The fund’s economic counsellor, Gita Gopinath, said the “great lockdown” had helped contain the coronavirus and saved lives but its economic impact was worse than initially feared.
She said the unprecedented scale of the economic downturn would force governments to start work on their post-virus recovery plans while confronting record levels of debt.
“This crisis like no other will have a recovery like no other,” she said.
The fund expects the public debt of advanced nations to reach 130 per cent of global GDP. During WWII it peaked at just over 120 per cent. Public debt, which grew by 10.5 per cent during the depths of the global financial crisis, is tipped to grow 18.7 per cent this year alone.
Australian gross debt is forecast to reach 56.8 per cent of GDP this year, or more than $1.1 trillion, before increasing to 64.3 per cent of GDP or $1.3 trillion in 2021.
The fund said those countries starting to re-open their economies had to be careful not to cut off support mechanisms such as wage subsidies or special assistance to the unemployed. Australia is due to end its $70 billion JobKeeper and a $550-a-fortnight welfare supplement in late September.
“The exit from targeted support – such as wage subsidies for furloughed workers, cash transfers, enhanced eligibility criteria for unemployment insurance, credit guarantees for firms, and moratoria on debt service – should proceed gradually to avoid precipitating sudden income losses and bankruptcies just as the economy is beginning to regain its footing,” the fund said.
Ms Gopinath said countries looking to repair their budget bottom lines would have to look at medium-term programs centred on taxation.
“Countries will need sound fiscal frameworks for medium-term consolidation, through cutting back on wasteful spending, widening the tax base, minimising tax avoidance and greater progressivity in taxation in some countries,” she said.
Treasurer Josh Frydenberg said the IMF had upgraded its expectations for Australia by 2.2 percentage points from its original forecasts, a sign of the country’s remarkable resilience in the face of the pandemic crisis.
He said the forecast for the global economy, and the threat posed by a potential second wave, were powerful reminders that as restrictions were eased people had to continue to follow health advice.
“There is still a long way to go in recovering from this health and economic crisis but there are encouraging signs across the economy and we will continue to do all that is necessary to ensure Australia bounces back stronger on the other side,” he said.
Shadow treasurer Jim Chalmers said the IMF was clear in its warnings that the sudden withdrawal of programs like JobKeeper risked the job prospects of hundreds of thousands of Australians.
“Failing to heed the advice of the IMF, the Reserve Bank and others would mean even more Australians are left behind by this government during the first recession in three decades,” he said.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.