## Policy Action for a Healthy Global Economy

_IMF Blog, March 16, 2020_

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**Canonical URL:** [Policy Action for a Healthy Global Economy](https://www.imf.org/en/blogs/articles/2020/03/16/blog031620-policy-action-for-a-healthy-global-economy)

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## Bibliographic details
- Authors: Kristalina Georgieva
- Published: March 16, 2020

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### Overview and key message
- Quarantining and social distancing are the right prescription for public health, while the opposite—constant contact and close coordination—is needed to secure the global economy.
- Increased coordinated action is key to boosting confidence and providing stability to the global economy as COVID-19 spreads.
- The IMF published a set of policy recommendations to guide countries in the difficult days ahead.

### Three action areas for the global economy

- Fiscal
  - Additional fiscal stimulus will be necessary to prevent long-lasting economic damage.
  - Fiscal measures already announced prioritize health spending and those in need, including increased paid sick leave and targeted tax relief.
  - The case for a coordinated and synchronized global fiscal stimulus is becoming stronger by the hour.
  - Example from the Global Financial Crisis (GFC): fiscal stimulus by the G20 amounted to about 2 percent of GDP, or over $900 billion in today’s money, in 2009 alone.

- Monetary policy
  - In advanced economies, central banks should support demand and boost confidence by easing financial conditions and ensuring the flow of credit to the real economy.
  - The U.S. Federal Reserve announced further interest rate cuts, asset purchases, forward guidance and a drop in reserve requirements.
  - Major central banks took decisive coordinated action to ease swap lines and thus lessen global financial market stresses.
  - Going forward, there may be a need for swap lines to emerging market economies.
  - Investors have removed nearly $42 billion from emerging markets since the beginning of the crisis—the largest outflow they have ever recorded.
  - Central banks in emerging-market and developing economies will need to balance addressing capital flow reversals and commodity shocks; foreign exchange interventions and capital flow management measures can complement interest rate and other monetary policy actions.

- Regulatory response
  - Financial supervisors should preserve financial stability, maintain banking system soundness and sustain economic activity.
  - The crisis will stress test whether post-financial-crisis reforms serve their purpose.
  - Banks should be encouraged to use flexibility in existing regulations, for example by using their capital and liquidity buffers, and undertake renegotiation of loan terms for stressed borrowers.
  - Risk disclosure and clear communication of supervisory expectations will be essential for proper market functioning.
  - IMF staff research shows that changes in spending have a multiplier effect when countries act together.

### What the IMF can do (financial support and instruments)
- The IMF stands ready to mobilize its $1 trillion lending capacity to help our membership.
- As a first line of defense, the Fund can deploy its flexible and rapid-disbursing emergency response toolkit to help countries with urgent balance-of-payment needs.
- These instruments could provide in the order of $50 billion to emerging and developing economies.
- Up to $10 billion could be made available to our low-income members through our concessional financing facilities, which carry zero interest rates.
- The Fund already has 40 ongoing arrangements—both disbursing and precautionary—with combined commitments of about $200 billion; in many cases these arrangements can provide another vehicle for rapid disbursement of crisis financing.
- The Fund has received interest from about 20 countries and will be following up with them in the coming days.
- The Catastrophe Containment and Relief Trust (CCRT) can help the poorest countries with immediate debt relief to free up resources for health spending, containment, and mitigation.
  - United Kingdom’s recent pledge of $195 million means the CCRT now has about $400 million available for potential debt relief.
  - The aim, with the help of other donors, is to boost it to $1 billion.

### Policy implications and recommendations (summary)
- Scale up fiscal stimulus, both domestically targeted and coordinated internationally, to prevent long-lasting economic damage.
- Continue and expand health-focused spending and targeted support for affected people and businesses (e.g., paid sick leave, tax relief).
- Central banks should ease financial conditions, ensure credit flows, and coordinate swap lines where needed, including potentially to emerging markets.
- Use foreign exchange interventions and capital flow management tools in emerging-market and developing economies to complement monetary policy.
- Regulators should encourage banks to deploy capital and liquidity buffers and to renegotiate loan terms for stressed borrowers, while ensuring clear risk disclosure and supervisory communication.
- International cooperation across fiscal, monetary, and regulatory domains amplifies policy effectiveness and helps stabilize the global economy.

*Kristalina Georgieva, March 16, 2020 — Policy Action for a Healthy Global Economy (IMF blog)*

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## References

- [عربي](https://www.imf.org/ar/News/Articles/2020/03/16/blog031620-policy-action-for-a-healthy-global-economy)
- [日本語](https://www.imf.org/ja/News/Articles/2020/03/16/blog031620-policy-action-for-a-healthy-global-economy)
- [Português](http://www.imf.org/pt/News/Articles/2020/03/16/blog031620-policy-action-for-a-healthy-global-economy?sc_mode=1)
- [IMF published a set of policy recommendations](https://www.imf.org/en/Publications/Policy-Papers/Issues/2020/03/16/Policy-Steps-to-Address-the-Corona-Crisis-49262)

_Source: https://www.imf.org/en/blogs/articles/2020/03/16/blog031620-policy-action-for-a-healthy-global-economy_