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News Article

Debt Needed to Face Covid-19: IMF

By Gabriela Mastache | Wed, 04/15/2020 - 10:44

IMF has said that the crisis generated by the COVID-19 emergency will be the worst since the Great Depression and has even forecasted a 3 percent fall in global GDP, far superior to the 0.6 percent fall that the global economy experienced in 2009. In its April 2020 Fiscal Monitor report, IMF says that the impact of the COVID-19 pandemic on public finances will be massive. Governments must use fiscal tools to ride out the pandemic.

In addition to increasing testing and social distancing measures, IMF mentions that the government must play a key role in insuring liquidity for firms and families. It highlights temporary measures like government-funded paid sick and family leave, transfers, unemployment benefits, wage subsidies and deferral of tax payments.

Moreover, IMF warns that the COVID-19 emergency will deteriorate fiscal balances globally. Even though historically the IMF has been recommending countries to reduce deficits, the report mentions that a “sizable increase in deficits” is needed and appropriate for many countries. In fact, IMF estimates that the US, China, European countries and some Asian economies will incur in high deficits trying to contain the pandemic.

What About Mexico?

As of April 8, 2020, Mexico has only committed resources accounting to 0.8 percent of its GDP to face the COVID-19 pandemic in what the IMF calls “above-the line measures,” which include spending and revenue measures in health and other sectors. Also, in what IMF calls “below the line measures” that include equity injections, asset purchases, loans, debt, loans, debt assumptions, quasi-fiscal operations and use of extra-budgetary funds, Mexico has committed 0.3 percent of its GDP.

Within G20 economies and among those that provided data, the only two countries that have committed less percentage of their GDP to “above-the line measures” are India and France, with both committing 0.7 percent of their GDP. However, France has committed 13.9 percent of its GDP on government guarantees for bank loans to companies in an attempt to prevent bankruptcy.

Despite IMF’s calls for countries to incur in fiscal deficit and the call from different members of the private sector regarding the need to incur in deficit, the Mexican government has refused many times. According to SHCP, Mexico could even incur in a 3 percent deficit to face the COVID-19 pandemic and the country’s debt levels would increase to 56 percent of its GDP, which would put the country in line with the rest of emerging economies and well above the average in Latin America, which currently stands at 69 percent of the GDP.

The data used in this article was sourced from:  
IMF, El Universal, El Pais
Photo by:   Pixabay
Gabriela Mastache Gabriela Mastache Senior Journalist and Industry Analyst