Countries around the world should use the novel coronavirus pandemic as an opportunity to invest in public infrastructure and other projects that take advantage of low interest rates, the International Monetary Fund said in a report on Wednesday. Countries should also strengthen their unemployment benefits and social safety nets in order to reinvigorate economic growth once the virus abates, the global lender said in its semi-annual Fiscal Monitor.
"The COVID-19 pandemic of 2020 has strengthened the case for fiscal policy action and heightened its urgency," the IMF said, referring to the respiratory disease caused by the virus that has been confirmed in more than 3.6 million people around the world.
"Low-for-long interest rates present an opportunity for quality public investment across the world to boost growth."
Last month, the IMF forecast the global economy would shrink 3 percent during 2020 as a result of the pandemic, but warned that its forecasts were marked by "extreme uncertainty" and that outcomes could be far worse.
In outlining ways the countries should handle downturns and times of weaker economic growth more generally, the IMF said it was imperative to invest in health systems, infrastructure, low-carbon technologies, education and research to improve productivity growth, which has been on a mostly downward trend.
Noting that a moderation of capital accumulation over the past decade had slowed economic growth, IMF economists said that modernizing aging infrastructure in advanced economies and addressing infrastructure needs and other sustainable development goals in developing countries were also crucial and should be prioritized now.
Lawmakers and central banks globally have taken unprecedented actions to try to mitigate the fallout from the economic damage wreaked by the virus as a result of countries implementing strict lockdowns among large populations. Unemployment has shot up in many countries.
In the United States, Congress has already allocated almost $3 trillion to help businesses and individuals. Other assistance packages have been put together by governments around the world, but the emphasis has mostly been on the immediate need to get money into people's pockets, not on large-scale public investments.
IMF economists noted that such investment types of spending during previous downturns came too late and were not well targeted, adding they could have the effect of spurring private consumption and investment through higher inflation expectations and lower real interest rates.
"To reduce implementation lags and guide expectations, policymakers should act swiftly to establish a pipeline of appraised investment projects now that can be implemented when the health crisis abates, and plan discretionary measures that can be deployed quickly," the IMF said.
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