## DEVELOPMENT COMMITTEE: THE MANAGING DIRECTOR'S WRITTEN STATEMENT — April 2020

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### Overview: scale and nature of the crisis
- The global coronavirus outbreak is described as "a crisis like no other" posing daunting challenges for policymakers in many emerging market and developing economies (EMDEs).
- A severe economic impact in the first half of 2020 is characterized as inevitable.
- Pre-crisis context: the world economy was in a sluggish recovery weighed down by trade disputes, policy uncertainty, and geopolitical tensions, despite some signs of recovery at end-2019.

### Economic outlook and risks
- Immediate global impact and pathways:
  - Large global contraction in the first half of 2020 is inevitable.
  - Recovery prospects depend on: intensity and efficacy of containment efforts; progress with vaccines and therapies; extent of supply disruptions; shifts in spending patterns; impact of tighter financial conditions; size of policy response.
- Uncertainty:
  - "Uncertainty surrounding the severity and length of the crisis is exceptionally high."
  - Downside risks are large: slower/weaker recovery if contagion uncertainty lingers, more lasting supply-chain disruptions, and deeper aggregate demand weakness.
  - A protracted risk-off episode could expose vulnerable borrowers to rollover risk and reveal balance sheet fragilities.
- EMDEs-specific impacts and projections:
  - EMDEs face both domestic pandemic impacts and cross-border spillovers: depressed trade, impaired global supply chains, reversals of portfolio capital flows, tighter external financial conditions, reduced FDI and remittances.
  - Commodity-importing EMDEs may face supply-side constraints and inflationary pressures for basic foodstuffs and medicines.
  - Commodity-exporting EMDEs (notably oil exporters) face sharp export price declines.
  - Overall projection: real GDP in EMDEs is projected to contract by almost 1 percent in 2020, after 3.7 percent growth in 2019.
  - Excluding China, real growth for the group in 2020 is expected to be -2 percent.
- Structural constraints:
  - Many EMDEs have weak public health systems, limited administrative capacity, sizeable informal sectors complicating social distancing, and limited policy space (monetary policy rates already low, elevated public debt).

### Policy priorities and recommendations
- Human health priority:
  - First priority: limit the human toll and prevent health systems from being overloaded; “the idea of a tradeoff between saving lives and saving livelihoods is a false dilemma.”
- Macroeconomic and fiscal measures:
  - Governments should increase health expenditures and provide targeted income support to affected people and firms (including cash transfers, wage subsidies, tax relief, loan maturity extensions) to limit bankruptcies and layoffs.
  - Central banks should combat disorderly market movements, ensure ample liquidity provision, and, where policy space allows, support activity by lowering borrowing costs for households and firms.
  - Where macroprudential buffers exist, relax them to mitigate shocks’ impact.
  - Financial authorities should preserve financial stability and banking system soundness.
- For countries with limited fiscal space:
  - Strict expenditure prioritization is necessary—boost health spending, strengthen social safety nets, and support the private sector.
  - Many low-income developing countries (LIDCs) will need substantial financial and technical assistance from donors, including grants, emergency zero-interest rate loans, and debt service relief.
  - Call to official bilateral creditors to suspend debt payments by IDA countries that request forbearance to ease liquidity strains and create space for response.

### Multilateral cooperation
- Global cooperation is essential for public health (procurement of medical supplies, vaccine and treatment development).
- Countries should resist protectionist measures and refrain from restricting exports of necessary food and medical products.
- Coordinated fiscal and monetary stimulus would help boost confidence and stabilize the world economy.
- Swap lines by major central banks are critical to avoid liquidity crunches in key financial markets and to ensure smooth trade financing.

### IMF support and instruments deployed
- IMF mobilization:
  - The IMF is deploying its emergency response toolkit: Rapid Financing Instrument (RFI) and Rapid Credit Facility (RCF).
  - The RFI is available to all members; the concessional RCF provides zero interest loans to PRGT-eligible members.
  - Both provide assistance without the need for a fully fleshed out economic program.
  - As per April 13, the IMF has received 74 such requests for emergency financing; more requests are expected.
  - The IMF has temporarily doubled the amounts available to countries under the emergency response facilities.
- Catastrophe Containment and Relief Trust (CCRT):
  - The CCRT can provide grants to the poorest countries to pay off debt service to the IMF, freeing up resources for containment and mitigation.
  - The IMF Executive Board approved relief for 25 countries on obligations falling due until mid-October.
  - The IMF is working with bilateral donors to further enlarge the CCRT’s resources and extend the duration of relief.
- Broader IMF lending capacity and program options:
  - Emergency financing can pave the way for new IMF-supported programs with larger loans, drawing on the IMF’s $1 trillion lending capacity.
  - At this juncture the IMF has 39 ongoing arrangements—both disbursing and precautionary—with combined commitments of about $160 billion.
  - Augmenting arrangements where program implementation is on-track is an option to provide financing rapidly.
  - The IMF is exploring options to offer members with very strong policies a short-term liquidity line to grant predictable and renewable access to IMF resources.
- Non-lending assistance:
  - IMF provides policy advice, reprioritizes capacity development to address the crisis, and facilitates/co‑ordinates support from other IFIs, Regional Financing Arrangements, and bilateral donors.
  - The IMF will explore further options for creditor coordination to facilitate comprehensive and fair debt restructuring and restore debt sustainability.

### Forward-looking priorities beyond the immediate crisis
- While combating the pandemic takes precedence, the IMF will continue work on:
  - Containing the economic and financial repercussions of climate change.
  - Combatting debt vulnerabilities.
  - Aiding states in fragile situations.
  - Supporting modernization of the rules-based global trade system.

*Source: The Managing Director’s Written Statement to the Development Committee — April 2020.*

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_Source: https://www.imf.org/-/media/files/publications/pp/2020/english/ppea2020023.pdf_