very severe
but temporary disturbance. The epidemic will eventually be gone. When that
happens, economic recovery will take place.

The pressure on budgets was to a certain extent temporary as well. We do
believe that inflation is low, interest rates are low in a large part of
the world, that’s certainly the case in advanced economies. The most
extreme case is perhaps Japan.

And if we believe that these conditions will be kept during the period of
recovery, the debt to GDP ratio dynamics will be favorable. That’s why we
have this one off jump up by 13 percentage points of GDP to 96 but then a
stabilization and actually a decline foreseen for the large majority of

Uncertainty is very strong. I’m answering to your second question. So we
don’t know how things will look like once the epidemic is a thing of the
past but we can imagine some good trends going on.

Clearly, we are all undertaking a crash course in the use of information
and communication technology and this is a learning experience that likely
will accelerate the transition to a digital society.

A natural disaster like an epidemic may be a wakeup call for action in
other areas like climate change. One can imagine international cooperation
becoming stronger, certainly in the health area.

And so the short answer to how the world will look like after the epidemic
is we don’t know but we can be hopeful that a number of transformational
dynamics that underpin progress will be accelerated by the pandemic.

MS. YAN: Thank you. We also have a couple questions from Heather Scott,
Delphine Touitou of AFP.

You mentioned that fiscal measures worth of about $8 trillion U.S. dollars
have been taken by countries around the world. Do you think these measures
are enough to stabilize the economy? Can you give us a sense of how much
more could be needed?

You also mentioned that the debt load will be increasing dramatically
worldwide. Are you concerned that the effort to lower the debt load in the
coming years once the pandemic is passed will mean a much slower global

MR. GASPAR: So very quickly, because I believe that we have covered a bit
of that ground already, what is going on here in terms of a fiscal policy
that is most expressive from a quantitative viewpoint is the extension of
these emergency lifelines to households and firms. That is absolutely
crucial as an element to face this epidemic.

People need to maintain decent standard of living, livelihoods have to be
preserved. One needs to avoid unnecessary damage to the economic framework.
One needs to preserve capacity for the recovery stage.

But the goal is not to stabilize the economy as such. The economy to
caricature is in lockdown. One is managing the lockdown and maintaining the
conditions for recovery. That basically means that these measures are very
expensive and if the epidemic proves longer lasting, they will be more
expensive still.

Now, when it comes to the debt levels, clearly the epidemic is a very
large, perhaps persistent, but definitely temporary disturbance and so
there is a post epidemic stage that in a sense requires to be managed quite
carefully but countries have faced these type of difficulties in the past,
many times in the context of wars and they have managed these types of
challenges quite aptly.

MS. YAN: We received a question on Brazil. It’s from Ricardo Leopoldo of

So the question is how is the Brazilian government supposed to handle its
fiscal policy to curb the epidemic as well as control the fiscal deficit
and recover investment and the economy?

MR. GASPAR: So this is a good question. And the Brazilian government has
rightly declared a state of public calamity and that allowed the Brazilian
government to suspend the fiscal targets and the fiscal expenditure
ceiling. And in that context it created the space that allows it to support
the health system and to support households and firms.

In the case of Brazil, there was an expansion of the cash transfers to
households, to low income households I should better say, and temporary tax
relief has been granted as well. The aggregate importance of these measures
may be about three percentage points of GDP.

We also see that public debt to GDP in Brazil goes up by about 10
percentage points of GDP to almost 100 percent of GDP in 2020. But in 2021,
it stabilizes at that level. Again it is a jump up but it’s a level effect,
not a trend.

Once the epidemic is an issue of the past, Brazil will have to resume its
efforts in favor of sustainable and inclusive growth and regain traction in
terms of its fiscal consolidation efforts.

I still want to welcome the reform of social security that was passed last
year but the compliance with the federal level spending ceiling requires
further action going forward.

MS. YAN: Thank you. We also received several questions from Henry Kerr of
the Economist, on Italy, UK and the U.S.

On Italy, will Italy and possibly other countries in the Eurozone periphery
need debt restructuring when this crisis is over? To what extent does the
ECB’s pandemic bond buying program increase their fiscal space?

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And on the UK. Sterling dropped significantly in the first few weeks of the
pandemic. If sterling is a risk asset rather than a haven, that would seem
to reduce Britain’s flexibility to respond to a crisis. Is Britain’s fiscal
position secure?

Maybe if you could answer the two questions first and then we go to the
U.S. one.

MR. GASPAR: Okay. So Italy and the UK and quite a number of sub-questions
there. Now, Italy was a country that was very strongly affected by the
epidemic and the Italian government did respond strongly supporting the
Italian health system and taking measures to protect households and firms
made vulnerable by the crisis.

In that context — in the context of this very appropriate policy actions
the deficit will widen to more than 8 percent of GDP and public debt is
projected to jump up by about 20 percent of GDP from 135 percent to 155.
Again, under our baseline as the economy recovers in 2021 and the European
Central Bank keeps interest rate low the debt dynamics become much more
favorable and the public debt to GDP ratio is projected to come down to
about 150 percent of GDP.

Going forward, the main challenge of the Italian economy is to be
competitive, to enhance potential growth so that it can actually achieve
inclusive and sustainable growth. Italy does have a very disappointed
growth performance in the last three decades or so. And solving the debt
problem in Italy is solving the growth problem in Italy as well.

About the UK, the history — the modern history of public debt in the — in
England coincides with the creation of the Bank of England in 1694 and what
you do see, if you look at the history of public debt in the United Kingdom
is that it was necessary for the nation to tackle quite substantial debt
challenges over the centuries. And the country has always been able to do
that successfully.

In the context of this crisis, we do expect a widening of the deficit for
this year, an increase in the debt to GDP ratio to about 96 percent of GDP
in 2020. We forecast under the baseline a stabilization at that level. The
borrowing costs for the UK, as for most other advanced economies are very
low and we expect them to be kept at close to record lows. The measures
taken in the UK have been targeted and temporary so we would expect a
correction in the future as soon as the epidemic is past.

And I probably should stress and that the U.S. has been an example of very
good coordination between the Treasury and the Bank of England, as well as
a pioneer in a number of institutions of public finance which could be
reinforced in order to sustain a medium-term strategy once the epidemic is

MS. YAN: Thank you. So the question on the U.S. is do you worry about
America’s fiscal position given the enormous size of its fiscal stimulus
and deficit?

MR. GASPAR: So the case of the U.S. is very interesting. The U.S. did jump
into action quite rapidly. At this point in time we already have three
fiscal packages approved totaling $2.3 trillion which is more than 10
percent of the U.S. GDP. That includes a wide diversity of policy actions
including one-time tax rebates to individuals, expanded unemployment
insurance, cash transfers, food assistance for the most vulnerable,
transfers to state and local governments, and emergency appropriations for
the health response.

All of this is fully in line with the health emergency that is being
tackled and with the proactive management of the more destructive
consequences of the economic shutdown. So the United States has put in
place this emergency lifeline to a very large extent. That leads to a
widening of the budget deficit and an accumulation of public debt for the
U.S. that are greater than what happened during the course of the global
financial crisis. The U.S. has ample fiscal space, and so the U.S. has
conditions not only to take the measures that it has undertaken but also to
seek proactively use of a fiscal policy once the epidemic is past and the
economy is ready to recover.

MS. YAN: Thank you, Vitor. We now have a question on sub-Saharan Africa
from Simon Ateba of Today News Africa. The question is, to mitigate the
devastating effect of social distancing, lockdowns and shutdowns you
recommend large timely, temporary, and targeted measures, such as
government funded paid sick and family leave, unemployment benefits, wage
subsidies, and deferral of tax payments. How can this be applicable in most
countries in sub-Saharan Africa where there are hardly safety nets even in
normal times?

MR. GASPAR: It’s a great question. And it really underlines that the way to
do it is very much country specific. The goal, the challenge is to reach
people who really need it, namely, those most hard hit by restrictions as
well as the most vulnerable.

In countries in sub-Saharan Africa the emphasis is on ensuring continued
access to basic goods and services. Now, if you look around the continent
you actually find very good examples of how it can be done. I will give you
a few. For example in Rwanda, the communities that as a matter of routine
play a role in shaping policies and have been very successful in normal
times in Rwanda in boosting the effects of health policies in the country
have, in the context of this crisis, been used to make sure that government
support reaches workers in the informal sector. The idea here is that the
local communities know who the informal workers are, they know who is
really in need.

In Cote d’Ivoire for example, they have a social tariff for electricity and
the information that has been collected for that purpose is being used to
target vulnerable households in urban areas.

In Senegal they have used the Registre National Unique that I would
translate to English as the Single National Registry and that allow the
authorities in Senegal to identify almost 600,000 among the vulnerable
people of the one million that they would like to cover. In order to ensure
comprehensive coverage they are conducting a complementary survey.

So what you have seen in all of these examples is that countries make use
of what they already have in place and they extend the role of that to
tackle this new challenge. One aspect that has been inspiring all over the
continent, and we have a few examples of that, is the use of digital
technology that has been supported by mobile telephony and payment systems
to allow for either continuity of supply of basic goods or even government
to households, government to business direct transfers.

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And last, but not least, traditional tools like tax deferrals that allow
cash to be kept with firms and households have also been used successfully
in sub-Saharan Africa. So the key to do it is to use the instruments that
you already have in place and adapt them to the challenge that we are
facing currently.

MS. YAN: Now we have a question on China from Lejun Wu of People’s Daily.
China has increased spending to contain the pandemic and to support the
enterprises and households. According to the fiscal monitor report, China’s
fiscal balance this year is expected to deteriorate this year. Can you tell
us how you think of China’s fiscal space and toolbox to support economy
going forward?

MR. GASPAR: To telegraphically, one general remark. The reason I emphasize
that the aggregate public debt in the world, excluding the U.S. and China,
would go down by one percentage point of GDP was to signal that U.S. and
China are one of a kind. And so they have access to a number of policy
options that are not available to many other countries.

The Chinese example is particularly interesting because China was the first
country to be affected by the epidemic. It acted exactly in line with the
public finance principles. It transferred resources to the health system
and it did protect vulnerable household and vulnerable firms, and it has
done it based on a variety of instruments, including a waiver on social
security contributions, an accelerated disbursement of unemployment
insurance, and tax relief.

Now, this was entirely appropriate, and China has the fiscal space to do
this. But more interestingly, at this point in time, the Chinese economy is
starting to come back, and the economic and social life is normalizing. It
turns out the China is also affected by what’s going on in the rest of the
world and is affected by the less favorable growth prospects in the world
as a whole. In any case, there is a road for fiscal policy to support the
recovery, but it should do it in a way which is compatible with the
long-term objectives of the Chinese economy, rebalancing the economy,
improving social safety nets, foster green growth.

And I must emphasize this point, a priority area that has been signaled by
the Chinese authorities is the reinforcement of the public health system.
And that’s entirely appropriate after a very strong epidemic. The
engagement of all countries in similar efforts at world level is equally

MS. YAN: Thank you. Now we have a question on India from Anup Roy, Business
Standard. India has provided fiscal stimulus of 0.8 percent of the GDP to
fight the COVID-19 pandemic. However, given the country is in an extended
lockdown, what should be the appropriate size of the stimulus to address
the shock in the economic activities? In what shape that should come? Does
the country have enough fiscal space for a large stimulus?

MR. GASPAR: So, again, I think that what is going on in India right now is
the extension of this emergency lifelines during a period of shutdown. So
what is being down is to make sure that people can face the emergency and
can do it while having their basic needs satisfied. And at the same time,
that we have firms keeping their capacity in order to maintain the capacity
of the economy to respond once business conditions have normalized.

The fiscal emergency package that was put in place on March 26 was timely
and it was targeted. The way it was done is quite interesting and quite
adapted to the Indian circumstances because there was a extension on the
coverage of insurance targeting the workers in the health system. There has
been a substantial action in terms of in kind transfers and debt in India
has concentrated on food, but also on cooking gas. And there have been cash
transfers, some of those very targeted to poor households.

Now, we don’t know how long the epidemic will last, so we don’t know if
additional measures of lifeline support will be called for. India is not a
country with ample fiscal space, but a health emergency takes precedent and
the fiscal support needed is quite substantial, but it is temporary, and
the pandemic will be, someday, a thing in the past.

MS. YAN: Thank you. Let’s take another question. The question is on Japan
from Andrea Shalal of Reuters. The question is, pandemic poses significant
risk to projected fiscal adjustment in Japan. What does that mean for
Japan’s economy?

MR. GASPAR: So the structure of the answer is one that I’ve already given,
but I think Japan is an excellent example. So to repeat, the epidemic is a
health emergency and one needs to give priority to the health sector. That
is going on in Japan. In order to contain the epidemic, it is necessary to
put in place policies that will curb the spreading of the disease. And this
have been taken.

The Japanese authorities appropriately have recently announced a very large
fiscal support that is in the form, for example, of one-year cash relief to
firms. Now, this measure has the nature of emergency lifelines, and aim at
preserving the capacity of the economy to rebound as soon as the
containment efforts can be eased. So the one-off jump of the public debt to
GDP ratio in Japan to more than 250 percent is something which should be
seen in that way, like a one-off jump.

The Bank of Japan going forward will, in all likelihood, keep interest
rates low for even longer than what was envisioned before. And with the
recovery of the Japanese economy that we have in our baseline, it turns out
that the public debt to GDP ratio will be declining to 245 percent of GDP.
But, again, in the medium to long run, Japan is going to need to have a
growth-friendly fiscal consolidation.

In Article IVs the IMF has recommended a gradual increase in the
consumption tax rate, and Japan has been a pioneer of measures to contain
the growth of spending associated with population aging. And those efforts
will need to continue in the future.

MS. YAN: Thank you very much, Vitor. And thank you, everyone, for joining
us today. This concludes the press conference on Fiscal Monitor. Please
stay safe and take care. Thank you.

IMF Communications Department


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