The United Nations Conference on Trade and Development (UNCTAD) has recommended a bold, targeted, fiscal expansion as the only way to build a fair and resilient economic recovery from the Covid-19 induced global financial crisis.
According to UNCTAD's Trade and Development Report 2020, "Public-debt-to-GDP ratios will increase substantially in 2020 and, if the past is any guide, they will not return to pre-Covid-19 values quickly. What matters is how that return happens."
"A proper fiscal consolidation requires, first and foremost, a strong economic recovery; and governments must take the lead," said UNCTAD Secretary-General Mukhisa Kituyi.
The report said many developing countries would need international support to ensure the required fiscal space.
"The Covid-19 pandemic has upended public balance sheets when the global economy was already careering into a wall of debt. According to the Institute of International Finance, in the first quarter of 2020 global debt stocks reached record levels of $258 trillion," it reads.
"In response to the Covid-19 crisis, the global debt-to-GDP ratio jumped by no less than 10 percentage points to 331 percent of GDP in the first few months of the pandemic alone," read the report.
Governments around the world have provided stimulus packages to various sectors of the economy to survive the Covid-19 pandemic.
The UNCTAD report said with extending loans and guarantees in the lockdown, this wave of corporate defaults is likely to put additional pressure on the governments' balance sheets.
"In developing economies, while corporate bond markets have also grown substantively since the GFC in some larger emerging markets – to $3.2 trillion by 2017 – overall debt dynamics are dominated by the exposure of sovereigns to the spillover effects of global financial instability," it continued.
The report argues that through an orientation of new greening technologies, social inclusion and the provision of universal services, sustained fiscal expansions can be managed in developed economies and in some larger developing economies.
Richard Kozul-Wright, director of UNCTAD's Division on Globalization and Development Strategies, said, "What is required now is not a submissive retreat into austerity, but a strong collective voice to support sustained and coordinated state-led fiscal expansion around the globe."