Breaking down the G20 Covid-19 Fiscal Response
This commentary is an updated version of one originally published April 13, 2020.
Confirmed cases of the novel coronavirus (Covid-19) exceed 3 million as of April 30 and continue to climb. To combat the virus’ spread, governments have implemented restrictions on economic activity unprecedented in peacetime. The Organisation for Economic Co-operation and Development estimates that containment measures will cause an initial decline in the level of output of 20 to 25 percent in many economies, and the International Monetary Fund (IMF) projects negative global growth for 2020 with “the worst economic fallout since the Great Depression.”
In response to this unprecedented shock, governments have pledged massive economic support, from direct payments to individuals to “limitless” loans for struggling businesses. At a March 26 virtual summit, leaders of the Group of Twenty (G20) major economies said they were spending over $5 trillion, equivalent to 7.4 percent of 2019 G20 countries’ gross domestic product (GDP), to “counteract the social, economic, and financial impacts of the pandemic.” Since then, G20 governments have added to this figure as the extent of the economic fallout has become clearer.
Developed by the CSIS iDeas Lab. Data updated through April 29, 2020
The CSIS Simon Chair analyzed and categorized major fiscal actions taken by G20 countries to respond to the economic shock. Several key trends emerge:
- Fiscal support has increased since April 10: As of April 29, we estimate that G20 countries are providing $6.3 trillion in fiscal support, representing 9.3 percent of 2019 G20 GDP. Of the total, $3.2 trillion will support direct government spending (4.8 percent of 2019 G20 GDP), up from $2.1 trillion (3.1 percent of GDP) as of April 10. Credit enhancements contribute $2.3 trillion and tax relief another $0.8 trillion.
- G20 loan guarantee frameworks alone exceed $2 trillion: G20 economies, led by European countries, have announced loan guarantee frameworks exceeding $2 trillion, representing 3 percent of 2019 G20 GDP. Given that many guarantee frameworks do not quantify ex ante fiscal outlays, we assign a 50 percent “fiscal cost” to guarantee figures resulting in our headline fiscal support figure of $6.3 trillion. Assigning a 100 percent “fiscal cost” to loan guarantees would boost our headline figure to $7.4 trillion, or 10.8 percent of GDP. Conversely, assigning zero “fiscal cost” to loan guarantees would lower our headline figure to $5.3 trillion, or 7.8 percent of GDP.
- Emerging market (EM) economies have boosted spending but still lag advanced economy (AE) peers by a wide margin: G20 EM fiscal support as of April 29 averages 3.2 percent of GDP, an increase of 1.2 percentage points since April 10 but still well below the average of 11.6 percent for AEs. China’s announcement of 2.3 trillion yuan ($326 billion) in local government special purpose bond issuance brings its fiscal response to 3.7 percent of GDP, still well below the amount provided during the global financial crisis.
Initial data updated through April 10 show the following trends:
- The largest component of fiscal support is intended to provide financing to businesses: As of April 10, 2020, we estimate G20 countries to have pledged $5.3 trillion in fiscal support, representing 7.8 percent of 2019 G20 GDP. Of the total, $2.5 trillion will support credit enhancements (3.7 percent of 2019 G20 GDP), compared to $2.1 trillion (3.1 percent of GDP) in direct government spending and $0.6 trillion (0.9 percent) in tax relief. (Our analysis does not include tax deferments.) Almost all support focuses on keeping companies and individuals afloat rather than stimulating new demand and investment, which will become the priority when health restrictions ease.
- Direct government spending is higher than levels during the global financial crisis (GFC), so far: The 3.1 percent of G20 2019 GDP in direct government spending compares to 2.5 percent of G20 GDP in 2008-2009 “crisis-related discretionary measures” in response to the GFC. By the end of the pandemic, G20 countries will likely have spent far more than they did in the GFC as a percent of GDP.
- G20 countries have responded faster than during the GFC: In response to the pandemic, G20 governments announced nearly 8 percent of GDP in fiscal support between early February and early April, with more expected in the coming weeks and months. During the GFC, governments’ responses were more protracted: in the United States, the epicenter of the GFC, the Economic Stimulus Act was signed into law in February 2008; the Emergency Economic Stabilization Act, which included government funding for the purchase of troubled assets from financial institutions, was signed in October 2008; and the American Recovery and Reinvestment Act of 2009, which authorized significant government spending, was signed in February 2009.
- Thus far, China’s fiscal response is more limited than during the GFC: China’s fiscal support as of April 10 amounts to roughly 1.3 percent of GDP, primarily through loans for impacted businesses and tax relief. This spending at the national level is far lower than the nearly 13 percent of GDP in fiscal spending (inclusive of local, provincial, and national spending) China announced in November 2008 in response to the GFC. Chinese officials have recently signaled they could provide additional stimulus later this year as the health situation stabilizes, but a desire to avoid adding to already high total debt levels will likely limit potential spending.
- EM economies are more constrained: As a percent of GDP, EM members of the G20 have announced far less fiscal support than AE G20 peers, reflecting, in part, more binding financing constraints. G20 EM fiscal support as of April 10 averages 2 percent of GDP versus 11.7 percent among G20 AEs. Many EMs are at an earlier stage of the pandemic relative to many AEs and may need international support to finance necessary relief measures.
- In addition to national efforts detailed above, the European Union has announced several responses: a 37 billion euro ($40 billion) Coronavirus Response Investment Initiative and a 540 billion euro ($586 billion) aid package to support member states. Both are not included in the $6.3 trillion G20 total. Of the $6.3 trillion of fiscal relief announced by G20 countries as of April 29, about $45 billion was not itemized as credit enhancement, government spending, or tax relief.
- This analysis focuses on major, national, discretionary responses in G20 countries and thus does not reflect the full extent of support deployed by these countries in response to Covid-19, such as monetary and regulatory tools (rate cuts, repurchase operations, quantitative easing), automatic spending mechanisms, and additional support from subnational government. We include tax cuts and cancellations in tax relief but do not assign a monetary value to tax deferrals, where possible. For further information on economic responses from 193 countries, please see the IMF’s tracker.
- Foreign currency conversions are based on average 2019 exchange rates; all GDP calculations use the IMF’s October 2019 World Economic Outlook figures for 2019. The data are updated through April 29, 2020 and reflect publicly available information and are subject to ongoing revision. We welcome feedback and additional inputs at SimonChair@csis.org.
The CSIS Simon Chair would like to thank the medical professionals, health care personnel, volunteers, delivery and grocery store workers, and others at the front line of the Covid-19 pandemic who work tirelessly to provide essential services to the public during this time.
Stephanie Segal is a senior fellow with the Simon Chair in Political Economy at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Dylan Gerstel is a research assistant with the CSIS Simon Chair in Political Economy. Canghao Chen, CSIS Simon Chair research intern, contributed to the data collection for this analysis.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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