The recovery from COVID-19 will happen sooner if policies enacted during the crisis ensure workers don’t lose their jobs or homes and allow companies avoid bankruptcy, the International Monetary Fund said, likening the pandemic to a war.
Economic policies at a time when the fall of output is an “unavoidable consequence” of limiting the disease’s spread don’t need to stimulate demand just yet, the IMF said in a blog post on Wednesday. Instead, they need to guarantee the functioning of essential industries, provide resources for people who are been hit by the pandemic and prevent “excessive economic disruption,” the Washington, DC-based fund said.
“Greater intervention by the public sector is justified by the emergency for as long as exceptional circumstances persist, but must be provided in a transparent manner and with clear sunset clauses,” the IMF said.
COVID-19 has spread rapidly around the world this year after the new coronavirus that causes the respiratory disease emerged in China late in 2019. According to data from Johns Hopkins University, the illness that the IMF said is “in many ways” like a war has killed more than 44,000 people around the world, with confirmed cases nearing 884,000.
“The success of the pace of recovery will depend crucially on policies undertaken during the crisis,” the IMF said. “If policies ensure that workers do not lose their jobs, renters and homeowners are not evicted, companies avoid bankruptcy, and business and trade networks are preserved, the recovery will occur sooner and more smoothly.”
To help stem the spread, governments have ordered widespread lockdowns and enacted guidelines on physical distancing, leading to disruptions across sectors from entertainment to education and manufacturing.
“Limiting the movement of people is necessary for containment,” the IMF said. “But countries must resist the instinct of shutting down trade, especially for health-care items and the free exchange of scientific information.”
The recovery could include higher levels of public debt and more government control over new sections of the economy, but fiscal measures that are meant to speed up activity will be more effective as people can begin heading back to work, the IMF said. Inflation can be kept low if measures are taken to avoid supply-chain disruptions, it added.
“If the measures to contain the spread of the virus are successful, the necessary increase in the public debt ratio will have been sizable, but interest rates and aggregate demand are likely to remain low in the recovery phase,” the fund said. “Under those circumstances, fiscal stimulus will be appropriate and highly effective in most advanced economies.”