Governments should step up public investments to create jobs that boost local economies, IMF says

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    ATTENTION: This Image is part of a PHOTO SET Mandatory Credit: Photo by AKINTUNDE AKINLEYE/EPA-EFE/Shutterstock (10734448i) Construction workers are seen in front of a building under construction in Lagos, Nigeria, 05 August 2020. Lagos is a city of twenty-one million people, where affordable housing is a considerable challenge - from the pricey neighbourhoods often reserved for the rich to the informal poor settlements opened to flooding and structural collapse during raining seasons. Construction workers in Lagos, Nigeria - 05 Aug 2020
    The IMF predicted in June a contraction of 4.9% in global GDP (gross domestic product) for 2020 — but the fall could
    be even higher as many governments are now dealing with a second wave of infections.
    
    Now, the IMF is calling on governments to increase public investment to aid an economic recovery and create jobs.
    
    The IMF suggested that more money should go into healthcare, social housing, digitalization and environmental protection.
    

    Governments should step up public investments to boost their economies after the massive shock from the coronavirus pandemic, the International Monetary Fund said on Monday.

    The global economy has been severely damaged by the health crisis with the services sector coming to a halt, many people fearing for their jobs, and governments experiencing soaring debt levels.

    The IMF predicted in June a contraction of 4.9% in global GDP (gross domestic product) for 2020 — but the fall could be even higher as many governments are now dealing with a second wave of infections. Now, the IMF is calling on governments to increase public investment to aid an economic recovery and create jobs.

    “For advanced and emerging market economies … Increasing public investment by 1 percent of GDP in these economies would create 7 million jobs directly, and between 20 million and 33 million jobs overall when considering the indirect macroeconomic effects,” the fund said in a chapter of its latest Fiscal Monitor.

    Calculating the “amplifying effects of public investment” in periods of high uncertainty, the IMF said that increasing public investment by 1% of GDP “could strengthen confidence in the recovery and boost GDP by 2.7 percent, private investment by 10 percent, and employment by 1.2 percent” after two years “if investments are of high quality and if existing public and private debt burdens do not weaken the response of the private sector to the stimulus.”

    When governments step up their public investments, they signal their “commitment to growth and stability” and that tends to boost private investment too, the IMF added.
    Even with social distancing, public investment is feasible and can be delivered quickly.
    IMF

    For countries with easy access to finance, “borrowing to finance public investments of good quality will be an effective strategy because the global decline in interest rates has set a lower bar for investment projects to be beneficial,” the IMF said.

    Nations that are struggling to borrow should plan for a gradual increase in public investments and may need to re-allocate current spending or find new sources of revenue, the institution led by Kristalina Georgieva said.
    Where should the money go?

    The IMF suggested that more money should go into health care, social housing, digitalization and environmental protection.

    It added that investing in digital infrastructure will be “essential” so governments can promote social distancing while also narrowing the digital divide within their societies.

    “Even with social distancing, public investment is feasible and can be delivered quickly if governments take four steps,” the IMF said.

    These include investing immediately in maintenance; reviewing and restarting promising projects; speeding up projects in the pipeline to bring them to fruition within the next two years; and starting to plan for new projects aligned with their post-crisis priorities.

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    Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

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