China should shift the emphasis of its coronavirus fiscal stimulus efforts away from investment focused on goods output towards supporting consumption and broadening its social safety net, a senior International Monetary Fund (IMF) official said on Wednesday.

Vitor Gaspar, IMF fiscal affairs director, said that it was important that China move to a new growth model based on “domestic dynamism” that helps to reduce its external imbalances- a policy prescription that the IMF and western governments have urged for years.

“Households can be supported by a broadening of the safety net. And the emphasis could move away from investment,” Gaspar told an online news conference during IMF and World Bank annual meetings.
The IMF’s Fiscal Monitor released on Wednesday showed that China’s fiscal deficit for 2020 as a share of economic output will expand by 5.6 percentage points to 11.9% of GDP – a smaller-scale increase than the massive stimulus that Beijing deployed during the 2008-2009 financial crisis.

By contrast, the United States will see a 12-percentage point increase in its 2020 fiscal deficit as a share of GDP, to nearly 19%, the report showed.

Although the IMF predicts that China will be the only country to show positive GDP growth this year, with a strong rebound to 8.2% growth in 2021, Gaspar said the pandemic would affect China’s long-term growth potential.

Gaspar said it was important for China to maintain a focus on financial stability and to cooperate with other countries on health solutions to the pandemic, including on COVID-19 vaccines and treatments.

He also said China should help provide debt relief to poor countries and ensure debt transparency and “to be constructive on issues of trade and push forward a consensus in the important area of climate change.”