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Fiscal policies countries can implement during coronavirus outbreak – Perspectives by Vitor Gaspar and Paolo Mauro from IMF

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A key role of government is to protect the well-being of its people—most crucially and visibly during emergencies such as the recent outbreak of the coronavirus. The IMF has $50 billion available in rapid-disbursing emergency financing to help countries suffering from the virus. As Managing Director Kristalina Georgieva said, what we want is to guarantee that people are not going to die because of a lack of money.

Saving Lives

The priority for governments and the global community is to prevent people from contracting the disease and to cure those who do. More health spending can save lives both at home and globally.

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Given the virus’ rapid contagion, action can help ensure that countries’ health systems—including those that have limited capacity—do not become overwhelmed.

The health spending must occur regardless of how much room in the budget a country may have. Low-income countries urgently need grants or zero-interest loans to finance the health spending they might not otherwise be able to afford. Experience with past epidemics, such as Ebola, shows that speed in deploying concessional finance is essential to contain the spread of the disease.

Developing an effective vaccine also requires public money.

More health spending will save lives.

A plan to protect people and firms

Governments should protect people from the economic impact of this global health crisis. Those who are hit the hardest should not go bankrupt and lose their livelihood through no fault of their own. A family-operated restaurant in a tourism-reliant country, or the employees of a factory shut down because of a local quarantine will need support to weather the crisis.

Depending on their administrative capacity, governments can help people and firms right now in several ways:

1.  Spend money to prevent, detect, control, treat, and contain the virus, and to provide basic services to people that have to be quarantined and to the businesses affected. For example, national governments can allocate money for local governments to spend in these areas or mobilize clinics and medical personnel to affected places, as China and Korea have done.

2.  Provide timely, targeted, and temporary cash flow relief to the people and firms that are most affected, until the emergency abates.

  • Give wage subsidies to people and firms to help curb contagion. For example, FranceJapan, and Korea are providing subsidies to firms and individuals for leave taken to stay home to care for children during school closings. France is offering sick leave to people directly affected by the virus who have to self-quarantine.
  • Expand and extend transfers—both cash and in-kind, especially for vulnerable groups. China is accelerating payments of unemployment insurance benefits and expanding social safety nets. Korea is increasing job seeker’s allowances for young adults and expanding them for low-income households.
  • Provide tax relief for people and businesses who can’t afford to pay. China is easing the tax burden for firms in the most vulnerable regions and sectors, including transportation, tourism, and hotels. Korea is providing income and VAT tax extensions to businesses in the affected industries. China, Italy, and Vietnam are offering tax extensions to cash-strapped businesses. Iran is simplifying taxation for corporations and businesses. China is allowing for a temporary suspension of social security contributions for firms.

3. Create a business continuity plan. Whether you are a ministry of finance or a tax or customs administration, you need to provide services to citizens, taxpayers, and importers in case of widespread contagion, relying as much as possible on electronic means. For example, in the United States, the Federal Emergency Management Agency coordinates the continuity of operations and activities in the federal government.

Some of these measures can occur through administrative means and others would require an emergency budget, which would also take stock of the overall fiscal cost.

It is also important to communicate to the public how emergency action and changes to original budgets are compatible with stability and sustainability. IMF capacity development can help countries to strengthen their administrative emergency response capacities in public financial management and revenue administration.

To support governments requiring financial assistance, several facilities are available from the IMF and the global community, as highlighted by the IMFC.

Right now, the most effective fiscal support measures to the economy are the ones we discuss above. These will prevent or limit the spread of the disease and protect the people and firms most affected. Countries’ so-called automatic stabilizers—the fall in taxes and rise in unemployment and other benefits for those whose incomes and profits decline—would also kick in.

The next IMF Fiscal Monitor in April 2020 will return to these issues and provide further details on policies undertaken until then by our member countries.

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