Private as well as governmental organizations are working hard to cope with the coronavirus pandemic and its impact on the economy. According to the International Monetary Fund (IMF), governments should step up public investments to boost their economies. This makes sense as the coronavirus pandemic, created a lot of problems.
It is worth noting that, the health crisis severely damaged the global economy, with the services sector coming to a halt among other issues. Moreover, many people lost their jobs and some of them are struggling to meet ends meet. This is not the end of the story, as governments will have to deal with soaring debt levels.
As a reminder, the International Monetary Fund predicted a contraction of 4.9% in the global gross domestic product (GDP) for 2020. However, the fall could be even higher as many governments are now dealing with the second wave of infections.
Importantly, the IMF is calling on governments to increase public investment to boost economic recovery and create jobs. Notably, in the case of developed and emerging economies, increasing public investment by 1% of GDP in these economies would create 7 million jobs directly. Moreover, the total number will reach between 20 million and 33 million jobs when considering the indirect macroeconomic effects.
It is worth noting that, by calculating the “amplifying effects of public investment” in periods of high uncertainty, the fund said that increasing public investment by 1% of GDP could boost confidence in the recovery. Also, such a decision will boost GDP by 2.7%, private investment by 10%, and employment by 1.2%. According to the IMF, it is possible to reach this goal after 2 years, if investments are of high quality. However, there are other challenges as well. For example, existing public and private debts.
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People should take into account that, when governments step up their public investments, they signal their commitment to growth and stability. Moreover, such steps also tend to boost private investment.
Interestingly, for countries with easy access to finance, borrowing to finance public investments of good quality will be an effective strategy. It makes sense as the global decline in interest rates has set a lower bar for investment projects to be beneficial.
Moreover, countries that are struggling to borrow should plan for a gradual increase in public investments. It is worth noting that, they may need to re-allocate current spending or find new sources of revenue.
The International Monetary Fund suggested that more money should go into health care, social housing. Moreover, the fund suggested spending money on digitalization and environmental protection.
The fund underlined the importance of digitalization. Digital infrastructure will be essential when it comes to promote social distancing. Moreover, it will be possible to narrow the digital divide within their societies.
Developed as well as developing countries should pay more attention to such projects. The coronavirus pandemic created huge pressure on the economies. Governments have the ability to improve the situation. It is desirable, to work with companies to achieve this goal.
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