A Global Crisis Like No Other Needs a Global Response Like No Other
IMF Blog, April 20, 2020
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- Authors: Kristalina Georgieva
- Published: April 20, 2020
Crisis characterization and outlook
- Crisis described as:
- "More complex, with interlinked shocks to our health and our economies that have brought our way of life to an almost complete stop;"
- "More uncertain, as we are learning only gradually how to treat the novel virus, make containment most effective, and restart our economies;"
- "Truly global. Pandemics don’t respect borders, neither do the economic shocks they cause."
- Outlook:
- "We expect global economic activity to decline on a scale we have not seen since the Great Depression."
- "This year 170 countries will see income per capita go down—only months ago we were projecting 160 economies to register positive per capita income growth."
Immediate global policy response and IMF actions
- Global fiscal and monetary response to date:
- Fiscal measures so far have amounted to about $8 trillion.
- Central banks have undertaken massive (in some cases, unlimited) liquidity injections.
- IMF capacity and rapid-response measures:
- IMF has $1 trillion lending capacity—4 times more than at the outset of the Global Financial Crisis—at the service of its 189 member countries.
- Recognizing the crisis is global and fast-moving, IMF sought to maximize capacity to provide financial resources quickly, especially for low-income members.
- Exceptional measures taken in two months (listed by the author):
- Doubling the IMF’s emergency, rapid-disbursing capacity to meet expected demand of about $100 billion.
- 103 countries have approached the IMF for emergency financing, and the Executive Board will have considered about half of these requests by the end of the month.
- Reforming the Catastrophe Containment and Relief Trust to help 29 of the poorest and most vulnerable members—of which 23 are in Africa—through rapid debt-service relief.
- Working with donors to increase debt-relief resources by $1.4 billion.
- Donor generosity from the United Kingdom, Japan, Germany, the Netherlands, Singapore, and China enables immediate relief to the poorest members.
- Aiming to triple concessional funding via the Poverty Reduction and Growth Trust for the most vulnerable countries.
- Seeking $17 billion in new loan resources.
- Pledges from Japan, France, United Kingdom, Canada, and Australia promising commitments totaling $11.7 billion, taking the IMF to about 70 percent of the resources needed towards this goal.
- Supporting a suspension of official bilateral debt repayments for the poorest countries through end 2020—a ground-breaking accord among G20 countries.
- This suspension is worth about $12 billion to nations most in need.
- Calling for private sector creditors to participate on comparable terms—which could add a further $8 billion of relief.
- Establishing a new short-term liquidity line to help countries strengthen economic stability and confidence.
- These actions were endorsed by the International Monetary and Financial Committee at the virtual Spring Meetings.
Risks, vulnerabilities, and additional financing considerations
- Concerns highlighted:
- Emerging markets and developing countries experienced the sharpest portfolio flow reversal on record, of about $100 billion.
- Commodity-dependent countries shocked by plummeting export prices.
- Tourism-dependent countries experiencing a collapse of revenues.
- Countries relying on remittances facing income shocks.
- IMF engagement options:
- For emerging economies: engage through regular lending instruments, including precautionary instruments; may require considerable resources if further market pressures arise.
- The IMF stands ready to deploy full lending capacity and to mobilize all layers of the global financial safety net, "including whether the use of SDRs could be more helpful."
- For poorest members: need much more concessional financing as the peak of the outbreak is still ahead and significant fiscal outlays will be required.
- Debt and sustainability:
- "More lending may not always be the best solution for every country."
- The crisis is adding to high debt burdens and many could find themselves on an unsustainable path.
- Need to contemplate new approaches, working closely with other international institutions and the private sector, and consider whether exceptional measures might be needed.
Preparing for recovery — policy priorities and tradeoffs
- Policy advice must adapt to evolving realities and country-specific challenges, risks, and tradeoffs as economies restart.
- Key questions and priorities:
- How long to maintain extraordinary stimulus and unconventional policy measures, and how to unwind them.
- Dealing with high unemployment and "lower-for-longer" interest rates.
- Preserving financial stability.
- Facilitating sectoral adjustment and private sector debt workouts where needed.
- Long-standing collective challenges to address alongside recovery:
- Reigniting trade as an engine for growth.
- Sharing the benefits of fintech and digital transformation, which have proven useful during the crisis.
- Combating climate change, including guiding stimulus to advance a green and climate resilient economy.
- Calibrating social policies to reduce inequality, protect vulnerable people, and promote access to opportunities for all.
Closing message and normative stance
- The crisis "tests our humanity" and "must be met with solidarity."
- The author urges seizing the crisis as an opportunity "to craft a different and better future together."
Source: Kristalina Georgieva, April 20, 2020 — IMF blog post "A Global Crisis Like No Other Needs a Global Response Like No Other"