The International Monetary Fund (IMF) is warning governments and central banks against taking on too much debt during the pandemic, saying they need to be “very selective” with stimulus measures to avoid endangering global economic growth.
In a new report, the IMF identifies debt overhang and financial vulnerabilities as risks to the global economy over the medium term.
The Washington D.C.-based institute says extraordinary stimulus measures enacted amid the ongoing coronavirus crisis have the potential to cause longer-term structural damage to worldwide economies.
The IMF said in its World Economic Outlook released earlier this week that the global economy is on track to expand 6% this year, upgrading its forecast for the second time in three months. It comes after an estimated 3.3% contraction in 2020 and the worst global recession since World War II.
The IMF says that while there is a pressing need to avoid a legacy of economic vulnerabilities, actions taken by governments and central banks during the coronavirus pandemic “may have unintended consequences such as stretched valuations and rising financial vulnerabilities.”
The organization also highlights a stark divergence between a small number of advanced economies and emerging market economies, with low-income countries seen to be at risk of falling further behind during the current global recovery from the pandemic.