Governments Need To Win the Vaccination Race - IMF

“Governments need to win the vaccination race.”

IMF.

Governments need to win the vaccination race after global pandemic fiscal support reached $14 trillion and pushed the world’s government debt up to 98 percent of GDP, said the International Monetary Fund (IMF).

Government revenues are pressured by lower tax revenues due to the pandemic recession and a rise in grants and other spending to support stricken businesses and households.

China was the world’s only growing economy in 2020 because the government and central bank spent heavily to bail out the economy and was the first country to implement regional lockdowns.

The spending must keep going until the vaccination programmes take effect and spread immunity against COVID-19, according to the IMF.

Fiscal policy should enable a green, digital, and inclusive transformation of the economy in the post-COVID19 environment, said the IMF. Priorities include:

• Investing in health systems (including vaccinations), education, and infrastructure. A coordinated green public investment push by economies with fiscal space can foster global growth. Projects—ideally with the participation of the private sector—should aim at mitigating climate change and facilitating digitalization;
• Helping people go back to work and move between jobs, if needed, through hiring subsidies, enhanced training and job search programs;
• Strengthening social protection systems to help counter inequality and poverty;
• Rethinking tax systems to promote greater fairness and provide incentives to protect the environment; and
• Cutting wasteful spending, strengthening the transparency of spending initiatives, and improving governance practices to reap the full benefits of fiscal support.

Cyprus

In Cyprus, the general government budget balance for 2020 is expected to record a substantial deterioration and reach a deficit of about 4.5% percent of GDP, after five consecutive years of fiscal surpluses, said the Finance Ministry.

“This outcome stems both from the effects of the COVID-19 outbreak on the economy, as the baseline macroeconomic scenario suggests a negative growth rate of real GDP of about 5.5%, as well as from the support measures of a one-off nature, which target the current situation in the economy, with an estimated impact on the accounts of the General Government of about -4% of GDP.”

Finance Ministry

Cyprus is over-reliant on the tourism sector which accounts for around 25 percent of GDP. But last year, there was a cataclysmic drop in tourism of 84.1 percent.

For decades, economists have warned that Cyprus’ economy must diversify from tourism or risk national productivity being over-dependent on one sector. 

On the positive side, there now appears to be an opportunity to diversify into health and green investments.

First published on CyprusBusinessReport.com