IMF chief calls for government spending in infrastructure to fight global recession

Indian economy
Private investment has not picked up despite Indian economy's stellar performance on the growth front, prompting the government to prod corporates to take the plunge.

IMF managing director Kristalina Georgieva has cautioned world nations against withdrawing policy measures to combat the economic crisis triggered by the Covid-19 pandemic. The nations should continue policy support in the light of lower economic growth, high public debt higher, and the damage inflicted on the long-term potential of the economy by the pandemic and the measures taken to contain its spread.

There is a need for coordinated efforts to end the health crisis, support the economic recovery, and building stronger foundations for the 21st-century economy, she wrote in a blog post. An economic recovery is not possible without taming Covid-19, she said, adding that continued government spending on treatment, testing, and contact tracing is important than ever in defeating the pandemic.

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Government across the world have taken unprecedented measures including $12 trillion in fiscal support and the central banks have chipped in with huge liquidity support. Georgieva said there is a need to build on these steps. A number of developing nations failed to respond fully to the crisis because of limited resources at their disposal. Several nations have withdrawn fiscal policy support in the form of cash transfers to households, job retention support, and unemployment benefits. Huge job losses are plaguing the global economy — 120 million jobs are at risk in tourism industry alone.

There is room for furthering fiscal support in some countries, while the developing nations could prioritise and reallocate expenditure. The central banks also need to extend continued monetary accommodation and liquidity enhancing measures, especially to the MSME sector.

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The IMF chief calls for a synchronized infrastructure investment push to fuel growth. Public investment in infrastructure can help generate jobs and improve productivity in the economy. She cites IMF studies to explain how G20 countries can lift global GDP by 2% if they raised infrastructure spending by 0.5% of GDP in 2021 and 1% in subsequent years. But if countries acted alone, the same outcome will require about two-thirds more funds.

Georgieva says the world leaders should use the disruption caused by the coronavirus pandemic to build an environmentally sustainable, resilient and inclusive economy. It requires a green investment push that will raise carbon prices. Such a policy package could reinvigorate global economy and create at least 12 million jobs over the next 10 years, the IMF chief said.