The IMF Fiscal Monitor for April 2021 entitled A Fair Shot discusses actions in response to COVID-19 and looks at policies that can prepare for a greener and more durable recovery.
Low-income countries currently have large budget deficits and have little scope to raise more revenue in the short term. These countries will need assistance through grants, concessional financing or debt restructuring. As countries enter a period of recovery deficits will decrease in the medium term and debt-to-GDP ratios will stabilise, except in certain countries where demographic factors and development needs will lead to higher public debt.
There is still uncertainty in the economic outlook and priorities for fiscal policy need to include continued support for populations and pursuit of a green and digital transformation of economies. Medium-term fiscal strategies must manage the fiscal risks and renew efforts to achieve the Sustainable Development Goals. International cooperation must increase to deal with the pandemic and accelerate vaccination in all countries at an affordable cost.
If the pandemic is controlled sooner in all countries the resulting stronger economic growth could yield more than USD 1 trillion in aggregate in additional tax revenues in the advanced economies by 2025; and would save trillions more that would otherwise be spent in fiscal support measures. Vaccination would therefore yield excellent value for the public money invested in vaccine production and distribution. Generally, reform measures should be targeted and tailored to the administrative capacity in each country to ensure that it can be sustained. A synchronized green public investment effort by countries with fiscal space could foster global growth.
To fund pandemic-related financing needs a temporary COVID-19 recovery contribution could be levied on high incomes or wealth. Domestic and international tax reforms are needed to ensure enough resources are mobilised to improve access to basic services, enhance safety nets and renew the push to achieve the Sustainable Development Goals.
Policies need to combine pre-distributive policies, affecting incomes before taxes and transfers, with policies to reduce market income inequality through transfers and to some extent through taxes. There should be more investment in education, health, and early childhood development and social safety nets could be strengthened by expanding coverage of the most vulnerable households and increasing adequacy of benefits.
Advanced economies could make income taxation more progressive and increase the contribution from inheritance or gift taxes and property taxation. COVID-19 recovery contributions and excess corporate profits taxes could be considered. Wealth taxes could also be considered to raise additional revenue. Emerging market and developing economies should focus on strengthening tax capacity to finance their spending. Improvements in transparency and accountability can strengthen trust in government.
To achieve the Sustainable Development Goals by 2030 would need around USD 3 trillion for 121 emerging market and low-income developing countries. The reform efforts by these countries will need support from the international community and immediate priority should be given to affordable access to vaccines.
