Global outlook c h a p t e r 1

A. Reversals of EMDE per capita 
income gains in 2020, by number 
of years 
B. Possible scenarios of global 
growth
C. Estimated impact of the pandemic 
on global potential growth
D. Global fiscal impulses 
E. Government debt
F. Cumulative response of long-term
growth forecasts after institutional-
reform advances and setbacks 

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G L O B A L E C O N O M I C P R O S P E C T S | J A N U A R Y 2 0 2 1 
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much of the fiscal support provided last year is 
expected to be withdrawn, weighing on growth 
(figure 1.2.D). Whereas deficits are generally 
expected to shrink over the forecast, they will 
nonetheless contribute to rising debt, potentially 
planting the seeds for future problems—
particularly if borrowing is not used efficiently 
(figure 1.2.E). 
Against this backdrop, EMDE policy makers will 
need to tackle the challenge of avoiding premature 
fiscal tightening in the short term, but unwinding 
fiscal support measures and ensuring fiscal 
sustainability over the medium term. This will be 
especially difficult for some countries, given the 
substantial deterioration of fiscal positions that has 
occurred in the past year. Accordingly, there is a 
pressing need for EMDEs to improve domestic 
revenue mobilization and prioritize expenditures 
that yield large growth dividends. Additionally, 
the erosion of public balance sheets may call for 
the global community to provide assistance—in 
some cases including immediate debt relief—for 
hard-hit fiscally constrained EMDEs to support 
their most vulnerable populations through the 
crisis. 
EMDE policy makers will also need to make 
sustained efforts to attenuate the pandemic’s long- 
term damage to underlying growth and incomes. 
Addressing the recent increase in food insecurity 
and safeguarding access to education are essential 
to promoting the development of human capital. 
Simultaneously, far-reaching investment in digital 
and green infrastructure can facilitate sectoral 
reallocation while enhancing environmental 
resilience. Improved governance and reduced 
corruption can lay the foundations for higher long
-run growth (figure 1.2.F). Increased debt 
transparency will be key to mitigate the risk of 
sovereign debt and financial crises, one of the most 
pressing threats to growth prospects. 
Global cooperation will be essential for supporting 
vulnerable populations and achieving a sustainable 
and inclusive global recovery. In light of 
substantial fiscal constraints and high debt levels, 
globally coordinated debt relief, predicated on 
debt transparency, could help many economies—