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Source: MFIS in French

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Potential Impact of the epidemic of the coronavirus : what we know and what we can do

Kristalina Georgieva

on march 4, 2020

We are all aware of the fact that the spread of the coronavirus poses a real danger and that the situation could very well worsen. This affects all of us. Let’s start with what we know and what we still don’t know about the coronavirus and let’s talk about then what can the international community do to assist those who are affected by this crisis in an efficient and coordinated manner.

What we know

We know that this disease spreads quickly. More than a third of our member countries are directly affected : it is therefore more of a regional problem but a global problem that requires a global response.

We also know that this epidemic will decline, but we don’t know when.

We know that this shock is somewhat unusual as it affects important aspects of both supply and demand :

The offer will be disrupted due to an increase in morbidity and mortality, but also because of the measures of containment, which restrict the mobility and practice of the business to be more costly, due to the breaking of supply chains and the credit crunch.
The demand will drop under the effect of greater uncertainty, precautions increased, measures for the containment and financial costs on the rise, which reduce the capacity to spend.
These impacts will not know borders.

Based on our experience, it is likely that a third of the cost of the disease will be direct : death, closure of workplaces and placed in quarantine. The remaining two-thirds will be indirect, caused by a decline in the confidence of consumers and businesses as well as a tightening of the financial markets.

The good news is that the financial systems are more resilient than they were before the global financial crisis. But our most important task today is to deal with the uncertainty.

In all the scenarios studied, the global growth in 2020 will be less than last year. The magnitude and duration of this decline are difficult to predict. Everything will depend on the evolution of the epidemic but also the speed and efficiency of our interventions.

The task will be particularly difficult for countries whose health systems and the capacities of response are lower, hence the need to adopt a mechanism for global coordination in order to accelerate the recovery of demand and supply.

Measures at the national level

The top priority on the budget plan is to be able to engage in the health spending to the front line to protect the well-being of populations, to treat the sick and slow the spread of the virus. I cannot overstate how urgent it is to strengthen the sanitary measures and to ensure the production of medical supplies to ensure that supply can meet demand.

Then, measures macrofinancial could be imposed to cope with supply shocks and demand as I have just mentioned. The goal is to take measures “without regret,” able to mitigate the economic impact and reduce the duration. They will need to be taken in a timely manner, targeting sectors, companies and households are the most affected.

A decline in overall demand due to a weakening of confidence and the effects of contagion (trade, and tourism, commodity prices and tighter financial conditions) could require the adoption of additional measures to support demand and ensure that the provision of adequate credit.

Finally, it will be necessary to have sufficient liquidity in order to mitigate the risks to financial stability.

In sum, the situation is changing rapidly and we must stand ready to intervene in a manner more frank and co-ordinated if the conditions require it. In this respect, I welcome the statement that the g-7 was made yesterday, on his determination to co-operate more closely for the implementation of swift and effective action.

What assistance will the IMF provide ?

For its part, the IMF stands ready to help its member countries. Through its funding mechanisms emergency rapid disbursement, the IMF is approximately $ 50 billion available to low-income countries and emerging economies to meet their future needs. Of this amount, $ 10 billion would be available at zero rate for the country’s poorest members, through the rapid credit facility.

Many member countries are in danger, especially in countries with health systems or fragile margins of manoeuvre restricted, the commodity exporters exposed to shocks on the terms of trade, and other countries being particularly vulnerable to the effects of contagion.

I worry especially for our low-income members and our member countries are most vulnerable : the funding needs of the latter could skyrocket if the human and economic cost of the virus were to rise.

Our team is currently working to identify vulnerable countries and to estimate their potential financing needs in case the situation would deteriorate further.

The IMF has resources at the disposal of its member countries :

Thanks to the generosity of our shareholders, our ability of loan aggregate amounts to about 1,000 billion dollars.
For the low-income countries, we have emergency financing quick-disbursing up to $ 10 billion (50 % of the share of member countries eligible) to which they can access without having a full-fledged programme with the IMF.
The other member countries may also benefit from an emergency funding through the rapid financing instrument. This mechanism could provide about $ 40 billion to emerging countries that seek our financial support.
We also have the trust fund assistance and response to disasters, through which eligible countries can obtain donations that allow them to reduce the debt service to the IMF maturing. This fund has proven to be effective in 2014 during the outbreak of the disease Ebola, but it is currently under-funded : just over 200 million dollars are available so that the needs could exceed $ 1 billion. I called the member countries to ensure that this mechanism is fully reconstituted and ready for the current crisis.

To sum up, the IMF is fully committed to assist its member countries, especially the most vulnerable, we have tools to do this, and we work in close cooperation with our partners.

Kristalina Georgieva

EDITOR’S NOTE: This article is a translation. Apologies should the grammar and/or sentence structure is not be perfect.

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