IMF recommends paid sick and family leave and unemployment benefits for Africans affected by lockdowns and shutdowns

The International Monetary Fund (IMF) has recommended paid sick and family leave, extended unemployment benefits, wage subsidies and deferral tax payments and social assistance for Africans affected by shutdowns and lockdowns caused by the novel coronavirus.

Mr. Vitor Gaspar, Director of Fiscal Affairs Department at the IMF, at a fiscal monitor Spring Meetings press briefing in Washington DC on Wednesday said the world was facing a common invisible enemy, and “living in a crisis like no other, a once in a century pandemic”, but the actions that would be taken now would influence the outcome.

He said countries in Sub-Saharan Africa, like all other countries around the world affected by the pandemic, should first address the health crisis and move quickly to tackle the immediate economic implications.

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“First, laid the financial ground for health systems, testing, facilities and medical staff, to deal with the crisis support essential containment measures,” Mr. Gaspar said.

“Second, provide emergency lifelines to households and firms made vulnerable by the crisis. These lifelines also help avoid irreversible damage to sustainable and inclusive growth.

“Third, once normal business conditions resume, support the recovery with coordinated fiscal stimulus, taking into account differences in countries circumstances including their financing ability.”

More specifically, Mr. Gaspar said an international joint effort would be necessary to address the first principle of public finances, which is to enable health systems to tackle the pandemic. This would include sharing information, for testing, tracking and monitoring and for the development and inclusive sharing of effective therapeutic fix and vaccines.

“Timely international action is also necessary to enable countries that have health systems ill-equipped to tackle the pandemic. Many of these countries are in sub-Saharan Africa. It is necessary to mobilize financial means, for example, in the form of grants and concessional loans, but also health workers, medical equipment and supplies,” he said.

He said while the health crisis is being fixed, to mitigate the devastating effect of social distancing, lockdowns and shutdowns, large timely, temporary, and targeted measures, such as government funded paid sick and family leave, unemployment benefits, wage subsidies, and deferral of tax payments should be considered.

Mr. Gaspar dismissed fears countries in Sub-Saharan Africa cannot offer paid sick and family leave or unemployment benefits, saying some countries in Sub-Saharan Africa were already doing it.

“The way to do it is very much country specific. The goal, the challenge is to reach people who really need it, namely, those most hard hit by restrictions as well as the most vulnerable,” he said.

“In countries in sub-Saharan Africa the emphasis is on ensuring continued access to basic goods and services. Now, if you look around the continent you actually find very good examples of how it can be done.

“I will give you a few. For example in Rwanda, the communities that as a matter of routine play a role in shaping policies and have been very successful in normal times in Rwanda in boosting the effects of health policies in the country have, in the context of this crisis, been used to make sure that government support reaches workers in the informal sector. The idea here is that the local communities know who the informal workers are, they know who is really in need.

“In Cote d’Ivoire for example, they have a social tariff for electricity and the information that has been collected for that purpose is being used to target vulnerable households in urban areas.

“In Senegal they have used the Registre National Unique that I would translate to English as the Single National Registry and that allow the authorities in Senegal to identify almost 600,000 among the vulnerable people of the one million that they would like to cover. In order to ensure comprehensive coverage they are conducting a complementary survey.

“So what you have seen in all of these examples is that countries make use of what they already have in place and they extend the role of that to tackle this new challenge. One aspect that has been inspiring all over the continent, and we have a few examples of that, is the use of digital technology that has been supported by mobile telephony and payment systems to allow for either continuity of supply of basic goods or even government to households, government to business direct transfers.

“And last, but not least, traditional tools like tax deferrals that allow cash to be kept with firms and households have also been used successfully in sub-Saharan Africa. So the key to do it is to use the instruments that you already have in place and adapt them to the challenge that we are facing currently,” he said.

Read Full Transcript of the April 2020 Fiscal Monitor Press Briefing

April 15, 2020

Vitor Gaspar, Director, Fiscal Affairs Department, IMF

Ting Yan, Communications Officer, IMF

MS. YAN: Good morning, everyone. Welcome to this IMF press conference on the fiscal monitor. Thank you for joining us today. I’m Ting Yan of the Communications Department. I’m delighted to introduce to you our speaker today, Mr. Vitor Gaspar, Director of Fiscal Affairs Department.

As we all know, this is an unprecedented time so we are doing things a little bit differently today. Our press conferences are entirely virtual. In this sense, I would encourage you to send your questions via our online press center. And thanks to all of you who have already sent your questions in advance.

With the same spirit, I would also like to let you know that we have launched a mobile app that houses our latest flagship reports in an easy to read format. So, you can read, search and discover our latest analysis on the go. With that, let me invite Vitor to make some opening remarks and then we will be happy to take your questions. Vitor, the floor is yours.

MR. GASPAR: Thank you, Ting. Welcome all to the fiscal monitor press conference and thank you for your interest in fiscal policy. We are living in a crisis like no other, a once in a century pandemic. It is a fight of all humanity against a common and invisible enemy.

You have already heard yesterday from our chief economist that the crisis is unprecedented both in nature, it’s a health emergency, and severity. It’s much sudden and deeper than the global financial crisis. As for fiscal policy, the basic principles are clear.

First, laid the financial ground for health systems, testing, facilities and medical staff, to deal with the crisis support essential containment measures. Second, provide emergency lifelines to households and firms made vulnerable by the crisis. These lifelines also help avoid irreversible damage to sustainable and inclusive growth. Third, once normal business conditions resume, support the recovery with coordinated fiscal stimulus, taking into account differences in countries circumstances including their financing ability.

Let me now give you some more details but if you really want to go in depth, you will have to read through the fiscal monitor. The first principle of public finances is to enable health systems to tackle the pandemic. An international joint effort is necessary for sharing information, for testing, tracking and monitoring and for the development and inclusive sharing of effective therapeutic fix and vaccines.

Timely international action is also necessary to enable countries that have health systems ill-equipped to tackle the pandemic. Many of these countries are in sub-Saharan Africa. It is necessary to mobilize financial means, for example, in the form of grants and concessional loans, but also health workers, medical equipment and supplies.

The IMF calls jointly with the World Bank for an immediate standstill for official bilateral creditors for the poorest countries. A parallel initiative by the private sector would also be welcome. A health emergency is a call for unity and solidarity both within countries and among countries.

The second principle is to save lives and livelihoods. In order to flatten the curve that tracks the spread of the disease, it is necessary to adopt exceptional containment measures. These measures have strong economic and social impacts. It is imperative to use fiscal policies to protect people and firms made vulnerable by the crisis. For households, the objectives are to meet basic needs and avoid unnecessary hardship.

Actions include tax deferrals, cash transfers, extended unemployment benefits and social assistance. These measures truly are emergency lifelines aiming at preserving decent living standards and livelihoods. For firms, the objective is to avoid permanent scarring. Fiscal policies can help preserve employment and wages while maintaining capacity that will be crucial for the recovery. That includes avoiding unnecessary bankruptcies leading to job losses and liquidation of assets.

These lifelines are expensive. Authorities all around the world have jumped into action. According to fiscal monitor estimates, discretionary policy actions with direct impact on the budget sum up to $3.3 trillion. In addition, loans and equity injections amount to $1.8 trillion. And finally, guarantees represent $2.7 trillion. The sum is about $8 trillion which corresponds to 9 and a half percent of world GDP. The bulk of these measures were adopted by G-20 countries whose actions represent about 90 percent of the total.

In an emergency, it is crucial to act fast and decisively. Fiscal actions have been announced on an enormous scale. That requires accurate accounting, frequent timely and transparent disclosure and the adoption of procedures ensuring ex-post evaluation and accountability. Principles of good governance should be reinforced in a way commensurate with a scale of the intervention. In order to make all of this memorable in a sentence, there it goes: “Do whatever it takes but make sure to keep the receipts.”

Budget deficits and debts will sharply increase in 2020, substantially more than in 2009 at the peak of the global financial crisis. Gross government debt all over the world will jump up by more than 13 percentage points of GDP to more than 96 percent of GDP. The contrast across country groups is marked. In advanced economies, the effort is about 17 percentage points of GDP, for emerging market economies about 9 percentage points and finally for low income developing countries, about 4 and a half percentage points of GDP.

The change in debt ratios in 2020 is a large one off jump up. For 2021, the baseline points to stabilization of debt ratios at the new higher level. As a matter of fact, if one excludes China and the U.S. from the world total, gross general government debt would be falling by more than 1 percentage point of GDP in 2021.

That reflects declining debt ratios in most countries. But don’t forget, uncertainty is very hard and downside risks are quite considerable as our chief economist emphasized yesterday. If the adverse scenarios presented at the World Economic Outlook were to materialize, debt levels would be even higher and debt dynamics more unfavorable.

Finally, the third and last principle prescribes that once COVID-19 has been contained, a coordinated stimulus to strengthen demand and foster recovery may be needed. Such international coordinated actions must reflect differences in relevant circumstances among countries including in their financing ability.

So to conclude, let me just repeat the key takeaways for fiscal policy. First, provide the financing necessary to enable health systems to deal with the crisis. Second, provide lifelines to vulnerable households and firms. Such lifelines also help to avoid permanent damage to prospects for sustainable and inclusive growth. Third, once normal business conditions resume, support the recovery.

Throughout international cooperation and coordination are crucial to enhance effectiveness of policy actions and support all nations of the world in the fight against the pandemic. But I would like to leave you with a catch phrase that reminds us all of the importance of good governance. Do whatever it takes but make sure to keep the receipts. Thank you very much for your attention and now I’m ready to answer your questions.

MS. YAN: Thank you, Vitor. Thank you, everyone. Now we can take your questions. Our first question is from Masaki Kondo, Jiji Press.

The Fiscal Monitor Report says that debt to GDP ratio will be stabilized after 2021. Assuming people will not behave as we used to and therefore less productive, less tax revenue for the government, why debt is going to be flat?

MR. GASPAR: If you allow me there are two different questions in yours. One has to do with the path of the debt to GDP ratio and what explains the path that we have in our baseline projection. And the second question is what can we expect for the period of recovery after the epidemic is gone.

So on the first, what is going on is the epidemic is a severe, very severe but temporary disturbance. The epidemic will eventually be gone. When that happens, economic recovery will take place.

The pressure on budgets was to a certain extent temporary as well. We do believe that inflation is low, interest rates are low in a large part of the world, that’s certainly the case in advanced economies. The most extreme case is perhaps Japan.

And if we believe that these conditions will be kept during the period of recovery, the debt to GDP ratio dynamics will be favorable. That’s why we have this one off jump up by 13 percentage points of GDP to 96 but then a stabilization and actually a decline foreseen for the large majority of countries.

Uncertainty is very strong. I’m answering to your second question. So we don’t know how things will look like once the epidemic is a thing of the past but we can imagine some good trends going on.

Clearly, we are all undertaking a crash course in the use of information and communication technology and this is a learning experience that likely will accelerate the transition to a digital society.

A natural disaster like an epidemic may be a wakeup call for action in other areas like climate change. One can imagine international cooperation becoming stronger, certainly in the health area.

And so the short answer to how the world will look like after the epidemic is we don’t know but we can be hopeful that a number of transformational dynamics that underpin progress will be accelerated by the pandemic.

MS. YAN: Thank you. We also have a couple questions from Heather Scott, Delphine Touitou of AFP.

You mentioned that fiscal measures worth of about $8 trillion U.S. dollars have been taken by countries around the world. Do you think these measures are enough to stabilize the economy? Can you give us a sense of how much more could be needed?

You also mentioned that the debt load will be increasing dramatically worldwide. Are you concerned that the effort to lower the debt load in the coming years once the pandemic is passed will mean a much slower global growth?

MR. GASPAR: So very quickly, because I believe that we have covered a bit of that ground already, what is going on here in terms of a fiscal policy that is most expressive from a quantitative viewpoint is the extension of these emergency lifelines to households and firms. That is absolutely crucial as an element to face this epidemic.

People need to maintain decent standard of living, livelihoods have to be preserved. One needs to avoid unnecessary damage to the economic framework. One needs to preserve capacity for the recovery stage.

But the goal is not to stabilize the economy as such. The economy to caricature is in lockdown. One is managing the lockdown and maintaining the conditions for recovery. That basically means that these measures are very expensive and if the epidemic proves longer lasting, they will be more expensive still.

Now, when it comes to the debt levels, clearly the epidemic is a very large, perhaps persistent, but definitely temporary disturbance and so there is a post epidemic stage that in a sense requires to be managed quite carefully but countries have faced these type of difficulties in the past, many times in the context of wars and they have managed these types of challenges quite aptly.

MS. YAN: We received a question on Brazil. It’s from Ricardo Leopoldo of Estado.

So the question is how is the Brazilian government supposed to handle its fiscal policy to curb the epidemic as well as control the fiscal deficit and recover investment and the economy?

MR. GASPAR: So this is a good question. And the Brazilian government has rightly declared a state of public calamity and that allowed the Brazilian government to suspend the fiscal targets and the fiscal expenditure ceiling. And in that context it created the space that allows it to support the health system and to support households and firms.

In the case of Brazil, there was an expansion of the cash transfers to households, to low income households I should better say, and temporary tax relief has been granted as well. The aggregate importance of these measures may be about three percentage points of GDP.

We also see that public debt to GDP in Brazil goes up by about 10 percentage points of GDP to almost 100 percent of GDP in 2020. But in 2021, it stabilizes at that level. Again it is a jump up but it’s a level effect, not a trend.

Once the epidemic is an issue of the past, Brazil will have to resume its efforts in favor of sustainable and inclusive growth and regain traction in terms of its fiscal consolidation efforts.

I still want to welcome the reform of social security that was passed last year but the compliance with the federal level spending ceiling requires further action going forward.

MS. YAN: Thank you. We also received several questions from Henry Kerr of the Economist, on Italy, UK and the U.S.

On Italy, will Italy and possibly other countries in the Eurozone periphery need debt restructuring when this crisis is over? To what extent does the ECB’s pandemic bond buying program increase their fiscal space?

And on the UK. Sterling dropped significantly in the first few weeks of the pandemic. If sterling is a risk asset rather than a haven, that would seem to reduce Britain’s flexibility to respond to a crisis. Is Britain’s fiscal position secure?

Maybe if you could answer the two questions first and then we go to the U.S. one.

MR. GASPAR: Okay. So Italy and the UK and quite a number of sub-questions there. Now, Italy was a country that was very strongly affected by the epidemic and the Italian government did respond strongly supporting the Italian health system and taking measures to protect households and firms made vulnerable by the crisis.

In that context — in the context of this very appropriate policy actions the deficit will widen to more than 8 percent of GDP and public debt is projected to jump up by about 20 percent of GDP from 135 percent to 155. Again, under our baseline as the economy recovers in 2021 and the European Central Bank keeps interest rate low the debt dynamics become much more favorable and the public debt to GDP ratio is projected to come down to about 150 percent of GDP.

Going forward, the main challenge of the Italian economy is to be competitive, to enhance potential growth so that it can actually achieve inclusive and sustainable growth. Italy does have a very disappointed growth performance in the last three decades or so. And solving the debt problem in Italy is solving the growth problem in Italy as well.

About the UK, the history — the modern history of public debt in the — in England coincides with the creation of the Bank of England in 1694 and what you do see, if you look at the history of public debt in the United Kingdom is that it was necessary for the nation to tackle quite substantial debt challenges over the centuries. And the country has always been able to do that successfully.

In the context of this crisis, we do expect a widening of the deficit for this year, an increase in the debt to GDP ratio to about 96 percent of GDP in 2020. We forecast under the baseline a stabilization at that level. The borrowing costs for the UK, as for most other advanced economies are very low and we expect them to be kept at close to record lows. The measures taken in the UK have been targeted and temporary so we would expect a correction in the future as soon as the epidemic is past.

And I probably should stress and that the U.S. has been an example of very good coordination between the Treasury and the Bank of England, as well as a pioneer in a number of institutions of public finance which could be reinforced in order to sustain a medium-term strategy once the epidemic is past.

MS. YAN: Thank you. So the question on the U.S. is do you worry about America’s fiscal position given the enormous size of its fiscal stimulus and deficit?

MR. GASPAR: So the case of the U.S. is very interesting. The U.S. did jump into action quite rapidly. At this point in time we already have three fiscal packages approved totaling $2.3 trillion which is more than 10 percent of the U.S. GDP. That includes a wide diversity of policy actions including one-time tax rebates to individuals, expanded unemployment insurance, cash transfers, food assistance for the most vulnerable, transfers to state and local governments, and emergency appropriations for the health response.

All of this is fully in line with the health emergency that is being tackled and with the proactive management of the more destructive consequences of the economic shutdown. So the United States has put in place this emergency lifeline to a very large extent. That leads to a widening of the budget deficit and an accumulation of public debt for the U.S. that are greater than what happened during the course of the global financial crisis. The U.S. has ample fiscal space, and so the U.S. has conditions not only to take the measures that it has undertaken but also to seek proactively use of a fiscal policy once the epidemic is past and the economy is ready to recover.

MS. YAN: Thank you, Vitor. We now have a question on sub-Saharan Africa from Simon Ateba of Today News Africa. The question is, to mitigate the devastating effect of social distancing, lockdowns and shutdowns you recommend large timely, temporary, and targeted measures, such as government funded paid sick and family leave, unemployment benefits, wage subsidies, and deferral of tax payments. How can this be applicable in most countries in sub-Saharan Africa where there are hardly safety nets even in normal times?

MR. GASPAR: It’s a great question. And it really underlines that the way to do it is very much country specific. The goal, the challenge is to reach people who really need it, namely, those most hard hit by restrictions as well as the most vulnerable.

In countries in sub-Saharan Africa the emphasis is on ensuring continued access to basic goods and services. Now, if you look around the continent you actually find very good examples of how it can be done. I will give you a few. For example in Rwanda, the communities that as a matter of routine play a role in shaping policies and have been very successful in normal times in Rwanda in boosting the effects of health policies in the country have, in the context of this crisis, been used to make sure that government support reaches workers in the informal sector. The idea here is that the local communities know who the informal workers are, they know who is really in need.

In Cote d’Ivoire for example, they have a social tariff for electricity and the information that has been collected for that purpose is being used to target vulnerable households in urban areas.

In Senegal they have used the Registre National Unique that I would translate to English as the Single National Registry and that allow the authorities in Senegal to identify almost 600,000 among the vulnerable people of the one million that they would like to cover. In order to ensure comprehensive coverage they are conducting a complementary survey.

So what you have seen in all of these examples is that countries make use of what they already have in place and they extend the role of that to tackle this new challenge. One aspect that has been inspiring all over the continent, and we have a few examples of that, is the use of digital technology that has been supported by mobile telephony and payment systems to allow for either continuity of supply of basic goods or even government to households, government to business direct transfers.

And last, but not least, traditional tools like tax deferrals that allow cash to be kept with firms and households have also been used successfully in sub-Saharan Africa. So the key to do it is to use the instruments that you already have in place and adapt them to the challenge that we are facing currently.

MS. YAN: Now we have a question on China from Lejun Wu of People’s Daily. China has increased spending to contain the pandemic and to support the enterprises and households. According to the fiscal monitor report, China’s fiscal balance this year is expected to deteriorate this year. Can you tell us how you think of China’s fiscal space and toolbox to support economy going forward?

MR. GASPAR: To telegraphically, one general remark. The reason I emphasize that the aggregate public debt in the world, excluding the U.S. and China, would go down by one percentage point of GDP was to signal that U.S. and China are one of a kind. And so they have access to a number of policy options that are not available to many other countries.

The Chinese example is particularly interesting because China was the first country to be affected by the epidemic. It acted exactly in line with the public finance principles. It transferred resources to the health system and it did protect vulnerable household and vulnerable firms, and it has done it based on a variety of instruments, including a waiver on social security contributions, an accelerated disbursement of unemployment insurance, and tax relief.

Now, this was entirely appropriate, and China has the fiscal space to do this. But more interestingly, at this point in time, the Chinese economy is starting to come back, and the economic and social life is normalizing. It turns out the China is also affected by what’s going on in the rest of the world and is affected by the less favorable growth prospects in the world as a whole. In any case, there is a road for fiscal policy to support the recovery, but it should do it in a way which is compatible with the long-term objectives of the Chinese economy, rebalancing the economy, improving social safety nets, foster green growth.

And I must emphasize this point, a priority area that has been signaled by the Chinese authorities is the reinforcement of the public health system. And that’s entirely appropriate after a very strong epidemic. The engagement of all countries in similar efforts at world level is equally justified.

MS. YAN: Thank you. Now we have a question on India from Anup Roy, Business Standard. India has provided fiscal stimulus of 0.8 percent of the GDP to fight the COVID-19 pandemic. However, given the country is in an extended lockdown, what should be the appropriate size of the stimulus to address the shock in the economic activities? In what shape that should come? Does the country have enough fiscal space for a large stimulus?

MR. GASPAR: So, again, I think that what is going on in India right now is the extension of this emergency lifelines during a period of shutdown. So what is being down is to make sure that people can face the emergency and can do it while having their basic needs satisfied. And at the same time, that we have firms keeping their capacity in order to maintain the capacity of the economy to respond once business conditions have normalized.

The fiscal emergency package that was put in place on March 26 was timely and it was targeted. The way it was done is quite interesting and quite adapted to the Indian circumstances because there was a extension on the coverage of insurance targeting the workers in the health system. There has been a substantial action in terms of in kind transfers and debt in India has concentrated on food, but also on cooking gas. And there have been cash transfers, some of those very targeted to poor households.

Now, we don’t know how long the epidemic will last, so we don’t know if additional measures of lifeline support will be called for. India is not a country with ample fiscal space, but a health emergency takes precedent and the fiscal support needed is quite substantial, but it is temporary, and the pandemic will be, someday, a thing in the past.

MS. YAN: Thank you. Let’s take another question. The question is on Japan from Andrea Shalal of Reuters. The question is, pandemic poses significant risk to projected fiscal adjustment in Japan. What does that mean for Japan’s economy?

MR. GASPAR: So the structure of the answer is one that I’ve already given, but I think Japan is an excellent example. So to repeat, the epidemic is a health emergency and one needs to give priority to the health sector. That is going on in Japan. In order to contain the epidemic, it is necessary to put in place policies that will curb the spreading of the disease. And this have been taken.

The Japanese authorities appropriately have recently announced a very large fiscal support that is in the form, for example, of one-year cash relief to firms. Now, this measure has the nature of emergency lifelines, and aim at preserving the capacity of the economy to rebound as soon as the containment efforts can be eased. So the one-off jump of the public debt to GDP ratio in Japan to more than 250 percent is something which should be seen in that way, like a one-off jump.

The Bank of Japan going forward will, in all likelihood, keep interest rates low for even longer than what was envisioned before. And with the recovery of the Japanese economy that we have in our baseline, it turns out that the public debt to GDP ratio will be declining to 245 percent of GDP. But, again, in the medium to long run, Japan is going to need to have a growth-friendly fiscal consolidation.

In Article IVs the IMF has recommended a gradual increase in the consumption tax rate, and Japan has been a pioneer of measures to contain the growth of spending associated with population aging. And those efforts will need to continue in the future.

MS. YAN: Thank you very much, Vitor. And thank you, everyone, for joining us today. This concludes the press conference on Fiscal Monitor. Please stay safe and take care. Thank you.

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