IT’S OFFICIAL: 2020 IS A RECESSION YEAR, THANKS TO COVID19

No business sector would remain immune from the effects of COVID19 or Coronavirus

IMF to open its US$1 trillion-vault for emerging economies as investors withdraw US$83 billion from low-income countries

By Atique Naqvi

The International Monetary Fund is expecting negative global economic growth in 2020 and the organization is ready to deploy US$1 trillion – its full lending capacity – in countries that are seeking financial assistance owing to COVID19.

Investors have already removed US$83 billion from low-income and emerging economies since the beginning of COVID19 or Coronavirus outbreak, according to the IMF.

Following a conference call with G20 Finance Ministers and Central Bank Governors, IMF’s Managing Director Kristalina Georgieva said: “The human costs of the Coronavirus pandemic are already immeasurable and all countries need to work together to protect people and limit the economic damage. This is a moment for solidarity, which was a major theme of the meeting today.”

In an official statement over the ongoing Coronavirus crisis, Georgieva emphasized on three points:

“First, the outlook for global growth for 2020 is negative - a recession at least as bad as during the global financial crisis or worse. But we expect a recovery in 2021. To get there, it is paramount to prioritize containment and strengthen health systems everywhere. The economic impact is and will be severe, but the faster the virus stops, the quicker and stronger the recovery will be.

“We strongly support the extraordinary fiscal actions many countries have already taken to boost health systems and protect affected workers and firms. We welcome the moves of major central banks to ease monetary policy. These bold efforts are not only in the interest of each country but of the global economy as a whole. More steps would be needed, especially on the fiscal front.

IMF’s Managing Director Kristalina Georgieva

“Second, advanced economies are generally in a better position to respond to the crisis, but many emerging markets and low-income countries face significant challenges. They are badly affected by outward capital flows, and domestic activity will be severely impacted as countries respond to the epidemic.

“Investors have already removed US$83 billion from emerging markets since the beginning of the crisis, the largest capital outflow ever recorded. We are particularly concerned about low-income countries in debt distress - an issue on which we are working closely with the World Bank.

“Third, what can we, the IMF, do to support our members? We are concentrating bilateral and multilateral surveillance on this crisis and policy actions to temper its impact.

IMF will massively step up emergency finance in the wake of COVID19. “Nearly 80 countries are requesting our help and we are working closely with the other international financial institutions to provide a strong coordinated response.

“We are replenishing the Catastrophe Containment and Relief Trust to help the poorest countries. We stand ready to deploy all our US$1 trillion lending capacity.

Several low- and middle-income countries have asked the IMF to make an SDR (special drawing rights) allocation, as “we did during the Global Financial Crisis, and we are exploring this option with our membership”.

Major central banks have initiated bilateral swap lines with emerging market countries. As a global liquidity crunch takes hold, the IMF needs members to provide additional swap lines. The IMF will be looking at a possible proposal that would help facilitate a broader network of swap lines, including through an IMF-swap type facility.

“These are extraordinary circumstances and many countries are already taking unprecedented measures,” said Georgieva.