IMF's Gita Gopinath bats for fiscal stimulus to revive global economies

Gita Gopinath, chief economist of the International Monetary Fund (IMF), has pitched for fiscal stimulus to mitigate the economic impact of coronavirus crisis, citing the pandemic has pushed the global economy in a liquidity trap.

Gopinath highlighted that central banks across the world have taken strong measures to improve liquidity situation and have brought down policy interest rates aggressively, leaving little space for further easing if another shock strikes.

"For the first time, in 60 per cent of the global economy -- including 97 per cent of advanced economies -- central banks have pushed policy interest rates below 1 percent. In one-fifth of the world, they are negative," Gopinath wrote in an article in the Financial Times on Monday.

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The IMF chief economist noted that fiscal policy must play a leading role in the economic recovery by creating demand through cash transfers to support consumption and large-scale investment in medical facilities, digital infrastructure and environmental protection. "It has led to the inescapable conclusion that the world is in a global liquidity trap, where monetary policy has limited effect. We must agree on appropriate policies to climb out," Gopinath said.

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"These expenditures create jobs, stimulate private investment and lay the foundation for a stronger and greener recovery," she said.

"Monetary policy has and will remain central to this effort, but with the world, in a global liquidity trap it is time for a global synchronised fiscal push to lift prospects for all," she said.

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IMF has revised down its growth forecast for India to (-10.3 per cent) for the financial year 2020-21, the sharpest decline among emerging markets and developing countries, after Asia's second-largest economy reported a record contraction during the June quarter amid coronavirus-led nationwide lockdown. The IMF's prediction for India is worse than the RBI's estimation of a 9.5 per cent contraction in GDP in the current fiscal year.

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All emerging market and developing economies, excluding China, are expected to contract this year, IMF said.