Managing public finances during major crises

Managing public finances in an emergency requires innovative use of policy tools and strategies. The rapid and simultaneous spread of the COVID-19 virus and the inability to use traditional macroeconomic policies tested the financial management systems of countries worldwide. Governments at the national and subnational levels experienced budgetary burdens with the pressure to deliver emergency support while facing major declines in revenues. Moreover, many countries were already facing a shrinkage in fiscal space prior to the pandemic due to their fiscal policies. Using the “policy tools” approach, this chapter reviews the policy tools that countries have deployed to deal with the economic impacts of the crisis. There is a significant variation in the types of policy tools adopted across and within country-income groups. These tools played a crucial role in resuming economic activity across the countries, but the effects of the tools on long-term financial sustainability remain uncertain.