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IMF encourages countries affected by COVID to keep spending on safety net

Nancy Marshall-Genzer Oct 13, 2020
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A woman walks past a promotional poster for the virtual 2020 International Monetary Fund annual meetings, outside their headquarters in Washington, D.C., on Oct. 13, 2020. Andrew Caballero-Reynolds/AFP via Getty Images
COVID-19

IMF encourages countries affected by COVID to keep spending on safety net

Nancy Marshall-Genzer Oct 13, 2020
Heard on:
A woman walks past a promotional poster for the virtual 2020 International Monetary Fund annual meetings, outside their headquarters in Washington, D.C., on Oct. 13, 2020. Andrew Caballero-Reynolds/AFP via Getty Images
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The International Monetary Fund issued a report Tuesday on the current global economic outlook.

The IMF is projecting global growth will contract by more than 4% this year. That’s slightly better than its June forecast, but still pretty grim.

For now, the IMF said all countries, not just the U.S., should stop worrying about their debt and spend what is needed to keep their citizens above the poverty line. 

The IMF says close to 90 million people could fall into extreme poverty — living on less than a $1.90 per day — as COVID-19 widens the global wealth gap. Eric LeCompte heads Jubilee USA Network, a coalition of aid organizations. He said people on the lowest rungs of the economic ladder — migrant workers and low-skilled factory workers — are most at risk.

“We are looking at perhaps half the world’s population living in extreme poverty,” LeCompte said.

The solution, according to the IMF, is that countries should borrow and spend big to strengthen the social safety net. That means health care coverage, unemployment benefits and job retraining.

Ben May, director of global macro research at Oxford Economics, said that government spending can be a lifeline. “I think there is an understanding that at the moment, fiscal policy is particularly powerful, and it does play a role in lifting these economies out of recession,” he said.

Plus, borrowing is cheap right now: Interest rates are super low. But developing countries that borrow should remember they’ll have to pay it back.  

“It will be incredibly difficult for industrialized countries to be able to waive off those debts and just to say ‘You don’t need to pay us back,'” said Shihoko Goto, deputy director for geoeconomics at the Wilson Center.

But countries that borrow from the IMF are getting a bit of a reprieve. The IMF has decided to give them more time to repay their debts. 

COVID-19 Economy FAQs

What’s the outlook for vaccine supply?

Chief executives of America’s COVID-19 vaccine makers promised in congressional testimony to deliver the doses promised to the U.S. government by summer. The projections of confidence come after months of supply chain challenges and companies falling short of year-end projections for 2020. What changed? In part, drugmakers that normally compete are now actually helping one another. This has helped solve several supply chain issues, but not all of them.

How has the pandemic changed scientific research?

Over the past year, while some scientists turned their attention to COVID-19 and creating vaccines to fight it, most others had to pause their research — and re-imagine how to do it. Social distancing, limited lab capacity — “It’s less fun, I have to say. Like, for me the big part of the science is discussing the science with other people, getting excited about projects,” said Isabella Rauch, an immunologist at Oregon Health & Science University in Portland. Funding is also a big question for many.

What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?

Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”

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