Keeping Public Debt Sustainable in an Equitable Way

The COVID-19 pandemic has claimed over 5 million lives thus far. This grim figure would have been higher still without the strong and timely fiscal support provided by governments around the globe, including support for health sector and the development and deployment of vaccines. The IMF has noted that “in 2020, fiscal policy proved its worth. The increasing public debt in 2020 was fully justified by the need to respond to COVID 19 and its economic, social, and financial consequences” (Gaspar, 2021). How to keep debt sustainable is becoming a policy imperative, made all the more challenging by the lingering effects of the pandemic, particularly on low-income groups. In this article we summarize our recent work on the distributional effects of past major epidemics in this century prior to COVID-19 and the role that fiscal support played in mitigating these effects (Furceri, Loungani, Ostry and Pizzuto, 2021a; 2021b). The policy message is that more inclusive and targeted fiscal policies are needed in coming years if governments wish to achieve public debt sustainability without exacerbating inequality.