The G20 summit recently took place in Rome, where representatives of the world’s largest economies, along with leading international organizations, discussed urgent issues on the international agenda.
Most attention was naturally focused on economic issues and how to move forward. In addition to endorsement of global minimum corporate tax (BEPS 2.0), G20 leaders concluded that during the coronavirus crisis it was necessary to increase support to population, “preserving financial stability and long-term fiscal sustainability and safeguarding against downside risks and negative spillovers”. It was stated in a declaration following the meeting.
Unfortunately, Ukraine started cutting back on its anti-crisis economic support program too early, as it has a vaccination rate of about 20% and very low real GDP growth in January-September 2021 (which did not catch up with last year’s decline). From October 1, 2021, the National Bank of Ukraine phased out the emergency monetary measures, in particular long-term refinancing of banks and interest rate swaps, and the key policy rate was raised from 6% to 8.5% from March 2021.
Ukraine’s fiscal policy stopped to be stimulating this year. The state budget deficit in January-September was only 1.1% of GDP. At the same time, in emerging market economies and developing countries, the average budget deficit in 2021 will be 6.6% of GDP (IMF forecast). IMF experts emphasize that in 2021 the global budget deficit will significantly exceed its level in the pre-pandemic period, while Ukraine has the opposite situation.
In the October 2021 issue of Fiscal Monitor, IMF experts recommend all countries to calibrate priorities of fiscal policies with the challenges of overcoming the economic and social fallout of the pandemic (in countries where the virus is still rapidly spreading and vaccination rates are low) or sustain the recovery with positive structural changes (where widespread vaccination has been achieved). In other words, the health care spending should remain top priorities for fiscal policy in all countries. At the same time, as the IMF rightly notes, given the fact that the pandemic continues to evolve and fiscal space is limited in all countries, governments need to take care of the targeting of fiscal support, providing it to the affected categories of business and the population; governments should also implement targeted measures to reorient capital and labor into the most promising areas in the new realities of the post-like world.
These are relevant and important recommendations for Ukraine too, especially taking into account the new COVID-19 outbreak and the severe consequences for Ukrainian business both from quarantine restrictions and from the sharp rise in energy prices.
Founder and Chairperson of the Board of the Growford Institute Vitalii Lomakovych for Liga.net.