24

Chapter 1 / Major Issues in the Asia-Pacific Region in 2021-22

Section 2
Comparison and Consideration of Fiscal Measuresin Response to the COVID-19 Pandemic
FUJIWARA, Yukinori

1. Introduction
Following the rapid spread of the novel coronavirus (COVID-19) worldwide
from the beginning of 2020 (certified as a pandemic by the World Health Organization), national governments have been implementing large-scale fiscal
measures to mitigate the economic damage, including increasing direct fiscal
spending, tax cuts, and support for private sector funding.
These extraordinary fiscal measures have been positively evaluated because they have prevented an escalation of economic stagnation and an increasein job losses, but at the same time, they have significantly increased fiscal deficits and government debt to unprecedented levels, resulting in a tough fiscal
outlook.
In this section, I compare the fiscal measures taken in selected economies
in response to the COVID-19 pandemic and discuss fiscal consolidation issues
based on the analyses in the Fiscal Monitor reports1) released by the International Monetary Fund (IMF) in April and October 2021.

2. Status of Fiscal Measures in Response to the COVID-19
Pandemic(1) Scale of Fiscal Measures in Response to the COVID-19 Pandemic
According to the IMF, the scale of fiscal measures implemented in responseto the COVID-19 pandemic by national governments was estimated to be USD
16.9 trillion (16.4% of nominal GDP) globally as of October 2021. Figure 1-21 illustrates the scale of the fiscal measures taken in selected economies (aspercentages of nominal GDP) based on the IMF’s country classifications2). The
comparison shows that there is a large difference between countries in terms of
their ability to increase government expenditure.

1) The Fiscal Monitor is a report prepared and published twice a year by the IMF Secretariat
on each country’s latest fiscal conditions and medium- to long-term fiscal projections.
2) The IMF has classified global economies into advanced economies, emerging market economies, and low-income developing countries, which are also used in this report.

Section 2 / Comparison and Consideration of Fiscal Measures in Response to the COVID-19 Pandemic

25

（％）
50.0
45.0
40.0
35.0

Advanced Economies
Average 23.1％

Emerging Market Economies
Average 9.9％

Low-Income
Developing Countries
Average 4.0％

30.0
25.0
20.0
15.0
10.0

Note: The classifications of advanced economies, emerging market economies, and low-income developing
countries are based on the definitions of the IMF. Ratios are percentages of nominal GDP.
Source: IMF, Database of Country Fiscal Measures in Response to the COVID-19 Pandemic

The scale of fiscal measures is the largest in advanced economies withstrong economic power (23.1% on average), followed, although with a large difference, by emerging market economies (9.9% on average), while the scale isgenerally small in low-income developing countries (4.0% on average).
Among the top five advanced economies, Italy is the highest at 46.2% as apercentage of nominal GDP, followed by Japan (45.1%), Germany (43.1%), theUK (36.0%), and the US (27.9%).
The top emerging market economies are Peru (19.2%), Thailand (18.8%),
Brazil (15.4%), Chile (15.2%), and Turkey (13.1%). China, which contained theoutbreak of COVID-19 infections at an early stage, stood at a low 6.1% relative to
its economic scale.
The IMF classifies the contents of fiscal measures into measures within a budget (additional spending and forgone revenues such as tax cuts) andoff-budget measures (equity, loans, and guarantees by the government sector).
Off-budget measures are support by financing from private sources. Figure 1-22 and Figure 1-2-3 show international comparisons of the scale of fiscal measures as percentages of nominal GDP in advanced economies and in emerging
market economies based on the classifications.
Regarding fiscal measures, which is the larger of the within-budget andoff-budget measures differs depending on the country. Generally speaking, ad-Part Ⅰ
Part Ⅱ

Scale of fiscal measures in selected economies (percentage ofGDP)

Part Ⅲ

Figure 1-2-1Part Ⅳ

0.0

Italy
Japan
Germany
United Kingdom
United States
FranceCzech republicSingaporeSpain
New ZealandAustralia
Belgium
CanadaDenmark
Korea
The Netherlands
Switzerland
Finland
NorwaySwedenPeru
ThailandBrazilChile
TurkeyPolandIndia
Indonesia
Colombia
South Africa
Bulgaria
Kazakhstan
Argentina
Romania
RussiaChina
Philippines
Guatemala
Saudi Arabia
Tunisia
United Arab Emirates
Pakistan
Mexico
Egypt
LIDCs

5.0

26

Chapter 1 / Major Issues in the Asia-Pacific Region in 2021-22

Denmark
SwedenFinland
Korea
NorwaySwitzerland
Belgium
Spain
Czech republic
FranceThe Netherlands
Italy
Germany
CanadaJapan
Australia
Singapore
United Kingdom
New ZealandUnited States

（％）
40
35
30
25
20
15
10
5
0

Additional spending and forgone revenue
Equity, loans, and guarantees

Figure 1-2-2

Scale of fiscal measures in advanced economies (percentage ofGDP)

Note: Ratios are in percentages of nominal GDP.
Source: IMF, Database of Country Fiscal Measures in Response to the COVID-19 Pandemic

MexicoEgypt
Pakistan
United Arab Emirates
Saudi Arabia
Tunisia
Romania
TurkeyGuatemala
India
Philippines
Colombia
China
RussiaSouth Africa
Bulgaria
Argentina
Kazakhstan
PolandBrazilIndonesia
Peru
Chile
Thailand

(％)
18
15
12
9
6
3
0

Additional spending and forgone revenue
Equity, loans, and guarantees

Figure 1-2-3

Scale of fiscal measures in emerging market economies (percentage of GDP)

Note: Ratios are percentages of nominal GDP.
Source: IMF, Database of Country Fiscal Measures in Response to the COVID-19 Pandemic

vanced economies with larger government debt compared to the pre-pandemic
levels have implemented larger off-budget measures (Spain, France, Italy, andJapan). In Germany as well, which maintains strict fiscal discipline, off-budget
funding support measures account for a larger percentage. On the other hand,in the US, which provided direct benefits to individuals three times and a large
amount of additional unemployment insurance benefits, the additional spending
within the budget accounts for a much larger percentage.
In emerging market economies, unlike advanced economies where theSection 2 / Comparison and Consideration of Fiscal Measures in Response to the COVID-19 Pandemic

27

(％)
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2007 08 09 10 11 12 13 14 15 16 17 18 19 20
Advanced Economies
Emerging Market Economies
Low-Income Developing Countries

Part Ⅱtypes of fiscal measures differ from country to country, the higher the stage of
economic development, the more flexibly fiscal measures have been taken, andmany economies rely more on additional spending within their budgets.
It can be said that the reason why such extraordinary large-scale fiscal measures were taken in advanced economies and some emerging market economies
is because the COVID-19 pandemic, which emerged rapidly, and its serious impact prompted quick responses. As the IMF points out, in the background to thislies central banks’ large-scale monetary easing measures, including reductionsin their policy interest rates and purchases of government bonds, that allowed
the fiscal authorities of each country to finance their huge fiscal deficits by issuing government bonds at low interest rates.
As shown in Figure 1-2-4, in the continued low interest rate environment,interest payment costs as percentages of nominal GDP of the general governments of advanced economies and emerging market economies have remained
at low levels (1.9% to 2.6%) for the past 10 years. Although interest payment costs
have been trending upward in low-income developing countries, the ratio still
remains at the low level of less than 2.0% as a percentage of GDP.
But recently, long-term interest rates have been trending upward. The US
10-year government bond interest rate increased from around 0.7% in September 2020 to around 1.5% in November 2021. The Federal Reserve Board (FRB)
decided on a policy of gradually reducing quantitative easing from November
2021. Long-term interest rates may continue to rise in the future, coupled with
inflationary concerns due to the expansion of demand associated with the hugefiscal stimulus package under the Biden administration. It should be noted that
if the rise in interest rates spreads to advanced economies, there is the risk that
this will increase interest payment costs in each country.

Part Ⅲ

Note: Ratios are percentages of nominal GDP.
Source: IMF, Fiscal Monitor, April 2021

Part Ⅰ

Changes in interest payment costs of general governments (percentage of GDP)

Part Ⅳ

Figure 1-2-4

28

Chapter 1 / Major Issues in the Asia-Pacific Region in 2021-22(2) Outlook for the Fiscal Balance and Government Debt
Large-scale fiscal measures in response to the global spread of COVID-19 havesignificantly worsened each country’s fiscal balance. The IMF projects a sharp
deterioration of fiscal balances in 2020 (Table 1-2-1). When looking at the ratioof the fiscal deficit to nominal GDP in 2020, the average was 10.8% for advanced
economies, 9.6% for emerging market economies, and 5.2% for low-income developing countries.
The IMF predicts that fiscal deficits will shrink in most countries in 2021
because COVID-19-related support measures will end or decrease. Althougheach country’s fiscal deficit is currently well above their pre-pandemic levels,
the IMF predicts that the deficits in most countries will return to their pre-pandemic levels by 2026.
Large-scale fiscal measures in response to COVID-19 have become a factor
Table 1-2-1(Percent of GDP)

Changes in general governments’ fiscal balances (percentage ofGDP)
2016 2017 2018 2019 2020

Projections
2021 2022 2023 2024 2025 2026

World

-3.5

-3.0

-3.0

-3.6 -10.2

-7.9

-5.2

-4.2

-3.8

-3.6

-3.5

Advanced Economies

-2.7

-2.4

-2.5

-3.0 -10.8

-8.8

-4.8

-3.6

-3.2

-3.1

-3.0

Canada

-0.5

-0.1

0.3

0.5 -10.9

-7.5

-2.2

-0.5

-0.1

0.2

0.4

France

-3.6

-3.0

-2.3

-3.1

-9.2

-8.9

-4.7

-3.9

-3.6

-3.4

-3.4

Germany

1.2

1.3

1.9

1.5

-4.3

-6.8

-1.8

-0.4

0.0

0.5

0.5

Italy

-2.4

-2.4

-2.2

-1.6

-9.5 -10.2

-4.7

-3.5

-2.9

-2.6

-2.4

Japan

-3.8

-3.3

-2.7

-3.1 -10.3

-9.0

-3.9

-2.1

-2.1

-2.1

-2.2

United Kingdom

-3.3

-2.4

-2.2

-2.3 -12.5 -11.9

-5.6

-3.6

-3.2

-3.1

-2.9

United States

-4.3

-4.6

-5.4

-5.7 -14.9 -10.8

-6.9

-5.7

-5.2

-5.3

-5.3

Emerging Market Economies

-4.8

-4.1

-3.7

-4.7

-9.6

-6.6

-5.8

-5.2

-4.8

-4.4

-4.1

China

-3.7

-3.8

-4.7

-6.3 -11.2

-7.5

-6.8

-6.2

-5.6

-5.0

-4.5

India

-7.1

-6.2

-6.4

-7.4 -12.8 -11.3

-9.7

-8.8

-8.3

-8.1

-7.8

Russian Federation

-3.7

-1.5

2.9

1.9

-4.0

-0.6

0.0

0.2

0.1

-0.2

-0.5

Brazil

-9.0

-7.9

-7.1

-5.9 -13.4

-6.2

-7.4

-6.4

-5.4

-4.8

-4.4

Mexico

-2.8

-1.1

-2.2

-2.3

-4.5

-4.2

-3.5

-3.2

-2.9

-2.8

-2.8

Saudi Arabia

-17.2

-9.2

-5.9

-4.5 -11.3

-3.1

-1.8

-1.4

-1.1

-0.6

0.1

South Africa

-3.7

-4.0

-3.7

-4.8 -10.8

-8.4

-7.0

-6.4

-6.2

-6.5

-6.8

Low-Income Developing Countries

-3.8

-3.6

-3.4

-3.9

-5.4

-5.0

-4.5

-4.3

-4.1

-3.9

Note: Ratios are percentages of nominal GDP.
Source: IMF, Fiscal Monitor, October 2021

-5.2

Section 2 / Comparison and Consideration of Fiscal Measures in Response to the COVID-19 Pandemic

Table 1-2-2

29

Changes in general government debt (percentage of GDP)

(Percent of GDP)

2016 2017 2018 2019 2020

World

83.2

82.0

82.3

83.6

98.6

Projections
2021 2022 2023 2024 2025 2026
97.8

96.9

97.0

96.9

96.8

96.5

Advanced Economies 105.6 103.2 102.7 103.8 122.7 121.6 119.3 119.3 119.1 118.8 118.6
Canada

91.7

88.8

88.8

86.8 117.5 109.9 103.9 100.2

France

98.0

98.3

98.0

97.6 115.1 115.8 113.5 114.6 115.4 116.2 116.9

Germany

69.3

65.0

61.6

59.2

Italy

134.8 134.1 134.4 134.6 155.8 154.8 150.4 149.4 148.6 147.5 146.5

Japan

232.5 231.4 232.5 235.4 254.1 256.9 252.3 250.8 251.0 251.3 251.9

69.8

68.0

65.9

63.4

89.7
60.9

48.4

50.5

52.4

54.7

64.0

64.3

65.8

67.1

68.2

69.0

69.8

China

48.2

51.7

53.8

57.1

66.3

68.9

72.1

74.5

76.6

78.5

80.1

India

68.9

69.7

70.4

74.1

89.6

90.6

88.8

88.1

87.3

86.3

85.2

Russian Federation

14.8

14.3

13.6

13.8

19.3

17.9

17.9

17.7

17.8

17.5

17.5

Brazil

78.3

83.6

85.6

87.7

98.9

90.6

90.2

91.7

92.4

92.6

92.4

Mexico

56.7

54.0

53.6

53.3

61.0

59.8

60.1

60.5

60.9

61.2

61.5

Saudi Arabia

13.1

17.2

19.0

22.8

32.5

29.7

30.8

30.4

29.5

28.4

27.2

South Africa

47.1

48.6

51.6

56.3

69.4

68.8

72.3

74.9

77.4

80.2

83.0

Low-Income Developing Countries

39.5

42.1

42.7

44.2

49.9

50.2

49.8

49.0

48.5

48.0

47.3

Note: Ratios are gross debts’ percentages of nominal GDP.
Source: IMF, Fiscal Monitor, October 2021

behind the record accumulation of government debt3), as well as the worseningof fiscal balances (Table 1-2-2). When looking at the ratio of the government
debt of general governments to nominal GDP in 2020, the average was 122.7%
for advanced economies, 64.0% for emerging market economies, and 49.9% for
low-income developing countries.
The ratio of each country’s government debt to nominal GDP is expected
to remain at a high level until 2021, and in advanced economies, it is expected toslightly decline towards 2026. There may be some emerging market economies
and low-income developing countries in which it will continue to increase due
to development factors. International aid may need to be expanded to support
low-income developing countries.
The ratio of Japan’s government debt to nominal GDP is the highest among
3) Government debt here refers to gross debt or the total amount of debt that requires payments of the principal and interest. Gross debt data are used in this report because net
debt data on some emerging market economies and low-income developing countries are
not available from the IMF’s Fiscal Monitor. There is no difference in data trends between
gross debt and net debt.

Part Ⅰ

85.2 104.5 108.5 107.1 109.4 110.5 111.2 111.6

Part Ⅱ

106.9 106.0 107.1 108.5 133.9 133.3 130.7 131.1 131.7 132.5 133.5

Part Ⅲ

86.8

United States

Part Ⅳ

85.8

72.5

93.4

United Kingdom
Emerging Market Economies

86.3

69.1

96.9

30

Chapter 1 / Major Issues in the Asia-Pacific Region in 2021-22

advanced economies at well over twice the level of pre-pandemic GDP, which is
progressively increasing to respond to COVID-19. For Japan, which faces structural challenges such as increasing social security spending and government
debt with the progress of the aging population, the risk of rising interest rates
has become even greater. If government debt has a negative impact on longterm economic growth, there is the concern that Japan could be most seriously
affected.
The IMF also mentions risks to the fiscal outlook. A scaling up of vaccine
production and delivery, especially to emerging market economies and low-income developing countries, would improve the economy and limit further fiscal
deterioration. On the downside, new variants of the virus and low vaccine coverage could increase pressure and inflict new damage on public budgets. The
realization of contingent liabilities from guarantee programs may also lead to
unexpected increases in government debt. In short, the longer the pandemic,
the bigger the financial problems.

3. Challenges for Fiscal Consolidation in the Future
During the COVID-19 pandemic, the unprecedented size of the fiscal response
has saved people’s lives and jobs. Although the current fiscal measures are appropriate, the increased government debt will remain high for many years.
The IMF points out that commitment to fiscal sustainability is importantfor future fiscal management. Governments can signal their commitment to fiscal discipline to the public and to the markets, while also addressing the ongoing crisis, in various ways, including by reducing structural fiscal deficits or byadopting strong fiscal frameworks into which deficit reduction in the future isembedded. The IMF points out that if the market trusts the government’s commitment to fiscal discipline, financing deficits becomes easier.
Looking ahead to the post-pandemic environment, I believe the situation isin line with IMF’s recommendations for future financial management. Advanced
economies with an extraordinarily large amount of government debt may need
a common commitment to fiscal sustainability with a view to the post-pandemic
era and a clear path to fiscal consolidation.
Unfortunately, in Japan the government and the Diet have not yet started
full-fledged discussions, but studies and discussions on concrete measures forthe consolidation of the fiscal situation that has deteriorated due to the responses to COVID-19 have already started in Europe and the US.
In the US, the Democratic Party announced on August 9, 2021, a USD 3.5
trillion budget plan over a 10-year period for measures to achieve growth byPart Ⅱ
Part Ⅲ

investing in the fields of infrastructure, education, medical care, and childcare.
As the financial resources for this, raising the corporate tax rate for large companies and raising the maximum income and capital gain tax rates are being
discussed.
The UK’s finance minister Rishi Sunak has stated the need for fiscal consolidation in line with the announcement of the 2021 budget, and as a measure tothat end, announced a corporate tax hike for the first such hike in nearly half acentury. The current uniform corporate tax rate of 19% will be raised to a maximum of 25% from April 2023 depending on corporate profits (the bill was passed
on June 10, 2021).
In Germany, the Basic Law for the Federal Republic of Germany requires
the federal government to maintain balanced finances and limits its borrowing
to no more than 0.35% of GDP. The borrowing limit may be exceeded in the caseof natural disasters or unusual emergency situations following the adoption ofa resolution by the Bundestag, the German federal parliament, accompanied
by a redemption schedule. According to the redemption schedule, the excess
borrowing for COVID-19 measures (EUR 41.9 billion for 2020, EUR 216.4 billion
for 2021) will be repaid by 2042.
In France, the report released on March 18, 2021, by the Committee for
Future Finance set up by Prime Minister Jean Castex clarifies the policy of ensuring fiscal sustainability by keeping the government expenditure growth rate
lower than the revenue growth rate over the long term. The 2022 budget bill(submitted by Parliament on September 22) stipulates that COVID-19 related
debt (EUR 165 billion) will be repaid by 2042.
The European Union will finance the Next Generation EU Program by issuing common bonds, whose repayment schedule until 2058 has also been determined. Introductions of new taxes and levies are being discussed as sources ofredemption funds.
In this way, major advanced economies have begun discussing measures
to secure financial resources, including tax hikes, and for fiscal consolidation inlight of the deterioration of fiscal conditions.
The Japanese government should also flexibly implement the necessary fiscal measures to respond to the COVID-19 crisis without hesitation, but it should
not leave the loose fiscal discipline unattended. It is crucial for Japan to discussand consider what kind of measures should be taken for fiscal consolidation
after the ongoing emergency has ended in the near future.
Whatever the case, I expect the Japanese government to urgently discuss
measures to be taken for fiscal consolidation and present the discussion process
and proposals to the public in an easy-to-understand manner.

Part Ⅰ

31

Part Ⅳ

Section 2 / Comparison and Consideration of Fiscal Measures in Response to the COVID-19 Pandemic

32

Chapter 1 / Major Issues in the Asia-Pacific Region in 2021-22

References
IMF, Fiscal Monitor, April 2021
IMF, Fiscal Monitor, October 2021