More spending could create millions of new jobs, says IMF

The International Monetary Fund (IMF) is urging governments across the globe to step up public investment to boost their economies after the deep shock of the coronavirus disease.

The global economy has been damaged severely by the health crisis, with the services sector coming to a halt, many people fearing for their jobs, and governments experiencing soaring debt levels.

In June, the IMF predicted a contraction of 4.9% in global gross domestic product for 2020 – but the fall could be even bigger, as many governments are dealing with a second wave of infections. Now, the IMF is calling on governments to increase public investment to assist economic recovery and create jobs.

Increase public investment

“For advanced and emerging market economies … Increasing public investment by 1% of GDP in these economies would create seven million jobs directly, and between 20 million and 33 million jobs overall when considering the indirect macroeconomic effects,” the IMF says in a chapter of its latest Fiscal Monitor.

The IMF said increasing public investment by 1% of GDP “could strengthen confidence in the recovery and boost GDP by 2.7%, private investment by 10%, and employment by 1.2%” after two years, “if investments are of high quality and if existing public and private debt burdens do not weaken the response of the private sector to the stimulus”.

When governments step up public investment, they signal their “commitment to growth and stability” and that usually boosts private investment, too, the Fund adds.

For countries with easy access to finance, “borrowing to finance public investments of good quality will be an effective strategy because the global decline in interest rates has set a lower bar for investment projects to be beneficial”, the IMF says.

Nations that are struggling to borrow should plan for a gradual increase in public investment and may need to reallocate current spending, or find new sources of revenue.

Where should the money go?

The IMF has suggested that more money should go into health care, social housing, digitisation and environmental protection.

It also says that investing in digital infrastructure will be “essential” so that governments can promote social distancing while narrowing the digital divide in their societies.

“Even with social distancing, public investment is feasible and can be delivered quickly if governments take four steps,” the IMF says.

These include investing immediately in maintenance; reviewing and restarting promising projects; speeding up projects in the pipeline to bring them to fruition within the next two years; and starting to plan for new projects aligned with their post-crisis priorities.

* Asaase Radio 99.5 – tune in or log on to broadcasts online.
Follow us on Twitter: @asaaseradio995
#asaaseradio  #TVOL