Confronting the Crisis: Priorities for the Global Economy
IMF News, April 9, 2020
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- Authors: Kristalina Georgieva
- Published: April 9, 2020
Introduction: A Crisis Like No Other
- COVID-19 has disrupted social and economic order at lightning speed and on a scale not seen in living memory.
- Lockdowns to fight the virus have affected billions of people and transformed normal activities (school, work, family) into risks.
- Collective action is required—individuals, governments, businesses, community leaders, international organizations—to protect lives and livelihoods.
- The IMF’s 189 member countries will focus on recovery in virtual Spring Meetings.
Where We Stand: the Status of the Global Economy
- Extraordinary uncertainty remains about the depth and duration of the crisis.
- Global growth will turn sharply negative in 2020; the IMF anticipates the worst economic fallout since the Great Depression.
- Three months prior, positive per capita income growth was expected in over 160 member countries in 2020; current projections show over 170 countries will experience negative per capita income growth this year.
- The crisis affects advanced and developing economies alike; vulnerable people and countries are hit hardest.
- Sectors taking a substantial hit include retail, hospitality, transport, and tourism.
- Emerging markets and low-income nations face compounded risks:
- Weaker health systems and challenges of social distancing in densely populated and poverty-stricken areas.
- Exposure to demand and supply shocks, drastic tightening in financial conditions, and potential unsustainable debt burdens.
- Massive external pressures: portfolio outflows from emerging markets were about $100 billion in the last two months—more than three times larger than for the same period of the global financial crisis.
- Commodity exporters face a double blow from collapsing commodity prices.
- Remittances are expected to dwindle.
- Financing needs and gaps:
- Gross external financing needs for emerging market and developing countries are estimated to be in the trillions of dollars, with residual gaps in the hundreds of billions of dollars.
- These countries can cover only a portion of needs on their own and urgently need external help.
- Policy responses to date:
- Fiscal Monitor next week will show fiscal actions amounting to about $8 trillion worldwide.
- Massive monetary measures have been taken by the G20 and others.
- Many poorer nations are taking bold fiscal and monetary action despite far less firepower.
What Needs to Be Done: A 4-Point Plan
- First: Prioritize health and containment
- Continue essential containment measures and support health systems.
- Prioritize spending on testing, medical equipment, pay for doctors and nurses; ensure hospitals and makeshift clinics can function.
- Reallocate limited public resources where necessary in emerging and developing countries.
- Increase flows of resources to these countries and minimize disruptions to supply chains.
- Immediately refrain from export controls on medical supplies and food.
- Second: Shield people and firms with timely fiscal and financial measures
- Use large, timely, targeted measures according to country circumstances: tax deferrals, wage subsidies, cash transfers to the most vulnerable, extended unemployment insurance and social assistance, temporary adjustments to credit guarantees and loan terms.
- Prevent liquidity pressures from becoming solvency problems and avoid scarring of the economy.
- Third: Reduce financial system stress and avoid contagion
- Analyze vulnerabilities in the financial sector (Global Financial Stability Report).
- Rely on monetary stimulus and liquidity facilities; interest rates have been lowered in many countries.
- Major central banks have activated and created swap lines to reduce market stress.
- Enhance liquidity for a broader range of emerging economies to provide relief and lift confidence.
- Fourth: Plan for recovery while in the containment phase
- Minimize scarring through policy action now and plan careful easing of restrictions based on clear evidence the epidemic is retreating.
- As stabilization measures take hold and business normalizes, move swiftly to boost demand with coordinated fiscal stimulus.
- Where inflation remains low and well-anchored, monetary policy should remain accommodative.
- Those with greater resources and policy space should do more; those with limited resources will need more external support.
The IMF: All Hands on Deck
- The IMF is working 24/7 to support members with policy advice, technical assistance, and financial resources.
- Key capacities and actions:
- We have $1 trillion in lending capacity and are placing it at the service of our membership.
- Responding to an unprecedented number of calls for emergency financing—from over 90 countries so far.
- The Executive Board has agreed to double access to emergency facilities, allowing the IMF to meet the expected demand of about $100 billion in financing.
- Lending programs approved at record speed for the Kyrgyz Republic, Rwanda, Madagascar, and Togo, with many more to come.
- Reviewing the tool kit to better use precautionary credit lines, establish a short-term liquidity line, and help meet countries’ financing needs via other options—including the use of SDRs.
- Where a country’s debt is unsustainable and the IMF cannot lend, the IMF will look for solutions that can unlock critical financing.
- Revamped the Catastrophe Containment and Relief Trust (CCRT) to provide immediate debt relief to low-income countries affected by the crisis, creating space for urgent health spending rather than debt repayment.
- Working with donors to increase the CCRT to $1.4 billion to extend the duration of debt relief.
- Together with the World Bank, calling for a standstill of debt service to official bilateral creditors for the world’s poorest countries.
Conclusion: A Test of Our Humanity
- The crisis brings into relief solidarity, courage, creativity, and compassion.
- The common threat calls for global cooperation to harness humanity’s strengths and emerge more resilient.
- The actions taken now will determine the speed and strength of recovery.
Confronting the Crisis: Priorities for the Global Economy — By Kristalina Georgieva, April 9, 2020