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The International Monetary Fund has told its member governments they can create millions of jobs and boost recovery prospects if they use higher public investment to respond to the severe economic challenge posed by Covid-19.
Ahead of its annual meeting this month, the Washington-based fund said historically low interest rates meant it was a good time to borrow for long-term infrastructure projects and said the spending would help tackle rising unemployment.
The IMF said the boost to jobs would be especially strong if governments planned for a green recovery.
Its analysis – contained in a chapter from its forthcoming fiscal monitor – showed that increasing public investment by 1% of national output would create seven million jobs directly and between 20m and 33m jobs via the knock-on effects on the rest of the economy.
Public investment had the potential to generate between two and eight jobs directly for every million dollars spent on traditional infrastructure, and between five and 14 jobs for every million spent on research and development, green electricity and efficient buildings, the IMF said.
The organisation’s fiscal monitor said there was a strong multiplier effect, with each dollar, pound or euro spent by governments in developed and emerging market economies generating a much bigger increase in output.
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“Empirical estimates based on a cross-country data set and a sample of 400,000 firms show that public investment can have a powerful impact on GDP growth and employment during periods of high uncertainty – which is a defining feature of the