Updated: February 27, 2021
The International Monetary Fund (IMF) is making available about $50 billion through its rapid-disbursing emergency financing facilities for low income and emerging market countries to combat the coronavirus outbreak, IMF Managing Director Kristalina Georgieva said at a joint news conference in Washington D.C. on Wednesday with World Bank President David Malpass.
“Of this, $10 billion is available at zero interest for the poorest members through the Rapid Credit Facility,” she said, adding that countries in Sub-Saharan Africa would be given priority.
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Georgieva said there were many IMF members at risk, including those with weak health systems, inadequate policy space, commodity exporters exposed to terms-of-trade shocks, and others that are particularly vulnerable to spillovers.
She said: “I am particularly concerned about our low-income and more vulnerable members – these countries may see financing needs rise rapidly as the economic and human cost of the virus escalates.
“Our staff are currently working on identifying vulnerable countries and estimating potential financing needs should the situation deteriorate further,” she said, adding that “thanks to the generosity of our shareholders, we have about $1 trillion in overall lending capacity”.
“For low-income countries, we have rapid-disbursing emergency financing of up to $10 billion (50 percent of quota of eligible members) that can be accessed without a full-fledged IMF program. Other members can access emergency financing through the Rapid Financing Instrument.
“This facility could provide about $40 billion for emerging markets that could potentially approach us for financial support. We also have the Catastrophe Containment and Relief Trust – the CCRT – which provides eligible
countries with up-front grants for relief on IMF debt service falling due.
“The CCRT proved to be effective during the 2014 Ebola outbreak, but is now underfunded with just over $200 million available against possible needs of over $1 billion. I called on member countries to help ensure that this facility is fully re-charged and ready for the current crisis”.
Ms. Georgieva described the spread of the coronavirus to over 60 countries as “very serious and could well get worse”, adding that the outbreak would affect the global economy, including demand and supply.
“We know that the disease is spreading quickly. With over one-third of our membership affected directly, this is no longer a regional issue – it is a global problem calling for a global response.
“We also know that it will eventually retreat, but we don’t know how fast this will happen. We know that this shock is somewhat unusual as it affects significant elements of both supply and demand:
“Supply will be disrupted due to morbidity and mortality, but also the containment efforts that restrict mobility and higher costs of doing business due to restricted supply chains and a tightening of credit.
“Demand will also fall due to higher uncertainty, increased precautionary behavior, containment efforts, and rising financial costs that reduce the ability to spend,” she said.
According to Georgieva, about one-third of the economic losses from the disease will be direct costs: from loss of life, workplace closures, and quarantines, while the remaining two-thirds will be indirect, reflecting a retrenchment in consumer confidence and business behavior and a tightening in financial markets.
“The good news is that financial systems are more resilient than before the Global Financial Crisis. However, our biggest challenge right now is handling uncertainty,” she said, addding that under any scenario, global growth in 2020 will drop below last year’s level.
She said it was not clear what the impact would be exactly the outcome would be as that would depend on how long and deep this crisis would hit and how effective the response would be.
The economic impact would be more severe for countries with weaker health systems and response capacity and this would require a global coordination mechanism to accelerate the recovery of demand and supply, Georgieva said.
Countries would have to different types of responses to minimize the impact, especially fiscal and macro-economic responses, she said.
“The number one priority in terms of fiscal response is ensuring front-line health-related spending to protect people’s wellbeing, take care of the sick, and slow the spread of the virus.
“I can’t emphasize enough the urgency of stepping up health-related measures—and the need to ensure the production of medical supplies so that supply is at par with demand.
“Second, macro-financial policy actions may be required to tackle the supply and demand shocks that I mentioned above. The aim should “no regret” actions that shorten and soften the economic impact. They should be timely and targeted to the sectors, businesses and households hardest hit”.
According to the IMF boss, a generalized weakening in demand through confidence and spillover channels—including trade and tourism, commodity prices, and tighter financial conditions—would call for an additional policy response to support demand and ensure an adequate supply of credit.
To achieve both fiscal and macro-economic successes, adequate liquidity will also be needed to offset financial stability risks.
“In short: the situation is evolving rapidly, and we should stand ready to provide a more forceful, coordinated response if conditions require it. Along these lines, I welcome the statement from the G7 yesterday that they are ready to cooperate further on timely and effective measures”.