Cutting spending too soon could derail recovery: IMF – Gulf Today

  • Date: 11-Jul-2020
  • Source: Gulf Today
  • Sector:Economy
  • Country:Middle East
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Cutting spending too soon could derail recovery: IMF – Gulf Today

As governments rushed out funding to prevent an economic collapse amid the coronavirus pandemic, global public debt swelled to the highest in history, but the IMF warned on Friday that cutting back too soon could undermine the recovery.

Government spending "will need to remain supportive and flexible until a safe and durable exit from the crisis is secured,“ IMF fiscal policy chief Vitor Gaspar and chief economist Gita Gopinath said in a blog post.

Even with record low interest rates worldwide, the debt figures are staggering -- surpassing the size of the global economy, and deficits in advanced economies five times higher than pre-pandemic estimates for 2020.

The health crisis and the business shutdowns to contain the spread of COVID-19 demanded "a massive fiscal response“ of close to $11 trillion to help support households and prevent bankruptcies,“ the authors said.

"But the policy response has also contributed to global public debt reaching its highest level in recorded history, at over 100 per cent of global GDP, in excess of post-World War II peaks.“ And, they cautioned, "we are not out of the woods.“ The Washington-based crisis lender, which historically has always advocated for governments to restrain spending, is in the unusual position of urging