By David Lawder
Oct 14 (Reuters) – China should focus its coronavirus fiscal stimulus efforts on supporting consumption and expanding the social safety net, rather than investing focused on producing goods, a senior Fund official said on Wednesday International Monetary.
Vitor Gaspar, director of fiscal affairs at the IMF, said it was important for China to move to a new growth model based on “internal dynamism” that helps reduce its external imbalances, a policy recipe in which the Fund and Western governments they have insisted for years.
“Households can be supported by expanding the safety net. And the emphasis could shift away from investment,” Gaspar said in an online press conference during the annual meetings of the IMF and World Bank.
The IMF Fiscal Monitor released on Wednesday showed that China’s fiscal deficit for 2020 as a percentage of economic output will grow 5.6 percentage points to 11.9% of GDP. The hike is on a smaller scale than the massive stimulus that Beijing implemented in the financial crisis of 2008-09.
By contrast, the United States will see its 2020 fiscal deficit rise 12 percentage points as a percentage of GDP, to nearly 19%, the report showed.
Although the IMF predicts that China will be the only country to show GDP growth this year, with a strong rebound of 8.2% in 2021, Gaspar said the pandemic would affect China’s long-term growth potential.
The official indicated that it was important for China to maintain a focus on financial stability and cooperate with other countries on health solutions for the pandemic, including vaccines and treatments against COVID-19.
He also said China should help provide debt relief to poor countries, ensure debt transparency, and “be constructive on trade issues and push for consensus on the important area of climate change.”
(Reporting by David Lawder; additional reporting by Andrea Shalal; Edited in Spanish by Janisse Huambachano)