New social unrest could erupt if government measures to mitigate the coronavirus pandemic are seen as insufficient or unfairly favouring the wealthy, the IMF said in a new report.
Governments have spent nearly $8 trillion to combat the pandemic and mitigate economic fallout, but more fiscal stimulus would be needed once the crisis abated, the global lender said in its semi-annual Fiscal Monitor.
The spike in spending would sharply widen fiscal deficits, with global public debt set to rise 13 percentage points to more than 96% of gross domestic product in 2020, it said.
On Tuesday, the IMF forecast the global economy to shrink three percent in 2020 as a result of the pandemic, but warned its forecasts were marked by “extreme uncertainty” and outcomes could be worse.
Efforts to halt the disease shut down large parts of the global economy, with emerging markets and developing countries hardest hit.
While mass protests are unlikely with strict lockdowns in place, unrest could spike when the crisis appears under control, Vitor Gaspar, director of the IMF fiscal affairs department, told Reuters.
To avert further unrest following protests in many parts of the world over the past year, policymakers must communicate with affected communities to build support for measures to tackle the virus, he said.
“This we emphasise: it is crucial to provide support to households and firms made vulnerable by the crisis,” he said. “The goal is to support and protect people and firms affected by shutdowns.”
Tensions are evident as lockdowns leave day labourers and many in the informal economy without jobs or food.
In India’s commercial capital Mumbai, thousands of jobless migrant workers protested at a railway station, demanding to return to countryside homes, after Prime Minister Narendra Modi extended lockdown on the population of 1.3 billion.
Unemploymen almost doubled to around 14.5% in India since the lockdown began in late March, according to the Centre for Monitoring Indian Economy, a private think-tank.
In India and elsewhere, shutdowns sparked an exodus of millions from city jobs in small industries and service jobs back to home villages.
Daily wage earners are particularly vulnerable and many are skipping meals, say World Bank officials.
IMF chief economist Gita Gopinath said previous crises and disasters fostered solidarity, but there could be a different outcome this time.
“If the crisis is badly managed and viewed as insufficient to help people, you could end up with social unrest,” she told Reuters.
To avoid future protests, she said it was critical for the international community to play a supportive role for poorer countries through concession financing and debt relief.
The report said government spending to date included direct fiscal costs of $3.3 trillion, public sector loans and equity injections of $1.8 trillion, plus $2.7 billion in guarantees and other contingent liabilities of $2.7 trillion.
It forecast lower output and said government revenue was now forecast to be 2.5% of global GDP, lower than projected last October.
Gaspar said it was hard to predict how much more spending would be needed, but broad-based fiscal stimulus would be an important tool to foster recovery once the outbreak abated.