From Great Lockdown to Great Transformation
IMF News, June 9, 2020
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- Published: June 9, 2020
Lessons from the Great Lockdown
- The current crisis is a truly global shock: by the end of 2020, "170 countries—almost 90 percent of the world—will be worse off with lower per capita income."
- This outcome reverses the IMF forecast from January that "160 countries would finish the year with larger economies, and positive per capita income growth."
- The period is labeled "the Great Lockdown" because the health emergency has forced production and consumption to a standstill—"this has never been done before."
- Global fiscal response: "massive fiscal measures—totaling nine trillion dollars, globally."
- These measures are characterized as temporary lifelines and "a bridge to the recovery, but not a risk to the recovery as it arrives."
- Central banks acted forcefully, with the U.S. Federal Reserve providing liquidity and calming markets.
- Capital flows and market access:
- In March, "around one hundred billion dollars left emerging markets and developing countries—three times more than during the global financial crisis."
- In April and May, "total issuance of around seventy-seven billion dollars" from emerging markets—"almost three and a half times as much as in the same two months last year."
- Countries with buffers and sound macroeconomic policies have weathered the crisis better; those in debt distress, affected by fragility and conflict, or with weak fundamentals are at much higher risk.
- Public health response: health systems are being expanded to cope with increased demand; behavioral adaptations (social distancing, masks) are becoming widespread.
Pathway to Recovery and Opportunities
- Reopening status: "some 75 percent of countries are now reopening."
- The choice for recovery: "building forward—not back" towards "a great transformation."
- Key risks emerging from the crisis:
- Higher debt and higher deficits.
- "In all likelihood—higher structural unemployment and higher levels of poverty."
- Need to assess capacity to carry debt over time and ensure sustainability despite low interest rates.
- Major opportunities to accelerate during recovery:
- Digital transformation:
- Rapid modernization of work (telecommuting, flexible organization).
- Expansion of "e-commerce, e-learning, e-transfers, e-payments, and e-governance."
- Risk of a "great divide" if access to digital skills and infrastructure remains unequal; example: "currently only 50 percent of African businesses and citizens have access to the Internet."
- Green transition:
- The green economy can create jobs (examples: "insulating buildings, in reforestation, or in planting mangroves").
- "Low carbon energy and infrastructure can also be a big booster for jobs."
- Fund interest in providing incentives and clarity around "the risks to businesses during the transition to a low carbon economy."
- Building fairer societies:
- Policies that are both pro-growth and equity-enhancing (combining social safety nets with "social safety ropes" and targeted support to small and medium-sized businesses).
- Warning that "inequality tends to go up after a pandemic."
- Globalization:
- Caution against a retreat from globalization despite pressures to build national health security and independence; global trade contributes to "lower costs, higher incomes and lower" (text ends mid-sentence in source).
IMF Response and Role
- The IMF has stepped up its support and is deploying resources with speed and impact.
- Post-Global Financial Crisis strengthening: resources increased "from $250 billion to $1 trillion – four times as strong."
- Operational response:
- Providing emergency financing to countries most in need.
- Offering flexible credit lines to countries with strong fundamentals.
- Poised to do more and soliciting input on priorities for the Fund's contribution to recovery.
IMF Managing Director’s Opening Remarks, US Chamber of Commerce, June 9, 2020