For the relatively new managing director of the International Monetary Fund, Kristalina Georgieva, a tricky question is set to cloud clarity of strategy formation – how does a bp0dy such as the IMF co-ordinate economic policy across the world when the enemy is essentially invisible and its behavior is relatively unknown as it blocks the very way economies function.
In January, the IMF had forecast that in 2020, the base unit of living standards – Gross Domestic Product (GDP) per capita or the per person size of the economy, is set to go up in 160 countries. That would have made 82 per cent of the countries of the world would have got better.
However three months later and after the spread of the novel coronavirus pandemic, Georgieva says: “We are projecting 170 countries to see income per capita shrinking during 2020” – which will account for 87 per cent of the total countries of the globe.
However, the forecast of the IMF about the global economy is a 3 per cent drop in the current year which is expected “a global recession we have not seen in our lifetimes” and the news about GDP per capita increase can hardly be considered as even a silver lining.
“I want to stress this may be actually a more optimistic picture than reality produces,” Georgieva said in an interview to the BBC. “Epidemiologists are now helping us making macroeconomic projections. Never in the history of the IMF have we had that. And what they’re telling us is that the novel coronavirus is a big unknown, and we don’t know whether it may return in 2021.”
It is therefore not surprising that the IMF is in a rescue mode. This global body conventionally has the task of acting as a fiscal watchdog and a rescuer for the countries in financial trouble but it is now engaged in a different work – spreading the message that lives as well as livelihoods needs to be cased everywhere.
“It is the time that governments should spend as much as they can afford and more, but keep the receipts. We don’t want to lose accountability and transparency during this crisis,” Georgieva said.
“We will see some countries being able to do more, and actually, the UK has already done quite a lot. And we will see some countries that will need more help because they have much more limited capacity to act. And this is where the IMF and other international financial institutions come into play.”
It is possible for the IMF to help out countries by providing financing to them to fight the health crisis in an era when the interest rates are ultra low. But the IMF also plans to help the poorer countries hit by the pandemic to recover economically as well.
“We need to target support to the most vulnerable people in the most vulnerable parts of the economy,” Georgieva says.
“Saving lives and saving livelihoods go hand in hand with stopping the pandemic. We simply cannot restart the economy to the fullest, and without restarting the economy, finance ministers are not going to have the revenues they need, including for their health services,” Georgieva says.
“So we have to, of course, listen to the health professionals and design protocols that allow us over time to reopen segments of the economy and do that cautiously. We have to then carefully calibrate how we’re doing this reopening.”
(Adapted from BBC.com)