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24 March 2020

Recession looms, says IMF’s chief

The spread of COVID-19 pandemic will lead to a recession of the scale recorded during the global financial crisis, or worse, the Managing Director, International Monetary Fund (IMF) Kristalina Georgieva, has said.

The IMF chief said the human costs of the Coronavirus pandemic are already immeasurable, stressing that countries need to work together to protect people and limit the economic damage. “This is a moment for solidarity,” she stated.

Georgieva in a statement at the end of a meeting yesterday of the G20 Finance Ministers and Central Bank Governors in Washington DC, said: “I emphasised three points in particular: “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 recovery in 2021. To get there, it is paramount to prioritise containment and strengthen health systems—everywhere.

She said the economic impact of COVID-19 “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,” stating that these bold efforts “are not only in the interest of each country, but of the global economy as a whole.

She said more will be needed, especially on the fiscal front.

The IMF chief said many emerging markets and low-income countries face significant challenges. “They are badly affected by outward capital flows,” saying domestic activity will be severely impacted as countries respond to the epidemic. She said investors have already removed US$83 billion from emerging markets since the beginning of the crisis, in her words, representing “the largest capital outflow ever recorded.”

Georgieva said IMF is “particularly concerned about low-income countries in debt distress—an issue on which we are working closely with the World Bank.”

She said the IMF will massively step up emergency finance, saying nearly 80 countries have requested “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 welcome the pledges already made and call on others to join,” she stated.

She said the IMF is ready to deploy all of its US$1 trillion lending capacity, in addition to looking at other available options.

She said several low- and middle-income countries had asked the IMF to make an SDR (Special Drawing Rights) allocation, as was done during the Global Financial Crisis. We are exploring this option with our membership,’’ she assured.

She said major central banks have initiated bilateral swap lines with emerging market countries.

“As a global liquidity crunch takes hold, we need members to provide additional swap lines. Again, we will be exploring with our Executive Board and membership a possible proposal that would help facilitate a broader network of swap lines, including through an IMF-swap type facility.

“These are extraordinary circumstances. Many countries are already taking unprecedented measures. We, at the IMF, working with all our member countries, will do the same. Let us stand together through this emergency to support all people across the world,” Georgieva, said.

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