World Bank IMF and Dev Agencies | |
World Bank IMF and Dev Agencies | |
1102 VIEWS | |
![]() | |
PROSHARE | |
PROSHARE |
Thursday, March 12, 2020
03:04 PM / by Martin Muhleisen, IMFBlog/ Header Image Credit:The New York Times
Individuals infected by the coronavirus
potentially face a blow to their health and personal and economic well-being.
Similarly, countries hit by a sudden and unexpected public health
emergency-as coronavirus is proving to be-can see their economies slow and
their budgets squeezed as they spend more to counter the impact of the virus.
At the same time, they may experience a drop in revenue from falling economic
activity. Countries could also face lower export revenues due to falling
tourism receipts or a decline in commodity prices. A sudden halt in capital
inflows could exacerbate the situation further. Together, this can result in an
urgent balance-of-payments need to counter the mismatch between foreign
exchange inflows and outflows.
Even if an individual country is fortunate enough to escape widespread
viral contagion, the spillover effects from global developments or broken
supply chains may still lead to faltering economic activity.
Timely financial assistance
While the physical impact of the virus will be tackled by health
professionals, the IMF can help mitigate the economic fallout from the coronavirus. In
addition to policy and technical advice, the greatest support the IMF can
provide in such emergencies is through timely financial assistance.
The IMF has a long history and extensive expertise in responding to
natural disasters, epidemics, and post-conflict situations. Emergency financial
assistance, on average, accounts for 20 percent of IMF members' requests for
support. Swift financing can be essential to replenish international reserves,
obtain critical imports, or boost budgets.
When the Ebola virus devastated parts of Africa-and Guinea, Liberia, and
Sierra Leone suffered significant humanitarian and economic hardship-the IMF
provided concessional emergency assistance of US$378 million to these three
countries, a total of 2.3 percent of their combined GDP.
The IMF also provided relief to reduce their debt burden using funds
from the IMF's Catastrophic Containment and Relief Trust,
which may soon be boosted by a US$150 million contribution from the United Kingdom.
Two emergency financing instruments
Under the IMF's two emergency financing instruments-the Rapid Credit Facility and the Rapid Financing Instrument-member countries
can receive financing to respond to shocks, including large natural and health
disasters. The benefits of these two lending vehicles are their size, their
speed, and their flexibility. After Cyclone Idai swept
through Mozambique, the Fund responded quickly to provide emergency support.
In contrast to Fund programs that provide financing over time,
disbursements under these two instruments are one-off payments meant to cover
an urgent balance-of-payments need and not subject to traditional IMF
conditions. The country has only to demonstrate that its debt is sustainable
and make a commitment to economic policies that help overcome the emergency.
Adding up the numbers
In the event of a severe downturn triggered by the coronavirus, we estimate
the Fund could provide up to US$50 billion in emergency financing to fund
emerging and developing countries' initial response. Low-income countries could
benefit from about US$10 billion of this amount, largely on concessional terms.
Beyond the immediate emergency, members can also request a new
loan-drawing on the IMF's war chest of around US$1 trillion in quota and borrowed resources-and current
borrowers can top up their ongoing lending arrangements.
As we watch the unfolding health emergency, like the rest of the global
community, the IMF is hoping for the best. But, through its emergency
financing, we are prepared for the worst so that, in the words of the American
writer Maya Angelou, we can try to be unsurprised by anything in between.
Related News
Related News - #Coronavirus