In the morning of today, the highest authority of the International Monetary Fund has published in the social networks of the organism an opinion column that we share below:
I would like to start today by wishing you all the best, for your health and safety, and those of your families, in these difficult times.
Today we are facing an unprecedented crisis. COVID-19 has disrupted the social and economic order at blazing speed and on a scale we have never seen before. The virus is causing a tragic loss of life, and the confinement necessary to combat it has affected billions of people. What was normal just a few weeks ago: going to school, going to work, being with family and friends, is now a huge risk.
I have no doubt that we will meet this challenge. Our doctors and nurses are fighting 24 hours a day, often risking their lives to save other people’s lives. Our scientists will be able to find solutions to escape from the clutches of COVID. Until that time comes, we must bring together the resolve of all – individuals, governments, businesses, community leaders, international agencies – to act decisively and together to save lives and preserve livelihoods. This is the time for which the IMF was created: we are here to deploy the strength of the international community, so that we can help protect the most vulnerable and revitalize the economy.
The steps we take now will determine the pace and strength of our recovery. This will be the focus of the IMF’s 189 member countries when they meet next week at our virtual Spring Meetings. It is also the topic that I am going to focus on today.
Where we are: the situation of the world economy
First, let’s take a look at the situation we find ourselves in: We still face exceptional uncertainty about the depth and duration of this crisis.
What is already clear, however, is that world growth will turn sharply negative in 2020, as you will see in our Outlook for the world economy next week. In fact, we anticipate the worst economic fallout since the Great Depression.
Just three months ago, we expected positive per capita income growth in more than 160 of our member countries by 2020. Today, that number has turned 180 degrees: We now project that more than 170 countries will experience negative growth in per capita income this year.
These disappointing prospects concern both advanced and developing economies. This crisis knows no borders. It has affected everyone.
Due to the necessary containment measures taken to curb the spread of the virus, the world economy is being seriously affected. This is especially true for retail, hospitality, transportation, and tourism. In most countries, most workers are self-employed or are employed by small and medium-sized enterprises. These companies and workers are especially exposed.
And, just as the health crisis affects the vulnerable population the hardest, the economic crisis is expected to affect the most vulnerable countries more severely.
Low-income and emerging market countries — in Africa, Latin America, and much of Asia — face high risk. Since their healthcare systems are weaker to begin with, many face the daunting challenge of fighting the virus in densely populated cities and poverty-stricken slums, where social distancing is hardly an option. With fewer resources to start with, they are severely exposed to demand and supply shocks, and the dramatically tightening financial conditions that are taking place, and some may face an unsustainable debt burden.
They are also exposed to great external pressure.
In the past two months, approximately $ 100 billion of portfolio investments have emerged from emerging markets, an amount more than three times greater than in the same period of the global financial crisis. Raw material exporters are suffering doubly due to the collapse of raw material prices. And remittances – the livelihood of so many poor people – are expected to shrink.
We estimate that the gross external financing needs of developing and emerging market countries amount to trillions of dollars, and these countries can cover only part of them on their own, bringing the financing gap to hundreds of thousands. of millions of dollars. They need help, urgently.
The encouraging news is that all governments have launched into action, and indeed there has been significant coordination. Our next week’s Tax Monitor will show that countries around the world have adopted tax measures amounting to approximately $ 8 trillion. In addition, the G-20 and other countries have adopted huge monetary measures.
Many of the poorer nations are also taking courageous fiscal and monetary measures, while struggling against this fundamental shock to their systems, and with far less capacity for action than rich countries.
This is an overview of the situation the world economy is in today.
There is no doubt that 2020 will be extremely difficult. If the pandemic dissipates in the second half of the year – which would allow a gradual lifting of containment measures and the reopening of the economy – our underlying hypothesis is that there will be a partial recovery in 2021. But again, I stress that there is tremendous uncertainty surrounding the outlook: they could worsen based on many variable factors, including the duration of the pandemic.
And, what is fundamental, it all depends on the policy measures that we adopt now.
What to do: a 4 point plan
The next topic I want to address is building the bridge to recovery. We see four priorities:
-First, continue with the essential containment measures and support the sanitary systems. Some claim that there is a conflict between saving lives and preserving livelihoods. I say that this dilemma is false. Since it is a pandemic crisis, it is necessary to defeat the virus and protect people’s health to achieve economic recovery. So the message is clear: prioritize healthcare spending for screening and medical equipment, pay doctors and nurses, and ensure that field hospitals and clinics can function. For many countries — especially emerging and developing economies — this involves cautiously reallocating limited public resources. It also implies increasing the flow of resources to these countries. This includes the flow of vital goods: we must minimize disruptions in supply chains and, with immediate effect, not apply controls on exports of medical supplies and food.
-Second, protect the individuals and companies affected with fiscal measures and measures for the financial sector that are comprehensive, timely and focused. This depends on the circumstances of each country, but includes deferring the payment of taxes, granting wage subsidies and money transfers to the most vulnerable groups; expand unemployment insurance and social assistance, and temporarily adjust credit guarantees and loan conditions. Some of these measures have been taken in the first wave of economic policy support. Many countries are already working on a second wave of measures. It is imperative to build a life preserver for homes and businesses. We must prevent liquidity pressures from turning into solvency problems and avoid scars in the economy that make recovery much more difficult.
-Third, reduce the stress on the financial system and avoid contagion. Our next Global Financial Stability Report will analyze the different vulnerabilities in the financial sector. Banks have accumulated more capital and liquidity in the past decade, and their resilience will be tested in this rapidly changing environment. The financial system faces significant pressures, and monetary stimulus and liquidity supply mechanisms play an indispensable role. Many countries have lowered interest rates. The main central banks have activated swap lines and have created new lines to reduce tension in the financial markets. Increasing liquidity for a broader group of emerging economies would provide further relief. What is very important would also increase confidence.
-Fourth, as we move through this containment phase, we must plan for recovery. In this regard, too, we must minimize the possible effects of the scars of the crisis by taking policy action now. This requires careful analysis of when to gradually ease restrictions, based on clear evidence that the epidemic is receding. When the measures to stabilize the economy are consolidated and companies begin to normalize, we will need to move quickly to boost demand. Coordinated fiscal stimulus will be essential. Where inflation remains low and well anchored, a loose monetary policy should be maintained. Those with more resources and room for maneuver for policy implementation will have to do more; the others, with limited resources, will need more support.
The IMF: Get to Work
We are working 24 hours a day, 7 days a week, to support our member countries, with advice on economic policy, technical assistance and financial resources:
– We have a loan capacity of USD 1 trillion and we are making these resources available to our member countries.
– We are responding to an unprecedented number of requests for emergency financing: from more than 90 countries so far. The Executive Board has just agreed to double access to our emergency services, which will allow us to meet a demand for financing that is expected to be approximately USD 100 billion. Loan programs have already been approved in record time – inter alia, for the Kyrgyz Republic, Rwanda, Madagascar and Togo – and many more will follow soon.
– We are reconsidering the tools at our disposal to see how we could best use our precautionary credit lines to provide greater liquidity support, establish a short-term liquidity line, and contribute to meeting the financing needs of member countries through other options, including the use of SDRs. And in the event that we are unable to make loans because a country’s debt is unsustainable, we will seek solutions that can unlock critical financing.
– We have modified our Disaster Relief and Containment Trust Fund (FFACC) to provide immediate debt relief to low-income poor countries affected by the crisis, so that they have the necessary margin for urgent health expenditures instead of allocating resources to repay the debt. We are working with donors to increase the FFACC to $ 1.4 billion to extend the duration of debt relief.
– And together with the World Bank, we are calling for the suspension of debt service payments from the world’s poorest countries to official bilateral creditors.
I am proud of the IMF staff, who have redoubled efforts to deal with this crisis. And I look forward to next week’s discussions at the Spring Meetings on everything we can continue to do.
Conclusion: A Test for Humanity
I would like to conclude with a quote from Victor Hugo, who once said: “Great dangers have this beauty, which brings to light the fraternity of strangers.”
This common threat unites us all, so that we unfold the greatest strengths of humanity: solidarity, courage, creativity and compassion. We do not yet know how our economies and way of life will change, but we do know that we will emerge from this crisis with greater resilience.