Coronavirus in US particularly hits local government, IMF says

21 Jul 20

The US response to Covid-19 has been particularly challenging for state and local governments, the IMF noted while examining the impact of the pandemic on the world’s largest economy.

 

They are responsible for many services in high demand because of the virus, while their revenues have fallen sharply as lockdown measures and falling demand hit businesses and caused many workers to lose their jobs.

“The bulk of public health care, education, social assistance, and unemployment insurance spending rests on state and local government budgets,” the IMF said after concluding its annual ‘article iv’ mission to the country.

“State and local governments are also reliant on sales tax revenues, which have plummeted, and, for the most part, constrained by balanced budget requirements.”The IMF called for the US government to support states with large cash transfers to “preserve essential health, education and social assistance programmes”.

More than 130,000 people in the US have died with Covid-19, and many more have become seriously ill.

Nearly 15 million people have lost their jobs and more are likely to follow as the economic effects of the virus continue to play out – and the IMF warned that the pandemic could cause a steep rise in poverty, which was already high relative to other advanced economies.

More stimulus from central government is likely, building on the trillions of dollars already put in place, which is expected to benefit the economy. However, even without any further spending, public sector debt is projected to reach 160% of GDP by 2030.

Alongside support for state governments, the IMF suggested investing in public health (including the creation of a ‘standing army’ with testing and treatment capabilities to protect against future pandemics), supporting poor families with direct payments and subsidies for essential services, investing in green infrastructure, and improving education by increasing spending and reallocating resources to areas with more poor students.

 

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