Coronavirus Economic Planning: Hoping for the Best, Prepared for the Worst

IMF Blog, March 12, 2020

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Individuals infected by the coronavirus potentially face a blow to their health and personal and economic well-being.
Countries hit by a sudden and unexpected public health emergency can see:
- slowed economic activity and squeezed budgets as they spend more to counter the impact of the virus;
- drops in revenue from falling economic activity;
- lower export revenues due to falling tourism receipts or a decline in commodity prices;
- an urgent balance-of-payments need if foreign exchange inflows and outflows mismatch.
Even countries that avoid widespread contagion may experience faltering economic activity from spillovers via global developments or broken supply chains.

The IMF provides policy and technical advice and can mitigate economic fallout through timely financial assistance.
Emergency financial assistance, on average, accounts for 20 percent of IMF members’ requests for support.
Swift financing can be essential to:
- replenish international reserves;
- obtain critical imports;
- boost budgets.

When the Ebola virus devastated parts of Africa, the IMF provided concessional emergency assistance of US$378 million to Guinea, Liberia, and Sierra Leone, a total of 2.3 percent of their combined GDP.
The IMF also provided debt-relief using funds from the IMF’s Catastrophic Containment and Relief Trust, which is being boosted by a £150 million contribution from the United Kingdom.

The IMF has two emergency financing instruments for shocks, including large natural and health disasters:
- Rapid Credit Facility (RCF)
- Rapid Financing Instrument (RFI)
Key features of these instruments:
- size, speed, and flexibility;
- disbursements are one-off payments meant to cover an urgent balance-of-payments need;
- not subject to traditional IMF conditions (contrast with multi-period Fund programs);
- the country must demonstrate that its debt is sustainable and commit to policies to overcome the emergency.
Example: After Cyclone Idai swept through Mozambique, the Fund responded quickly to provide emergency support.

In the event of a severe downturn triggered by the coronavirus, the IMF estimates it could provide up to US$50 billion in emergency financing to fund emerging and developing countries’ initial response.
Low-income countries could benefit from about US$10 billion of this amount, largely on concessional terms.
Beyond immediate emergency financing:
- members can request a new loan drawing on the IMF’s war chest of around US$1 trillion in quota and borrowed resources;
- current borrowers can top up their ongoing lending arrangements.

The IMF is supporting members by “hoping for the best” regarding the health emergency while being “prepared for the worst” through emergency financing and policy support.

Source: IMF blog by Martin Mühleisen, March 12, 2020.