The IMF is fully committed to supporting our member countries, particularly the most vulnerable; we have the tools to help; and we are coordinating closely with our partner institutions.
Did the COVID-19 pandemic zombify the economy? Commentators have pointed to the pandemic and related business support measures potentially fueling zombification. Using administrative data covering the universe of Canadian firms, we find a broad-based decline in the share of zombie firms across industries relative to pre-pandemic levels. Whereas business support measures kept firms alive and operating as non-zombie firms, the decline in the zombie firm share was caused by would-be zombie firms exiting, indicative of the pandemic’s cleansing effects. As a consequence, while aggregate labour productivity worsened in Canada over the pandemic, it was not driven by zombie firms.
This paper provides background for an informal discussion to engage with Executive Directors, held on November 26, 2024, on the Comprehensive Review of GRA Access Limits. The General Resources Account (GRA) access limits are part of the Fund’s risk management framework. They help maintain a balance between the need to: (i) ensure that members have confidence in the availability of Fund financing; and (ii) preserve liquidity and the revolving nature of the Fund’s resources.
This paper provides a comprehensive overview of corporate sector vulnerabilities that have emerged post-pandemic. The main focus in on the financial stability implications from corporate sector vulnerabilities in a new environment of high interest rates. Although several central banks have recently started cutting interest rates, the expectation is that high interest rates, above pre-pandemic levels, are here to stay. It is then especially important to design and deploy appropriate policies that may prevent and mitigate risks from the corporate sector. The main findings of the paper are as follows. First, the paper finds that interest rate increases may transmit more strongly to the real economy in the current environment since the global share of financially distressed firms has been trending upwards, especially in emerging markets (EMs). Moreover, the lagged effects of past monetary policy tightening may have adverse effects on firms’ capacity to invest. Second, an adverse macroeconomic scenario of negative demand shocks coupled with higher interest rates would lead to a fast and large increase in corporate defaults. Financial stability risks would increase materially, especially for EMs and less-developed banking systems, as bank capital buffers would fall considerably in this scenario. Third, the increasing role of nonbanks in corporate credit intermediation in advanced economies may amplify overall financial stability risks. This paper closes some of the data gaps and shows that since the GFC, nonbanks have been increasing their exposure to riskier firms and to the less productive segment of the economy, including zombie firms and nontradable firms. The migration of credit to the unregulated sector raises concerns about the propagation of risks to the rest of the financial system from a potential corporate default cycle. It is paramount to continue closing data gaps in this sector, while extending the regulatory perimeter to nonbanks to improve the overall resilience of the financial sector. Finally, the paper documents some progress on insolvency and restructuring regimes to deal with corporate distress since the pandemic. Nevertheless, several shortcomings persist that prevent countries from resolving firms quickly in a potential scenario of an intensification of corporate distress.
On December 17, 2024, the IMF’s Executive Board concluded the Comprehensive Review of General Resources Account (GRA) Access Limits. The review maintained the overall annual and cumulative GRA access limits at 200 and 600 percent of current quotas, respectively, keeping them unchanged from the existing temporary limits that were set to expire at the end of 2024. These limits constitute a 38 percent increase relative to the limits set in the previous comprehensive review in 2016. The outcome of the review enables the IMF to continue meeting the evolving needs of its member countries, providing greater stability and predictability in their access to IMF resources.
The Executive Board also approved adjustments to maintain access limits in nominal (Special Drawing Rights) terms when the general conditions for the effectiveness of the quota increase under the 16th General Review of Quotas are met. This approach is consistent with the Board’s decision in the recently approved Review of Charges and the Surcharge Policy and the Review of the PRGT Facilities and Financing. The Board also agreed that the next Comprehensive Review of GRA Access Limits is expected to take place on the standard five-year review cycle, with flexibility to conduct it earlier if circumstances warrant.
The last comprehensive review of the Fund’s GRA access limits took place in February 2016, establishing an annual limit of 145 percent and a cumulative limit of 435 percent of quotas. These limits were adjusted temporarily during the COVID-19 pandemic and after the geopolitical conflicts in recent years. Most recently, they were temporarily increased in March 2023 and were set to expire at the end of 2024.
Access limits are a key element of the Fund’s risk management framework: they provide members with confidence about the possible scale of financing that the Fund is prepared to provide in support of their adjustment efforts, while safeguarding Fund resources and preserving their revolving character. Overall GRA access limits are not ceilings but thresholds for enhanced scrutiny and safeguards through the exceptional access framework.
Two staff papers informed the Executive Board’s informal engagement (November 2024) and the formal meeting (December 2024) on this review.
Special drawing rights are providing an important boost for countries that need one, but greater support is encouraged to strengthen our unique lending tools
In the most vulnerable countries, strengthening state capacity must adapt to more frequent economic shocks, greater political instability, and fewer resources
Although global debt recorded another significant decline in 2022, it is still high, with debt sustainability remaining a concern
The August 2021 allocation of special drawing rights supported countries amid recovery from the pandemic—and continues to offer benefits
The economic gains from $272 billion in pandemic support for 94 countries were strongest in the poorest and more vulnerable recipients of IMF concessional financing
Following exceptional pandemic support, governments should foster disinflation and financial stability while protecting the most vulnerable and safeguarding public finances
With shock upon shock hitting the world economy in the last three years, IMF Managing Director Kristalina Georgieva's customary opening speech to the Annual Meetings warned of a darker global outlook and emphasized the need for the world to come together to deal with the consequences.