Global crisis to last for several more Qs: IMF

Written by Agencies | Washington | Updated: Dec 31 2008, 01:15am hrs
With global financial crisis expected to last for several more quarters, the International Monetary Fund has called for a large and timely fiscal stimulus with targeted tax cuts, increased spending and and even insurance cover from Governments.

Pointing out that action should be immediate, IMF said there should be a collective effort and that each country that has fiscal space should contribute.

"The optimal fiscal package should be timely, large, lasting, diversified, contingent, collective, and sustainable: timely, because the need for action is immediate; large, because the current and expected decrease in private demand is exceptionally large collective, since each country that has fiscal space should contribute; and sustainable, so as not to lead to a debt explosion and adverse reactions of financial markets," IMF said.

According to the agency, as the current crisis would last at least for several more quarters, the fiscal stimulus can rely, more than is usual, on spending measures.

"Looking at the content of the fiscal package, in the current circumstances, spending increases, and targeted tax cuts and transfers, are likely to have the highest multipliers.

General tax cuts or subsidies, either for consumers or for firms, are likely to have lower multipliers," IMF said in its latest research paper titled 'Fiscal Policy for the Crisis'.

IMF has also mooted the idea of governments providing insurance against extreme recessions by offering contracts with payment. The agency has pointed out that for instance, such an insurance could be made available, contingent on GDP growth declining below some "threshold level."