Countries need to focus on fiscal forbearance during the COVID-19 pandemic and it would be a challenge for multilateral institutions to determine its norms, 15th Finance Commission Chairman N K Singh said on Wednesday.
Stating that the last major global pandemic was the Spanish Flu which happened 102 years ago -- long before the United Nations, World Bank and IMF were established, Singh said the multilateral institutions are thus confronting the challenges of a pandemic of this nature for the first time.
"... in the context of the pandemic, we need to focus not on fiscal rectitude but on fiscal forbearance. Fiscal norms designed for normal times are not appropriate in distressed times like these," Singh said in his address to the Commonwealth Finance Ministers' Meeting 2020.
Singh said there are no past precedents of handling complexities of this kind of pandemic.
"The first challenge for these institutions is how to determine the norms of fiscal forbearance. Norms which are fair, appropriate and consistent. Norms which will address: the health emergency, building economic recovery, accepting the fiscal shock, addressing the nature of the fiscal shock and reforming the international debt architecture," he said.
He further said while it is necessary and perhaps easier to argue in favour of fiscal forbearance, it is equally important to get back on track as soon as the pandemic has begun to wane.
"The path to fiscal rectitude after fiscal forbearance must be central to these norms. It is easier to exit than to re-enter. Fiscal forbearance must be followed by fiscal rectitude," he said.
Singh suggested constitution of credible and independent fiscal institutions like the Fiscal Council and enforcement mechanisms for fiscal rules as integral aspects of these institutions.
He said given the uncertain nature of the pandemic, this is a continuing challenge for finance ministers on what should be the appropriate levels of fiscal stimulus.
"And in determining fiscal stimulus, should we occupy all the fiscal space fully now given the fact that we cannot predict the nature of the pandemic? Should fiscal room be left to be used somewhat later depending on when a vaccine can be accepted and more can be said about the evolution of this pandemic?" he added.