The seal of the International Monetary Fund is seen at the headquarters building in Washington, DC on July 5, 2015. (MANDEL NGAN / AFP)

Countries need to consider undertaking “difficult reforms” across product, labor, and financial markets to fill the estimated US$15 trillion global output gap caused by the COVID-19 crisis, a top International Monetary Fund official said.

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“The same energy that is being put into vaccination and plans for recovery spending also needs to be put into growth measures to make up for this lost output,” IMF First Deputy Managing Director Geoffrey Okamoto said in a blog published on the Washington-based fund’s website Tuesday. “The monetary and fiscal stimulus still flowing will serve as a springboard to a brighter and more sustainable future rather than a crutch to a weaker version of the pre-Covid-19 economy.”

The same energy that is being put into vaccination and plans for recovery spending also needs to be put into growth measures to make up for this lost output.

 Geoffrey Okamot,  IMF First Deputy Managing Director

Since March 2020, governments have spent US$16 trillion on fiscal support and central banks have increased their balance sheets by a combined US$7.5 trillion, Okamoto said. Deficits are the highest they have been since World War II and central banks have provided more liquidity in the past year than in the past 10 years combined, all of which was “absolutely necessary,” he said.

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Had this not happened, the 2020 recession -- the worst since the Great Depression -- would have been three times worse, Okamoto said, citing IMF research.

Okamoto also proposed enhanced debt-restructuring mechanisms to help resolve unviable firms expeditiously and channel investment to new ideas and companies.

He called for stronger active labor-market policies, including job-search monitoring and support, and retraining to help workers shift to more promising jobs in dynamic parts of the economy.

Improved competition-policy frameworks -- which the US and Europe are debating -- and reductions in barriers to entry in “sclerotic sectors should ensure that we don’t have moats around the firms that captured the policy makers of yesteryear”, Okamoto said.

Reforms could raise annual growth in gross domestic product per capita by more than one percentage point in emerging-market and developing economies in the next decade, he added.