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IMF Urges Govts to Plan Fiscal Stimulus to Fight Covid Impact
By TII News Service
Mar 18, 2020 , Washington

    

By TII News Service

WASHINGTON, MARCH 18, 2020: INTERNATIONAL Monetary Fund (IMF) has urged governments to unveil fiscal stimulus under multi-pronged strategy to manage economic fall-out of Covid-19 pandemic.

In a policy paper (PP) captioned 'Policy Steps to Address the Corona Crisis', IMF observes: "Broad-based fiscal stimulus will help support aggregate demand. Options - including through boosting investment or economy-wide tax cuts - will depend on the evolving nature of the shock and the availability of fiscal space. Although the impact of broad stimulus may be small until the COVID-19 outbreak fades because of large supply disruptions, accelerating implementation of investment or other discretionary measures can prevent stimulus arriving too late".

PP adds: "The authorities may need to step in with additional support measures – in past crises, subsidies and tax relief aimed at smaller borrowers as well as credit guarantees and asset purchases programs to support banks have been the main vehicles, though capital injections and broad deposit guarantees have also been employed to restore confidence and stem systemic turbulence".

PP says that fiscal policy should urgently provide sizable support for affected people and firms during the pandemic. Depending on the evolving nature of the pandemic, additional fiscal stimulus may be necessary to prevent long-lasting economic damage.

It elaborates: "wage subsidies for businesses affected by shutdowns can help prevent cascading bankruptcies and massive layoffs that will have lasting effects for future recovery and negative impact on aggregate demand. Cash transfers to low-income households can support consumption and preserve minimum living standards ".

Noting that G20 countries' response has been timely, PP has pointed out that the response has so far remains lower than during the global financial crisis. It says: "Given the temporary nature of health epidemics, the current crisis is likely to be more short-lived. However, as the virus spreads across the globe, more needs to be done in 2020, and the case for a coordinated and synchronized global fiscal stimulus to enhance confidence is becoming stronger".

According to PP, monitoring, containing and mitigating the effects of the corona virus are top priorities. Timely and decisive actions by health authorities, central banks, fiscal, regulatory and supervisory authorities can help contain the virus outbreak and offset the economic impact of the pandemic. Central banks must support demand and confidence by preventing a tightening of financial conditions, lowering borrowing costs for households and firms, and ensuring market liquidity. Fiscal policy must step up to provide sizable support to the most affected people and firms, including in hard-to-reach informal sectors. Regulatory and supervisory responses must aim to preserve financial stability and banking system soundness while sustaining economic activity.
 
 
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