International Monetary Fund. External Relations Dept.
This paper highlights that the flow of IMF-related resources to member countries was maintained at a high level during 1979, amounting to the equivalent of SDR 6,917 million, compared with SDR 4,955 million in 1978. Some SDR 3.77 billion became available to non-oil developing countries in 1979. Repurchases in the General Resources Account by all members—at SDR 4.2 billion—exceeded their purchases of SDR 1.8 billion by an unprecedented SDR 2.4 billion. These large repurchases reflected the substantial improvement in the balance of payments of some industrial member countries that had large outstanding drawings.
The COVID-19 pandemic has struck amid a preexisting sluggish global growth outlook, historically low nominal interest rates, and low inflation. The pandemic has elevated the need for fiscal policy action to an unprecedented level. For some countries, however, high debt levels and tightening financing conditions are constraining the policy response. But whereas in other economic downturns a key goal of fiscal policy is to stimulate demand, this crisis is like no other—and in its early stages the primary objectives are to boost resources for health care and to provide emergency lifelines to people and firms.
Low growth and investment, adverse shocks, and low inflation and interest rates during the past few years put fiscal policy at the forefront. The COVID-19 pandemic of 2020 has strengthened the case for fiscal policy action and heightened its urgency. In the past few years, growth has been subdued in advanced economies, reflecting various factors including a moderation in capital accumulation (Box 2.1). Sustained high and inclusive growth is critically needed for development in emerging market and developing economies. Inflation has trended down since the 1980s and is currently below targets in two-thirds of inflation-targeting countries. In advanced economies, inflation expectations are anchored at low levels. Nominal interest rates are at historical lows, shifting the balance of cyclical demand support toward fiscal policy. This is because the natural rate of interest—the interest rate that keeps the economy at full employment with stable inflation—is estimated to have fallen significantly and is now below zero in some economies (Rachel and Summers 2019). Consequently, the effective lower bound on policy rates binds more frequently. Moreover, the nominal interest rate on new government borrowing, although at times volatile, is currently negative in many advanced economies (something historically unprecedented). These patterns have been exacerbated by the COVID-19 pandemic (Chapter 1), resulting in a global recession this year, and are likely to persist during the post-shutdown recovery.
State-owned enterprises (SOEs) influence the economy and people’s lives through the provision of goods and services in ways that are distinct from, and more varied than, the direct action of governments.1 In many countries, SOEs provide basic services such as water, electricity, and transportation to people and firms, as well as loans to businesses. SOEs are diverse, varying in size, sector of operation, complexity, sophistication, and extent of government ownership and control. Some are essentially an arm of the government, whereas others have a mix of public and private owners (mixed ownership) and a greater commercial focus. Many SOEs are among the largest companies in low-income developing countries, emerging markets, and advanced economies.
Political leaders have so frequently cried wolf over budgetary spending that voters are skeptical about talk of budgetary crises. This is unfortunate, since deficits should arouse genuine concern, particularly as their size in some industrial countries is daunting. Yet, the absolute size of deficits is not their most alarming aspect. In fact, most countries now run much smaller deficits (as a ratio of GDP) than they did during wartime. Rather, the persistence of budgetary shortfalls during a long period of peace, when governments traditionally pay off debts and save for the future, should set the alarm bells ringing. Furthermore, projected increases in the cost of government programs, as populations age and economic growth lags, give cause for further concern.
The phenomenon of substantial peacetime budget deficits over the past20 years has been traced to the burden of entitlements, a slowdown ineconomic productivity, and demographic and macroeconomic shifts in theindustrial countries. Though smaller and structurally different, deficitsin developing countries have also become worrisome. Most economists agreethat measures to reduce government spending are imperative, particularlythrough restructuring entitlement programs.
Chapter 1 argues that fiscal policies are at the forefront of responding to the COVID-19 pandemic. Fiscal measures can save lives, protect the most-affected people and firms from the economic impact of the pandemic, and prevent the health crisis from turning into a deep long-lasting slump. A key priority is to fully accommodate spending on health and emergency services. Global coordination is for a universally low-cost vaccine and to support countries with limited health capacity. Large, temporary and targeted support is urgently needed for affected workers and firms until the emergency abates. As the shutdowns end, broad-based, coordinated fiscal stimulus—where financing conditions permit—will become more effective in fostering the recovery. Chapter 2 argues that fiscal policies are at the forefront of facilitating an economic recovery from the COVID-19 pandemic once the Great Lockdown ends. Policymakers can achieve this objective with IDEAS: Invest for the future—in health systems, infrastructure, low carbon technologies, education, and research; adopt well-planned Discretionary policies that can be deployed quickly; and Enhance Automatic Stabilizers, which are built-in budgetary tax and spending measures that automatically stabilize incomes and consumption. Importantly, improving unemployment benefit systems and social safety nets can protect household incomes from adverse shocks and strengthen resilience against future epidemics. Over the past decade, state-owned enterprises (SOEs) have doubled in importance among the world’s largest corporations. They often deliver basic services such as water, electricity, and loans for families and small businesses. At their best, they can help promote higher economic growth and achieve development goals. However, many are a burden to taxpayers and the economy. Chapter 3 discusses what governments can do to get the most out of SOEs. This includes ensuring the firm’s managers have the right incentives and there is effective oversight. It also requires a high degree of transparency of their activities.