Global economy slips into recession on Coronavirus impact says IMF
Ravaging Coronavirus pandemic which began as a health crisis has now pushed the global economy into a recession – as bad or worse than the 2009 financial crisis – according to the International Monetary Fund (IMF) which fears impact on sub-Saharan Africa will be huge.
The announcement Friday followed the G20 Leaders meeting, after which the International Monetary and Financial Committee, IMFC took stock of the rapidly developing coronavirus health crisis, its impacts on the economy, measures taken to address these impacts, and how well the Fund is equipped to help its member countries.
“We have reassessed the prospect for growth for 2020 and 2021. It is now clear that we have entered a recession – as bad as or worse than in 2009,”
IMF Kristalina Georgieva said at a press conference in Washington.
“We do project recovery in 2021–in fact, there may be a sizeable rebound, but only if we succeed with containing the virus – everywhere – and prevent liquidity problems from becoming a solvency issue.”
She said a key concern about “a long-lasting impact of a sudden stop of the world economy is the risk of a wave of bankruptcies and layoffs that not only can undermine the recovery but can erode the fabric of our societies.”
The G20, at their Thursday meeting, reported fiscal measures totaling some 5 trillion dollars or over 6 % of global GDP.
Georgieva said already the IMF has seen an extraordinary spike in requests for its emergency financing – some 80 countries have placed requests and more are likely to come. The Fund has never had more than a handful of requests at the same time.
According to her, the IMF is also beginning to see a wide range of problems building up in emerging markets – the spread of the virus, the shut-down of economies, capital outflows and commodity exporters, a price shock.
“Many of these emerging markets will experience a contraction as necessary containment measures take their toll, and are shocked by reduced global demand for their exports – tourism, commodities, and manufactured goods – that provide critical streams of foreign exchange.”
IMF currently estimates some finance needs of emerging markets at $2.5 trillion – a lower-end estimate for which their own reserves and domestic resources would not be sufficient.
“We are being asked by our members to do more, do it better, and do it faster than ever before – and to do it in collaboration with the World Bank and our other partners.”
Also in a joint statement, the International Monetary and Financial Committee Chair Lesetja Kganyago and IMF Georgieva said the world is in an unprecedented situation where a global health pandemic has turned into an economic and financial crisis.
“With a sudden stop in economic activity, global output will contract in 2020,” they stated, noting, however, extraordinary actions already taken by member countries to save lives and safeguard economic activity.
Although the greatest health impact has been in advanced economies, emerging market and developing countries, especially low-income countries, Kganyago and Georgieva said, would be particularly hard hit by a combination of a health crisis, a sudden reversal of capital flows and, for some, a sharp drop in commodity prices.
“Many of these countries need help to strengthen their crisis response and restore jobs and growth, given foreign exchange liquidity shortages in emerging market economies and high debt burdens in many low-income countries.”
Sub-Saharan Africa economies to be hardest hit
According to the IMF, the pandemic will have a substantial economic impact on sub-Saharan Africa, in three ways.
The first is that the very crucial measures to slowing the spread of the virus will have a direct cost on local economies as it disrupts people’s daily lives meaning less paid work, less income, less spending, and fewer jobs.
This is compounded by closed borders which also means travel and tourism are quickly drying up, and shipping and trade are suffering.
The IMF further fears the global hardships will spill over to the region as slowdown in major economies witness a global demand fall.
“Disruptions to production and world supply chains will weigh more on trade. Tighter global financial conditions will limit access to finance. Countries are likely to also see delays in getting investment or development projects off the ground.”
The third impact, according to Fund will be the sharp decline in commodity prices which is estimated to hit oil exporters hard, compounding the first two effects.
The price of oil has tumbled to levels not seen in decades. The IMF notes it doesn’t yet know where they will settle, but that with oil prices already down by more than 50 percent since the start of the year, the impact will be substantial.
The IMF estimates that each 10 percent decline in oil prices will, on average, lower growth in oil exporters by 0.6 percent and increase overall fiscal deficits by 0.8 percent of GDP.
Consequently, it has projected lower growth which will be hit hard across the region.
“Precisely how hard is still difficult to say. But it is clear that our growth forecast in April’s regional outlook will be significantly lower.”
The slowdown will mean revenues take a hit, just as countries face additional public spending needs.
It warns that “now is no time for half measures. Without exception, people’s health is the priority and countries should boost health spending accordingly.”
In a podcast, IMF African Department head Abebe Aemro Selassie acknowledged sweeping measures by sub-Saharan Africa countries to halt the advance of Covid-19 especially imposing limits on public gatherings and the like.
“But for the region’s most vulnerable, social distancing is not realistic,” he warned.
Selassie suggests that anything that will help contain the spread of the virus, like closing borders to people, will help minimize added strain on already fragile health systems.
“Countries will also need to combat the economic fallout,” he stressed, pointing out that the right policy prescription will depend on each country’s circumstances—the channel through which it is most exposed and the depth of the connections.
“Fiscal policy will have to play a leading role in mitigating the shock.”
He said priority should be given on targeted fiscal support to vulnerable households and businesses to accelerate and strengthen the recovery in 2021.
Targeted cash transfers could also be considered to help individuals and households under strain.
He said where feasible, governments should consider targeted and temporary support for hard-hit sectors such as tourism, for instance, temporary tax relief through targeted reductions or delays in paying taxes could help address cashflow shortfalls for affected businesses.
The IMF also believes that easing monetary policy can complement fiscal efforts, especially with inflation in single‑digits in the vast majority of countries in the region.
It also recommended Financial measures which can help minimize disruptions to much‑needed credit and liquidity for businesses, including central bank liquidity provision or temporary credit guarantees, adding the for countries with flexible exchange rate regimes, the exchange rate should be allowed act as a shock absorber.
IMF believes that sub‑Saharan Africa economies should not be allowed to go through the pains alone, urging the international community to do its utmost to help ease these constraints and ensure that peoples’ lives and livelihoods are not destroyed.
While the priority is on protecting life, the IMF said it is helping where it can, by supporting livelihoods.
Consequently, it is making $50 billion available via rapid-disbursing emergency facilities, including $10 billion on highly concessional terms for low‑income countries.
“With this, we are accelerating efforts to back countries in the region.
“So far, we’ve received requests for emergency financing from close to 20 countries, with requests from another 10 or more countries likely soon.”
To support this, the IMF has launched a policy action tracker for its 186 member countries to help all see who is doing what.
The IMF Managing Director urged on countries to approach the Fund and access the tools they require for their needs.
“The sooner countries can approach us, obtain necessary financing, and implement good policy, the better chance we have to contain the damage and move towards recovery.”
She further noted that many of IMF member countries are faced with rapidly building pressures on debt which they need to address.
“On that note, our the IMF Board has approved changes in the application of the Catastrophe Containment and Relief Trust (CCRT) which can provide some debt relief to our poorest member countries while seeking support from its membership to increase the capacity of the CCRT.