The huge economic fallout from the coronavirus pandemic that has impacted more than 80 poor and middle-income countries who have now requested the International Monetary Fund for financial assistance in recent weeks.
While saying that the global economy has entered a recession “as bad or worse” compared to the global financial crisis of 2008-09, IMF chief Kristalina Georgieva said that the institution required more funds to increase its capacity to address the unprecedented number of requests for help.
The risk of a new debt crisis among the poorest countries of the world has made the IMF particularly concerned. The economic impact of coronavirus has put pressure on all creditors, including the private sector, for finding a solution to the economic crisis before things go out of hand, Georgieva said.
“We are working specifically on the tremendous burden on low-income countries. Many of them were not in a strong position before this crisis and many of them have high levels of debt. We need to deal with countries in debt-distress early before it turns into a big problem for them and the world economy,” Georgieva said.
Discussions on a possible relief plan are being carried out by the World Bank and the IMF, said David Malpass, the president of the World Bank. He said that while the bank would be offering front-loading grants and soft-loan to provide some support to the economies of the poorest countries, Malpass also said that such economies would also require some debt relief.
“This is the only way they can concentrate any new resources on fighting the pandemic and its economic and social consequences,” Malpass said. He added that so far this year, the debt payments to rich-country creditors were estimated to be $14bn.
The IMF has been contacted for assistance by about 50 low-income countries and 31 middle-income countries, who together make up about 40 per cent of the 189 members of the IMF, Georgieva said while speaking after a virtual meeting of the IMF’s governing body. She said that the fund expected more requests for assistance.
According to a conservative estimate by the IMF that the fund required for meeting the financing needs of distressed emerging market countries was about $2.5 trillion, she said and added that such a huge sum of money was not possible for the IMF to arrange. There has been outflow of $83bn of capital from the emerging markets as investors seek out safe havens because of concerns after the rout of global financial markets caused by the coronavirus pandemic.
“We have never before had more than a handful of requests,” Georgieva said. She further added that many economies were facing multiple issues including a drop in domestic demand, fall in exports, outflow of capital and a collapse in commodity prices. “We are concentrating on providing a rapid response to emergency financing requests,” she said.
(Adapted from TheGuardian.com)