With the recent global economic crisis caused by the Coronavirus (COVID-19) pandemic, the International Monetary Fund (IMF) has warned that 90 per cent of the world will be worse off with lower per capita income by year-end. The latest projection is a reversal of IMF’s forecast in January, which predicted that about 160 countries would finish the year with larger economies, and positive per capita income growth.
The Managing Director of the IMF, Kristalina Georgieva, said this was the first time in history that the world would be experiencing such a tremendous reversal of fortunes, indicative of a looming global crisis. She described the current period as ‘the Great Lockdown’, noting that the world is fighting a health emergency by bringing production and consumption to a standstill, which has never happened before.
According to her, the massive fiscal measures already put in place by IMF totals about $9 trillion, though temporal, and has provided a lifeline to many businesses, and serves as a bridge to the world’s economic recovery. She said that by taking decisive action domestically, major central banks and governments had eased the pressure on emerging markets with good fundamentals, noting that about $100 billion had left emerging markets and developing countries, which is three times more than during the global financial crisis.
Speaking at the ‘Great Lockdown to Great Transformation’ event organised by the U.S. Chamber of Commerce, Georgieva said an important lesson could be drawn from the fact that countries, which have built buffers and sound macroeconomic policies have weathered the crisis much better than those who have not.
She said: “Unfortunately, for countries in debt distress, affected by fragility and conflict or with bad underlying conditions, the crisis is terrible. The same way people with weaker immune systems are more at risk from the coronavirus, so weaker economies is at more risk from the economic shock. We are also seeing that health systems are being built to cope with the increased number of people seeking assistance, and people are learning how to function at the time of a pandemic, with more social distancing and more micro-measures such as wearing masks.”
She maintained that the time has come for governments to think carefully about the future as the process of economy reopening has started across the globe, noting that about 75 per cent of countries worldwide are now reopening. She said the IMF is concentrating attention on the risks and opportunities that the recovery would present.
On the risk side, Georgieva said the world would emerge from the current crisis with more debt, higher deficits, and in all likelihood a higher structural unemployment, and poverty levels. She maintained that governments around the world must think carefully on how to mitigate the current risks with the right economic policies, based on lessons learnt in the past in dealing with debt, deficits, unemployment, and poverty.
Her words: “This time, we need to do it at scale. Take the example of debt; interest rates are low so governments and firms can carry more debt. But we must consider their capacity to carry this debt over time and put measures in place to ensure debt levels are sustainable.
“Let me turn to the opportunities we see, starting with the digital transformation, which is a big winner from this crisis. Clearly, many organizations are not going back to the old ways of working we knew before the pandemic. We have seen that we can telecommute effectively. We know that we can organize work more flexibly and accommodate our staff’s conditions and preferences. So, we are going to see a rapid modernization in how we operate.
“We will also see a tremendous expansion of e-commerce, e-learning, e-transfers, e-payments, and e-governance. E-governance is particularly important, and at the IMF we would like to see more transparency and accountability in governance as well as in the way the economy functions. So, it is critical to make sure that we avoid a great divide in which access to digital skills and infrastructure is limited for some and unlimited for others.”
“Currently, only 50 per cent of African businesses and citizens have access to the Internet. If this doesn’t change, we will miss a big opportunity and deepen inequality within countries and across countries, including in the United States.” She maintained that there is a huge opportunity in going green; noting that a green economy would offer more employment opportunities, as low carbon energy and infrastructure is a big booster for jobs.
She said the IMF was interested in providing incentives for countries and companies to move faster in the direction of adopting a green economy, including by being clear around the risks to businesses during the transition to a low carbon economy.