## Policy Steps to Address the Corona Crisis ## Source details **Canonical URL:** [Policy Steps to Address the Corona Crisis](https://www.imf.org/-/media/files/publications/pp/2020/english/ppea2020015.pdf) ## Other formats - [Markdown version](/-/media/files/publications/pp/2020/english/ppea2020015.pdf.md) - [Structured JSON version](/-/media/files/publications/pp/2020/english/ppea2020015.pdf.json) --- ### Monitoring, containment, and public-health measures - Early monitoring and swift and comprehensive containment measures will slow the spread of the virus. The WHO is providing guidance on health measures. - Ensure sufficient paid sick leave to help curb contagion; in countries with less reliable social safety nets, health interventions must be targeted to reach informal sectors and those living in extreme poverty. - Systematic testing is necessary to document progress and inform when it is safe to resume activity in previously affected regions. - Ramp up public health expenditure urgently; overwhelmed systems can amplify the initial shock through social anxiety, reduced detection and treatment, and heightened need for quarantine. - Support medical tele-consultations and extra-ordinary recruitment in the health sector. - Coordinate industrial response in medical supplies production and reduce negative cross-border spillovers from excessive hoarding. - Inform populations of the seriousness of the crisis and change individual behaviors. - Establish a high-level group to coordinate responses. - Provide timely and regular communication of information from credible sources, including daily updates on severity. - Issue national directives and transparent policy advice to guide monitoring, planning and response. - Cooperate on measures to help the vulnerable within, and across countries; ensure crucial medical supplies are not restricted from reaching the people and countries most in need. ### Central bank policy and market liquidity - Central banks should support demand and confidence by preventing a tightening of financial conditions, lowering borrowing costs for households and firms, and ensuring market liquidity. - Provide liquidity to support market functioning and ease stresses in key funding markets via open market operations, expanded term lending, and other measures such as outright purchases and repo facilities. - Monetary easing will support demand and confidence while reducing borrowing costs for households and firms. - Where there is policy space, use rate cuts. - Use forward guidance about the expected path of monetary policy and expand asset purchases (including risky assets). - Temporary targeted measures should support sectors hit hardest; consider targeted support for certain asset classes to complement generalized policy measures. - Coordinated action by G7 central banks can provide stability to the global economy and financial markets, including coordinated monetary easing and swap lines to lessen global financial market stresses and liquidity pressures, including swap lines to emerging market economies. - Monetary policy in emerging and developing economies (EMDE) must balance cushioning growth with tackling external pressures, including commodity price shocks and capital flow reversals. - Monetary easing by the G7 will offer room for EMDE central banks to do the same. - Exchange rate flexibility can offset external shocks; foreign exchange intervention may be necessary if market conditions become disorderly. - In crisis or near-crisis situations, capital flow measures may need to be deployed for a temporary period. ### Fiscal policy: urgent and sizable support - Fiscal policy should urgently provide sizable support for affected people and firms during the pandemic; additional fiscal stimulus may be necessary depending on the evolving nature of the pandemic. - Governments should provide sizable support for affected people and firms: - Wage subsidies for businesses affected by shutdowns to help prevent cascading bankruptcies and massive layoffs. - Cash transfers to low-income households to support consumption and preserve minimum living standards. - Broad-based fiscal stimulus will help support aggregate demand; options include boosting investment or economy-wide tax cuts depending on the shock and fiscal space. - Acknowledge that the impact of broad stimulus may be small until the COVID-19 outbreak fades because of large supply disruptions. - Accelerate implementation of investment or other discretionary measures to prevent stimulus arriving too late. - The fiscal response by G20 countries has been timely but so far remains lower than during the global financial crisis. - Given the temporary nature of health epidemics, the current crisis is likely to be more short-lived; however, as the virus spreads, more needs to be done in 2020, and the case for a coordinated and synchronized global fiscal stimulus to enhance confidence is becoming stronger. - Low-income countries (LICs) with limited domestic policy options depend critically on global growth. - Many LICs are buffeted by multiple shocks on external demand, terms-of-trade and financing conditions, with constrained capacity to smooth growth amid high debt and limited monetary or exchange rate flexibility. - Managing a softer landing will require growth-friendly spending adjustments and financial support. - Timely concessional financing from major economies and international financial institutions will soften this blow. ### Regulatory and supervisory response for financial stability - Aim to preserve financial stability and banking system soundness while sustaining economic activity. - The coronavirus will affect borrowers’ capacity to service loans and depress banks’ earnings, which could impair bank soundness and stability. - Encourage banks to use flexibility in existing regulations and undertake prudent renegotiation of loan terms for stressed borrowers. - Loan classification and provisioning rules should not be eased; it is critical to measure NPLs and potential losses as accurately as possible. - Require transparent risk disclosure and clear communication of supervisory expectations to enable market discipline. - Supervisors should heighten monitoring of financial soundness, enhance frequency of dialogue with regulated entities, and prioritize business continuity planning and operational resilience. - Liquidity buffers should be used if needed; enhanced supervisory reporting could monitor liquidity strains. - Banks should draw upon existing buffers to absorb costs of restructuring, first drawing down their capital conservation buffer (CCB); supervisors should ensure that dividend distributions are revised, as needed. - When already activated, countercyclical capital buffers (CCyB) may also be released. - Authorities may need additional support measures used in past crises: - Subsidies and tax relief aimed at smaller borrowers. - Credit guarantees and asset purchase programs to support banks. - Capital injections and broad deposit guarantees to restore confidence and stem systemic turbulence. ### Global coordination, support for vulnerable countries, and IMF role - Determined and coordinated actions by those with greater policy strength serve as a public good. - Proactive policies by the G7 and other major economies to contain infection rates, support an orderly flow of medical supplies, and provide momentum for global activity will help countries lacking adequate domestic means. - Tailor policy responses to existing administrative systems and capacity; where administrative systems are weak, broader measures may be needed and attention must be given to delivering assistance to hard-to-reach regions and communities. - The IMF stands ready to mobilize its $1 trillion lending capacity to help its membership fight the Coronavirus (Covid-19) pandemic and its widespread human, economic and financial costs. - The Fund has already received financing requests and inquiries from over 20 countries; more requests are expected. - The Fund can deploy its flexible emergency response toolkit—the Rapid Financing Instrument (RFI) and the Rapid Credit Facility (RCF)—to help countries with urgent BOP needs. - The RFI is available to all member countries; the concessional RCF provides zero interest loans to PRGT-eligible members, both without the need for a full-fledged program. - These instruments could provide support in the order of $50 billion to emerging and developing countries. - Emergency financing under the RCF and RFI can pave the way for new Fund-supported programs with larger loans, drawing on the IMF’s $1 trillion lending capacity. - The Fund already has 40 ongoing arrangements—both disbursing and precautionary—with combined commitments of about $200 billion, which can provide another vehicle for rapid disbursement of crisis financing. - The Fund’s Catastrophe Containment and Relief Trust (CCRT) can provide the poorest and most affected countries with grants to pay off debt service to the Fund, freeing up vital resources for containment and mitigation of the pandemic. - Following the United Kingdom’s recent pledge of up to $195 million, the CCRT has about $400 million available to provide debt relief. - Work is underway with other donors to further boost available resources to as much as $1 billion. - The IMF will continue to play its role at the center of the Global Financial Safety Net, facilitating and coordinating support from other International Financial Institutions, Regional Financing Arrangements, and bilateral donors, as well as (if called upon) between members with established bilateral swap lines. - Planning is underway to ensure that, if the crisis deepens, additional contingency measures can be activated rapidly. *Source: ppea2020015* --- _Source: https://www.imf.org/-/media/files/publications/pp/2020/english/ppea2020015.pdf_