IMF chief says coronavirus pandemic to cause worst recession since 1929

By Paul Ausick

In advance of next week’s spring meeting (virtual) of the International Monetary Fund (IMF) members, managing director Kristalina Georgieva said in a speech on Friday that it is clear that global growth will turn “sharply negative” in 2020, leading to “the worst economic fallout since the Great Depression.”

Three months ago, the IMF expected per capita income growth in 160 of the group’s 189 member countries. The new estimate has reversed that estimate by 180 degrees. The IMF now expects 170 countries to show negative per capita growth this year, and it will release more details next week in a revised version of its World Economic Outlook.

The economic crisis caused by COVID-19 is expected to hit the poorest and most vulnerable countries the hardest, Georgieva said. In these countries, health care systems are weaker and fewer resources are available to meet ongoing demand and supply shocks. The result is tightening financial conditions and potential debt burdens that may well be unsustainable.

The IMF estimates that external financing needs for emerging markets and developing countries will be “in the trillions of dollars.” Because these countries have no chance of covering all their expenses, there will be a residual gap in “the hundreds of billions of dollars” that needs to be met by the IMF and the developed world.

The IMF has $1 trillion in lending capacity and already is responding to requests for help from 90 countries, and lending programs have been approved for some countries “with many more to come.” The IMF also is calling for a standstill on debt service for bilateral creditors for the world’s poorest nations.

Georgieva outlined four IMF priorities to build a “bridge to recovery.” First, continue current containment measures (social distancing and stay-home programs) and existing support for health care systems. Second, provide large targeted injections of cash to people and financial sector firms. Third, reduce stress on the financial system, and, fourth, plan for recovery. (24/7 Wall St.com)

Charity group Oxfam has warned that a recession caused by Covid-19 could push an extra half a billion people into poverty – 8% of the world’s population - unless urgent action is taken. Conducted by King’s College London and the Australian National University, the research gauged the short-term impact of containing the coronavirus on global monetary poverty based on the World Bank poverty lines of $1.90, $3.20 and $5.50 a day. Global poverty levels would increase under all three scenarios for the first time since 1990 according to the analysis with up to a decade of progress lost globally. The impact is set to be even worse in some hard-hit parts of the world such as North Africa, Sub-Saharan Africa and the Middle East where up to 30 years of progress could be wiped out. The most serious scenario involves a 20% fall in income which would result in an additional 548 million people earning less than the World Bank poverty threshold of $5.50 per day. The United Nations has warned that $2.5 trillion is needed to support developing countries during the crisis and that nearly half of all Africa’s jobs could be lost. G20 ministers, The World Bank and the IMF are set to meet to discuss debt relief for poorer countries next week. Oxfam has urged them to agree to a global rescue package and mobilize the sum cited by the UN to avert a global economic collapse. Possible measures to raise the money could include the immediate cancellation of $1 trillion in debt, the IMF issuing a further $1 trillion in Special Drawing Rights, an increase in aid flows to struggling countries as well as the adoption of emergency solidarity taxes. (Statista)