Pandemic Spending Boosts Global Government Debt to 98% of Economic Output, IMF Says.

Lender of last resort says governments should keep spending to fight the pandemic and its economic fallout 

The IMF said governments should avoid cutting back on spending too soon.PHOTO: ERIC BARADAT/AGENCE FRANCE-PRESSE/GETTY IMAGES

So here you have it , folks, from on high. Keep spending for now especially wealthy nations. But later when this is all over cut back —but move to a green economy —-which really means spend more ——and this is an expert —and he ignores Germany where they are considering electricity rationing because of expensive green policies and have the highest electricity prices in the western world. . You got all of that. No wonder people are cynical and confused. Nothing makes sense anymore!!!!

By Yuka HayashiJan. 28, 2021 8:00 am ET—Wall Street Journal

WASHINGTON—Government debt around the world shot up last year to approach levels last seen in the aftermath of World War II, as nations stepped up spending to fight the Covid-19 pandemic and its economic fallout, the International Monetary Fund said Thursday.

Public debt as a share of global gross domestic product surged to 98% by the end of December from 84% at the end of 2019, before the pandemic struck, the IMF said in an update to its semiannual Fiscal Monitor report. The IMF is the global lender of last resort to countries in distress and tracks debt levels closely. The total dollar value of global debt, which includes central and state government debt, came to $89.6 trillion at year’s end. 

The increase was particularly large among advanced economies, which can easily borrow at low interest rates. The debt-to-GDP ratio among those nations rose to 123% by December from 105% in 2019, and it is expected to grow to 125% this year.

“From 2021 onwards, debt stabilizes at a high level and stays elevated well above the pre-Covid-19 level up to the end of” 2021, said Vitor Gaspar, director of the IMF’s Fiscal Affairs Department.

The IMF said governments should emphasize measures to combat the pandemic and cautioned against prematurely dialing back on spending.

“The virus won’t be under control anywhere until it is under control everywhere,” Mr. Gaspar said. “The sooner that happens, the sooner economic activity will pick up and the sooner jobs will come back. That is the high road to growth and fiscal sustainability.”

In the U.S., the debt-to-GDP ratio hit an estimated 129% in 2020 and is projected to rise to 133% this year, up from 108% in 2019, the IMF said. The projection takes into account two major pandemic-related stimulus bills adopted in 2020—the $2.2 trillion Cares Act in March and the $900 billion package in December.

The IMF defines public-sector debt to include debt held by central banks. The U.S. tracks debt held by the public, which came to about 100% of GDP at the end of September 2020.

President Biden’s $1.9 trillion stimulus plan, if enacted as proposed, would boost the U.S. economy by roughly 5% over three years, IMF chief economist Gita Gopinath said earlier. The IMF projects the U.S. economy will grow by 5.1% this year after shrinking an estimated 3.4% in 2020. 

“The U.S. has a very large capacity to act. That is not something widely shared across the world,” Mr. Gaspar said.

Biden Signs Executive Orders to Expand Covid Relief
President Biden on Friday signed two executive orders aimed at boosting pandemic aid, including increasing food assistance and enhancing worker protections. Photo: Ken Cedeno/Pool/Shutterstock

While wealthy nations will continue to spend aggressively this year, emerging-market countries, facing higher borrowing costs, will start cutting back, the IMF projects. Among the poorest nations, spending was flat in 2020, as governments increased outlays on health care but cut back in other areas.

Bolstering governments’ ability to spend, particularly in advanced economics, are historically low interest rates and inflation in recent years, which have kept borrowing costs low. Since the 1990s, the amount of public debt in advanced economies has more than doubled relative to GDP. At the same time, interest costs have declined by half, Mr. Gaspar said.

Still, IMF economists called on governments to stay vigilant about their fiscal health and be wary of the risk that heavy deficit spending could set off runaway inflation. A study by IMF economist Paolo Mauro showed that when interest rates start rising, they go up fast and do so late before a run-up to a fiscal crisis.

Once the virus is brought under control, IMF economists say, governments should focus their spending on moving their economies to a “smart, green inclusive and resilient model of growth,” Mr. Gaspar said.

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