Global public debt expected to reach 100% of GDP in 2020: IMF’s managing director
Doaa A.Moneim, , Tuesday 6 Oct 2020
The IMF says it has provided financing at unprecedented speed and scale to 81 countries, reaching over $280 billion in lending commitments, which is more than a third of that approved since March

Global public debt is expected to reach a record-high of about 100 percent of GDP in 2020, while global output is expected to remain good over the medium term amid the ongoing COVID-19 crunch, Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva said on Tuesday.

Georgieva’s statements came a few days before the IMF and the World Bank’s annual meetings scheduled to take place from 12 to 18 October.

Global economic activity dropped unprecedentedly in the second quarter of 2020, when about 85 percent of the world economy was in lockdown for several weeks, according to Georgieva.

Georgieva pointed out that in June, the IMF projected a severe global GDP contraction in 2020. However, the picture today is less dire due to the developments achieved in the second and third quarters that were somewhat better than expected, allowing for a small upward revision to the IMF global forecast for 2020.

“We continue to project a partial and uneven recovery in 2021,” said Georgieva.

She noted that governments have provided around $12 trillion in fiscal support to households and firms, while unprecedented monetary policy actions have maintained the flow of credit, helping millions of firms stay in business.

She highlighted the gap between the advanced economies and poorer countries that was clear in dealing with the ongoing crisis, saying that this gap in response capacity is one reason why the world is seeing different outcomes.

Regarding emerging markets and low-income and fragile states, Georgieva stressed that they continue to face a serious situation due to having weaker health systems. In addition, they are highly exposed to the most affected sectors, including tourism and commodity exports.

Moreover, they are highly dependent on external financing, according to Georgieva.

On the other hand, abundant liquidity and low interest rates helped many emerging markets regain access to borrowing, but not a single country in Sub-Saharan Africa has issued external debt since March.

“The global economy is coming back from the depths of the crisis, but this calamity is far from over. All countries are now facing what I would call ‘The Long Ascent,’ a difficult climb that will be long, uneven, and uncertain. And prone to setbacks,” according to Georgieva.

She added that the path ahead is clouded with extraordinary uncertainty, whereas faster progress on health measures, such as vaccines and therapies, could speed up the “ascent.” But it could also get worse, especially if there is a significant increase in severe outbreaks.

Georgieva stressed that risks remain high, including from rising bankruptcies and stretched valuations in financial markets.

Additionally, many countries have become more vulnerable with increases in their debt levels because of their fiscal response to the crisis and the heavy output and revenue losses.

Dealing with the crisis, Georgieva disclosed that the IMF has provided financing at unprecedented speed and scale to 81 countries, reaching over $280 billion in lending commitments, which is more than a third of that approved since March.

Georgieva also said that there is a global need to direct intensive investments to build a resilient economy, one that is greener, smarter, more inclusive and more dynamic, which will help in attaining strong and sustainable recovery.

She added that new IMF research shows that increasing public investment by just 1 percent of GDP across advanced and emerging nations can create up to 33 million new jobs that will be critical amid the ongoing crisis in the labour and employment sector.