The Global Fiscal Response to COVID-19

Callum Hudson, Benjamin Watson, Alexandra Baker and Ivailo Arsov

[*]

Photo: Kanawa Studio

Abstract

Globally, the fiscal policy response to the COVID-19 crisis has been the largest and fastest in

peacetime. Governments have prioritised direct fiscal support for private incomes and

employment, which has limited economic scarring and established a solid foundation for the

recovery. The size and composition of the fiscal response has varied across countries, reflecting

differences in automatic stabilisers, pre-pandemic fiscal space, the severity of infections and policy

preferences. Fiscal policy is likely to remain supportive for some time after the pandemic subsides,

and in many countries is expected to focus increasingly on boosting investment. For as long as

governments anchor spending decisions in a sound medium-term fiscal framework and interest

rates remain lower than the rate of economic growth, ongoing fiscal support need not pose

problems for government debt sustainability.

The COVID-19 pandemic sharply disrupted

economic activity and, in most countries, triggered

the largest economic contraction since at least the

Second World War. As the severity of the pandemic

became apparent early in 2020, authorities across

the world began implementing a large and

multifaceted policy response. This included the

largest fiscal policy response in decades, which

substantially limited the decline in economic

activity.

[1]

The subsequent recovery has also been

stronger than expected in large part due to

unprecedented policy support. This fiscal response

can be characterised as having two phases:

1. In the acute phase, which is still ongoing in

many economies, the response has focused on

supporting private incomes, preserving employ-

ment relationships and shoring up health

systems. This has mainly been achieved through

large direct transfers to households, enhanced

unemployment benefits, wage subsidies and

increased healthcare funding.

2. In the recovery phase, when infections have

been brought under control, fiscal support will

100 RESERVE BANK OF AUSTRALIA

pivot toward boosting investment. This includes

public infrastructure, ‘green’ investment and, to

a lesser extent, incentives to support private

investment and consumption. These support

measures will be spread over a longer period

than the acute phase.

This article focuses on the fiscal response during the

acute phase and measures that affect government

spending and revenue (i.e. the direct fiscal

response), as opposed to indirect (off-budget)

measures that do not have an immediate effect on

the budget (such as loan guarantees). The first

section examines the size and composition of fiscal

responses around the world. This is followed by a

discussion of its effects on labour markets, private

incomes, economic activity and governments’ fiscal

sustainability. The article concludes with a brief

outline of policy measures largely intended for the

recovery phase.

[2]

The fiscal response to the COVID-19

pandemic was the largest in peacetime

Most economies have yet to move beyond the

acute phase of the fiscal response. These direct

measures, including those that are expected to

persist into early 2022, have ranged from 5 to

24 per cent of 2019 GDP in advanced economies.

Authorities in emerging market economies have

provided smaller, yet still significant, direct fiscal

support which has been equivalent to between

1 and 9 per cent of GDP (IMF 2021). For many

economies, this has contributed to the largest

single-year increase in the government debt-to-

GDP ratio during peacetime (Graph 1).

Fiscal support in the acute phase of the downturn

was initially delivered rapidly, and in large part was a

response to the effects of public health measures

(such as mobility restrictions) on economic activity.

The first wave of fiscal measures was delivered

between February and April 2020 (Graph 2). As the

first country to be affected by the COVID-19

outbreak, China was the first to announce

significant fiscal support measures (in February).

This was followed shortly thereafter by other

economies in Asia, and then economies in the rest

of the world as the pandemic spread and strict

public health measures were imposed. Fiscal

measures were expanded and enhanced rapidly

throughout April as the severity of the pandemic,

and the extent of the economic damage it was

causing, became more apparent.

Governments in advanced economies have

demonstrated flexibility in their fiscal response. The

majority of fiscal measures had been designed to be

short lived, often just a few months in duration, but

repeated infection outbreaks, and associated public

health controls, prompted fiscal authorities to

extend measures further than originally envisaged.

Many programs are still providing significant

support to the economy. In emerging economies,

fiscal support was frontloaded in the first half of

2020, but despite significant subsequent

resurgences of infections, authorities were (or at

least felt) constrained in their ability to continue

extending large scale fiscal support.

The size of fiscal support has varied across

economies

The size of direct fiscal support has varied across

economies because of differences in automatic

stabilisers, pre-pandemic fiscal space and decisions

by some countries to implement sizeable indirect

fiscal measures instead. Automatic stabilisers are

government policies that automatically adjust

government spending and revenue to support

economic activity through different stages of the

business cycle. For example, during economic

downturns, government outlays naturally increase

as more people receive unemployment benefits

(which support household incomes and consump-

Graph 1

2020200019801960194019201900

100

Government Gross Debt-to-GDP

Emerging economies

Advanced economies

World

War II

World

War I

Sources: IMF; RBA

THE GLOBAL FISCAL RESPONSE TO COVID-19

BULLETIN – JUNE 2021 101

tion), while at the same time government revenues

derived from taxes on household and business

incomes and consumption tend to fall, especially

where tax rates are progressive, which results in a

smaller share of income going into taxes at lower

levels of income.

Advanced economies with strong automatic

stabilisers, including those with more generous

unemployment benefits and pre-funded wage

subsidy schemes designed to maintain employ-

ment relationships, required smaller additional fiscal

measures in order to provide the same support to

private incomes as other economies with weaker

automatic stabilisers. European economies tend to

have strong automatic stabilisers that provide

relatively high levels of support to a larger share of

their populations, which is one reason why their

direct fiscal support has been smaller. In contrast,

the United States has weaker automatic stabilisers,

and this was one reason why US authorities

provided the largest additional direct fiscal support

in the first year of the pandemic.

Advanced economies that initially provided large

direct fiscal responses also tended to be those with

lower pre-pandemic government debt and smaller

fiscal deficits. This group included Australia,

Germany, New Zealand and Singapore. As the

pandemic wore on, other governments became

increasingly willing to extend and increase their

fiscal support given its effectiveness earlier in the

crisis and the low cost of funding this support

through government bond issuance.

In emerging market economies, the direct fiscal

support measures were, on average, smaller in scale

compared to advanced economies. This reflected

greater financing constraints experienced by some

governments, including the high cost of new bond

issuance (Alberola et al 2020). These financing

constraints have made it more difficult for many

emerging market economies to support their

health systems and economically vulnerable

segments of their populations.

In the case of China, where government debt is

relatively low, the early control of domestic

infections and strong global demand for goods

helped economic activity return quickly to its pre-

pandemic trajectory. As a result, Chinese policy-

makers did not need to provide as much direct

fiscal support as other economies, though support

from other state-affiliated agents (such as state-

owned enterprises and banks) has continued to

play an important stabilising role in the economy.

Some governments have attempted to support

their economy with a larger emphasis on indirect

fiscal measures such as loans and loan guarantees

(Graph 3). This has typically reflected policy

preferences of the authorities and a more limited

Graph 2

Cumulative Acute Phase Direct Fiscal Response*

By date of announcement, per cent of 2019 GDP

Japan

Canada

Australia

United States

New Zealand

Germany

France

Italy

Spain

United Kingdom

M MJ JS D

2020 2021

Singapore

Hong Kong

Taiwan

South Korea

M MJ JS D

2020 2021

Russia

Brazil

India

China

Includes fiscal measures announced by April 2021 and state government stimulus for Australia, Canada, Germany. Excludes loan guarantees

and unallocated funds. China is based on announced changes in budget deficit for all levels of government, excludes state-owned enterprises;

all other countries are based on announcements from national sources

Sources: IMF; national sources; RBA; Refinitiv

THE GLOBAL FISCAL RESPONSE TO COVID-19

102 RESERVE BANK OF AUSTRALIA

ability to increase direct fiscal spending. Indirect

fiscal measures were used extensively in the

European Union because of concerns early in the

pandemic about the ability of some member

countries to raise funds at favourable interest rates

and in a manner compliant with their EU treaty

obligations.

[3]

Indirect fiscal measures comprised a

large proportion of the fiscal response in some

emerging market economies, including India and

Brazil, due to their more limited fiscal space. These

indirect fiscal measures were still much smaller than

in advanced economies.

Governments prioritised support for

private incomes, employment and the

health response

Without decisive policy interventions, the pandemic

would have sharply reduced household and

business incomes, caused greater labour market

disruption and prolonged economic scarring

through business and personal bankruptcies and

higher long-term unemployment. Indeed, in the

early days of the pandemic, there were widespread

concerns that it may lead to another Great

Depression (Gumede 2020). Fiscal policy was swiftly

recognised as the best tool to address these risks

because it could be targeted at directly supporting

incomes on a large scale (Baldwin and Weder di

Mauro 2020).

Graph 3

0 10 20 30 40 %

India

Russia

China

France

Spain

Brazil

Italy

Australia

Japan

New Zealand

United Kingdom

Germany

Canada

United States

Acute Phase Direct and Indirect

Fiscal Support*

Per cent of 2019 GDP

Direct Indirect

Includes fiscal measures announced by April 2021. China is based on

announced changes in budget deficit

Sources: IMF; national sources; RBA; Refinitiv

The direct fiscal response in the acute phase has

mainly consisted of direct transfers to households

and businesses, wage subsidies and tax deferrals

(Graph 4). Private sector cash flows were also

supported by measures such as low cost (often

government-guaranteed) loans and the temporary

pausing of some debt and other contractual

obligations, such as rent and mortgage payments.

Most of the acute phase direct fiscal support has

been disbursed in 2020 and early 2021.

As part of this support, wage subsidy schemes were

deployed in almost all advanced economies to

preserve pre-pandemic employment relationships

and to provide replacement income to workers in

affected businesses. The use of wage subsidies was

motivated by a range of considerations: expec-

tations that the pandemic disruptions would be

short lived; the limited need for structural

adjustment given the nature of the shock; and the

perceived success of Germany’s wage subsidy

scheme during the Global Financial Crisis.

[4]

In the

United States, the Paycheck Protection Program

served a similar function through govern-

ment-guaranteed loans that were forgiven when

they were used to support employment and wages.

The take-up of wage subsidies has been substantial.

Across advanced economies, the use of the

subsidies peaked at between 15 to 60 per cent of

the labour force. These peaks were generally

reached in early 2020 when containment measures

were most stringent and thus when activity was

weakest. The value of wage subsidy programs has

been difficult to compare across economies as

some governments utilised existing schemes that

were already funded (partly or in full) from past

contributions.

Another key component of fiscal support during

the acute phase has comprised unemployment

benefits, which in some economies have been

increased, extended and made easier to access.

These changes were most consequential in the

United States, where benefits were substantially

increased as unemployment increased sharply; the

income of many unemployment benefit recipients

in the United States was higher than their earnings

in the jobs they had before the pandemic (Ganong,

Noel and Vavra 2020). Unemployment benefits were

THE GLOBAL FISCAL RESPONSE TO COVID-19

BULLETIN – JUNE 2021 103

also increased in Australia but to a lesser degree.

Meanwhile, Canada implemented a new and

temporary unemployment benefit scheme, to

better deal with the impact of the pandemic on

incomes.

A few advanced economies also provided

substantial direct transfers to households in the

form of cash payments. These payments were

largest in the United States, totalling 6 per cent of

Graph 4

0 5 10 15 20 %

France

South Korea

Spain

Italy

Australia

Japan

New Zealand

United Kingdom

Hong Kong

Singapore

Germany

Canada

United States

Type of Acute Phase Direct Fiscal Support*

Per cent of 2019 GDP

Transfers to households

Unemployment Benefits

Transfers to firms

Wage Subsidies

PPP**

Liquidity Support

Healthcare

Other

Includes fiscal measures announced by April 2021 and state government

stimulus for Australia, Canada, Germany. Excludes loan guarantees and

unallocated funds

Paycheck Protection Program

Sources: IMF; national sources; RBA; Refinitiv

GDP or 11 per cent of median household income.

Hong Kong, Japan and Singapore also made large

direct transfers to households.

As a result of these fiscal policy measures, private

incomes in advanced economies held up well

during the pandemic despite the sharp drop in

economic activity and hours worked (Graph 5). This

outcome is in stark contrast to the experience

during previous recessions when private incomes

typically fell. In some economies, including

Australia, Canada and the United States, household

incomes increased sharply. In most European

economies and Japan, wage subsidies only partially

replaced wages, so household incomes declined. In

addition to boosting household incomes, wage

subsidies supported business viability by helping

firms meet their major expense, labour costs; this

helped reduce bankruptcies.

Household income support schemes helped to

cushion the fall in household consumption. By

providing households with more income certainty,

they supported households in maintaining a higher

level of consumption than otherwise; restrictions on

services consumption meant that this boost to

consumption was most evident in spending on

goods. These schemes also contributed to a

significant increase in household savings during

2020 and early 2021.

Graph 5

Real Household Income

December quarter 2019 = 100

Australia

100

110

index

Disposable income

Canada

Income before

transfers

United States

100

110

index

Germany

M MJ JS SD D

20202019

100

110

index

Spain

M MJ JS SD D

20202019

Sweden

M MJ JS SD D

20202019

100

110

index

Sources: National sources; OECD; RBA; Refinitiv

THE GLOBAL FISCAL RESPONSE TO COVID-19

104 RESERVE BANK OF AUSTRALIA

Economic scarring effects, which can be caused by

extended periods of unemployment (resulting in

discouraged workers), firm closures and weak

investment, have been smaller than was feared in

the early stages of the pandemic. They have also

been smaller than observed following past

recessions, as unemployment rate forecasts made

early in the pandemic have turned out to be too

pessimistic in most advanced economies

(Graph 6).

[5]

This was in part due to the substantial

and growing fiscal and monetary support that

limited the effect of the pandemic on the level of

unemployment (IMF 2021). Participation rates and

hours worked declined sharply early in the

pandemic, but started to recover later in 2020 and,

in some economies such as Australia, have recently

returned to pre-pandemic levels. In supporting

firms’ balance sheets and employment, the fiscal

response in many economies has helped to provide

a foundation for strengthening labour market

conditions.

In some of the large emerging market economies,

including Brazil, India and Russia, the direct fiscal

response prioritised income support for the most

vulnerable parts of their populations through direct

transfers and subsidies for essential consumption;

these measures were smaller than in advanced

economies. By contrast, China’s support measures

were mostly targeted to small businesses and

stimulating aggregate demand directly, including

through infrastructure investment. The Chinese

Graph 6

2019 unemployment rate

Forecast from April 2021

Forecast from April 2020

South Korea

New Zealand

d Kingdom

Germany

United States

Australia

Canada

Italy

Unemployment Rate Forecasts

Average of 2020 and 2021 unemployment rates

Sources: Consensus Economics; RBA; Refinitiv

Government also encouraged state-owned

enterprises and banks to support employment and

financing conditions, as is often the case in global

and regional downturns.

All economies provided additional funding for their

healthcare systems to increase hospital resources,

COVID-19 testing and contact tracing. Governments

have also expanded funding since late 2020 in

support of the procurement and rollout of vaccine

programs. Although the additional healthcare

spending has been a small share of the direct fiscal

support, it has led to a 20 per cent increase in

healthcare spending in advanced economies.

Low interest rates have supported fiscal

sustainability

The significant global fiscal policy response has

been funded largely by debt issuance, with govern-

ment debt-to-GDP ratios increasing to historically

elevated levels in many economies. In advanced

economies, the higher government debt levels

have not called into question the sustainability of

government finances. This partly reflects low

interest rates on government debt. The prevailing

combination of low long-term interest rates that are

lower than expected economic growth means that

many governments can stabilise their debt-to-GDP

ratios even while running primary fiscal deficits (i.e.

fiscal deficits before the payment of interest on their

debt).

Broadly speaking, government debt is considered

sustainable when governments can continue to

service their debt (and avoid default or debasing

the currency) without having to significantly adjust

fiscal policy settings, including by cutting spending

or raising taxes which risks slowing the economy.

The sustainability of debt is important for a couple

of reasons. One is that it allows governments to

pursue their public policy priorities without being

forced to undertake significant unwanted fiscal

adjustments. Another major reason is that govern-

ments with less sustainable debt may be limited in

their ability to respond to future negative economic

shocks by providing debt-funded fiscal stimulus.

In some economies, low levels of public debt has

meant that fiscal deficits have been comfortably

THE GLOBAL FISCAL RESPONSE TO COVID-19

BULLETIN – JUNE 2021 105

financed in the capital markets. The ability of

governments to run a primary fiscal deficit without

endangering debt sustainability also partly depends

on the difference between the interest on the

government’s debt and the growth in GDP (the

interest rate-growth differential; Furman and

Summers 2020). If the interest rate on government

debt is lower than the growth rate of the economy,

then growth in the economy will lower government

debt as a share of GDP as long as the primary deficit

is not too big.

In advanced economies, the interest rate-growth

differential has been negative since the early 2000s

and has declined further during the pandemic, as

interest rates on government debt have declined by

more than expected longer-term GDP growth rates

(Graph 7). As of April 2021, the International

Monetary Fund (IMF) (IMF 2021) expects that in the

years immediately after the pandemic, advanced

economies with elevated government debt levels

will have primary deficits that are small enough to

stabilise or reduce their debt-to-GDP ratios

(Graph 8). The IMF expects that some advanced

economies with lower levels of government debt

may take longer to reduce their debt-to-GDP ratios

as they will be under less pressure from the financial

markets to do so.

While the interest rate-growth differential has not

been volatile over the past 30 years, it can rise

rapidly if there is a sudden reassessment of a

government’s fiscal sustainability (Mauro and Zhou

Graph 7

Interest Rate-Growth Differential

Select advanced economies*

20061991 2021

0.0

2.5

5.0

7.5

Expected growth**

10-year yield

2006

1991

2021

-4

-2

ppt

Interest rate-growth

differential

PPP GDP-weighted average of Australia, Canada, France, Germany,

Italy, Japan, New Zealand, South Korea, Spain, United Kingdom and

United States

Expected average annual nominal GDP growth over following 10-years

Sources: Bloomberg; Consensus Economics; IMF; RBA

2020). Therefore, were the currently supportive

conditions to change, some governments may face

difficulties stabilising debt-to-GDP ratios without a

significant change in their fiscal settings.

Further fiscal support will contribute to a

more complete recovery

Fiscal policy in advanced economies is expected to

remain accommodative over the next few years as

the support during the acute phase evolves into

fiscal support for the recovery phase. This transition

will necessarily involve a different set of longer-term

priorities. Countries will make this transition at

different times.

In most advanced economies, where economic

activity remains constrained by containment

measures, fiscal policy is expected to continue to

focus on supporting incomes and preserving

employment relationships for some time. But as

infections are brought under control and vaccines

are rolled out, the emphasis of fiscal support will

shift. This will entail a greater focus on public

investment, particularly in green and digital

initiatives, incentives for more consumption and

private investment, and retraining programs for

workers in those sectors that are expected to have

been severely impacted during the pandemic.

The fiscal measures that have already been

announced for the recovery phase are substantial

Graph 8

Japan

Italy

United

States

France

Spain

Canada

United

Kingdom

Germany

Australia

South

Korea

New

Zealand

100

150

200

-6

-4

-2

ppt

Fiscal Indicators*

Gross government debt to GDP, 2019 (LHS)

Projected primary balance 2022–26, annual average (RHS)

Primary balance that stabilises debt at 2019 level** (RHS)

Countries with dashed lines above their dot are expected to stabilise

debt below 2019 levels, and vice versa

Assumes interest rate-growth differentials remain at current levels

Sources: Consensus Economics; IMF; OECD; RBA

THE GLOBAL FISCAL RESPONSE TO COVID-19

106 RESERVE BANK OF AUSTRALIA

but in most economies are smaller than for the

acute phase and will be spread over a longer

period. With significant spare capacity in most

advanced economies, these measures can reduce

the long-term economic ‘scarring effects’ of the

pandemic without generating high inflation. The

size and design of the recovery phase fiscal support

varies across countries (Graph 9). The United States

is expected to provide very large recovery phase

fiscal support, equivalent to 9 per cent of GDP,

which will be focused on infrastructure investment

and spread over a decade. European Union

members will deploy a combination of grants and

loans that are expected to be spent between

2021 and 2026. These measures will be funded by

EU-issued debt that will provide recovery fiscal

support equal to 5 per cent of EU GDP.

[6]

The

distribution of these funds will be tilted to EU

members more heavily affected by the pandemic

and those who began the pandemic with weaker

economic fundamentals. In a few other smaller

economies, fiscal support for the recovery phase

will likely be as large as 6 per cent of pre-pandemic

GDP.

The announced recovery phase measures should

help avoid a repeat of the post-Global Financial

Crisis experience in some advanced economies,

where fiscal austerity was adopted before the

Graph 9

0 5 10 %

Singapore

Hong Kong

New Zealand

Japan

United Kingdom

Germany

Canada**

France

Australia

South Korea

United States**

Spain**

Italy**

Recovery Phase Direct Fiscal Support*

Per cent of 2019 GDP

Public investment and investment incentives

Training programs

Consumption incentives

Other recovery measures

Fiscal measures aimed for the recovery phase, i.e. after the pandemic has

passed; includes fiscal measures announced by April 2021 and state

governments for Australia, Canada and Germany; includes EU Recovery and

Resilience Facility funds for EU countries where spending plans are available;

expected to be spent over multiple years

Proposed support not yet approved

Sources: IMF; national sources; RBA; Refinitiv

economic recovery was entrenched. The premature

winding back of fiscal support, before private

demand was able to sustain the recovery, created

unnecessary headwinds for many economies

(House, Proebsting and Tesar 2017).

Fiscal support during the acute phase of the

pandemic has been so large that, even with the

transition to the sizeable recovery phase support,

there will be a tightening of fiscal settings in 2022.

In advanced economies, cyclically adjusted fiscal

deficits, which represent the deficit after accounting

for the role of automatic stabilisers, are expected to

decline from 2022; this will result in what is known

as ‘fiscal drag’ (Graph 10). The projected decline in

deficits largely reflects expectations that reduced

fiscal support, such as wage subsidies or unemploy-

ment benefits, will be needed as economic activity

normalises. On current expectations the reduction

in the direct fiscal support will occur when the

economic recovery is more progressed than it was

during the Global Financial Crisis and it should be

less disruptive to the recovery from the COVID-19

pandemic.

In emerging markets, where fiscal space is often

more limited, some governments with pre-existing

macroeconomic or financial imbalances have faced

more pressure to reduce fiscal deficits. But this

experience has varied considerably across countries.

Some large emerging market economies in Asia

have had few issues in announcing fiscal measures

to support activity during their recovery phase. For

instance, India announced fiscal stimulus measures

after the initial lockdown ended in October 2020,

including consumption incentives and increased

infrastructure spending, while China started

transitioning to its recovery phase measures in the

middle of 2020. But most emerging economies are

yet to announce substantial support for the

recovery phase, partly because their priority is still

on bolstering health systems to deal with elevated

infections and to support the rollout of vaccination

programs.

Conclusion

The COVID-19 pandemic caused the largest fall in

economic activity since at least the Second World

War. Along with substantial monetary policy easing,

THE GLOBAL FISCAL RESPONSE TO COVID-19

BULLETIN – JUNE 2021 107

Graph 10

20192013200720011995 2025

-6

-3

-6

-3

Change in Cyclically Adjusted Primary Deficits

Per cent of potential GDP

Emerging economies

Advanced economies

Forecasts

Deficit increases

Deficit declines

Sources: RBA; Refinitiv

this has been met with a significant fiscal policy

response in most economies. Governments have

prioritised direct fiscal support for private incomes

and employment, which has limited economic

scarring and given the recovery a solid basis.

Fortunately, a repeat of the premature shift to fiscal

austerity as seen in a number of economies after

the Global Financial Crisis appears unlikely, with

fiscal settings likely to evolve but remain supportive

for some time after the pandemic subsides.

Footnotes

The authors of this article are all from the Economic

Analysis Department. They thank Iris Chan for her

important early contribution to the analysis of the global

fiscal policy response. They also thank Tomas Cokis,

Andrew Staib, Diego May, Zan Fairweather and Matt

Larkin for their contributions on the fiscal policy response

in specific economies.

[*]

Significant fiscal responses were estimated to limited the

peak-to-trough decline in activity in advanced economies

to 11½ per cent, some 5 percentage points lower than

otherwise (Chudik, Mohaddes and Raissi 2021)

[1]

The article discusses fiscal support announced by April

2021. While policies and the context in which they are

implemented differ across economies, best efforts have

been made to draw high-level comparisons to illustrate

key commonalities and differences.

[2]

These constraints were eased with the European

Commission temporarily relaxing the EU’s fiscal rules in

[3]

March 2020 (European Commission 2020) and the ECB

acting forcefully to reduce differences in government

funding rates across the euro area (European Central Bank

2021).

For a discussion of Germany’s experience with wage

subsidies schemes during the Global Financial Crisis, see

(Cooper, Meyer and Schott 2017).

[4]

For further detail on the economic effects of fiscal policy

during the COVID-19 crisis, see (IMF 2021)

[5]

The funding is from the Next Generation EU Recovery and

Resilience Facility. The grants effectively allow for

increased fiscal transfers within the EU to its members that

are less developed and that entered the crisis in worse

economic positions. The lending is designed to subsidise

borrowing costs for the EU’s member economies with

more elevated government debt levels and sovereign

bond yields. For further details see (RBA 2020).

[6]

THE GLOBAL FISCAL RESPONSE TO COVID-19

108 RESERVE BANK OF AUSTRALIA

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