A Second Wave of Fiscal Measures to Protect the Global EconomyBy Gabriela Mastache | Wed, 05/20/2020 - 13:00
IMF estimates that in May alone, global fiscal support to face the economic effects of the COVID-19 pandemic has increased in US$1 trillion and now totals US$9 trillion. Out of this, US$4.4 trillion have been destined to direct budget support, while additional public sector loans, equity injections, guarantees and other “quasi-fiscal” operations account for US$4.6 trillion.
IMF says that this additional trillion is the result of a “second wave of measures by governments as the economic fallout from the pandemic proves more severe.” As an example, IMF mentions that on April 23, the US approved an additional fiscal relief package worth US$483 billion. Japan has also increased the scope of its fiscal program providing an additional US$83 billion to support households.
As of April 2020, IMF estimates that the G20 represent the bulk of the total fiscal relief measures that have been implemented in the world, with almost US$8 trillion. Moreover, it notes that the average spending of countries in terms of fiscal measures adds up to 4.5 percent of their GDP. Among the G20 group, Italy, Germany, the UK and France are those that have destined the most resources for loans, equity and guarantees. The US and Australia are among those that have destined the most to spending and revenue measures. Mexico is the country in the G20 group that has destined the least amount for recovery measures.
The lack of fiscal measures in the country threatens to generate a debt of historic proportions for the country, says the Center for Economic and Budgetary Research (CIEP). According to the CIEP, the country’s public debt will increase in 15 percent in real terms. This increase will come as a result of the fall in governmental income and the effect of the Mexican peso depreciation.
Government income will be severely affected given the fall in oil prices and a steep reduction in tax income, given the cease in economic activity. CIEP estimates that public income will fall by MX$317 billion (US$13.6 billion). Despite the increase in debt, CIEP acknowledges that a public spending program could help to reactivate the economy, even though this would mean more debt in the short term.
The exchange rate is another factor that impacts negatively the economy. For 2020, the expected parity between the Mexican peso and the US dollar is at MX$22, a 16 percent increase against the 2019 value. The change in value is relevant since it implies an increase in the country’s total debt, which is measured in US dollars.