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IMF: Countries face massive bankruptcies, unemployment



Countries across the world risk facing colossal bankruptcies and lasting economic damage if fiscal and monetary support deployed to help their economies through the current coronavirus (COVID-19) pandemic is prematurely removed, the Managing Director, International Monetary Fund (IMF), Kristalina Georgieva, has said. Speaking yesterday at an online event marking the 125th anniversary of the London School of Economics, Georgieva said: “We are very clear in the message we are communicating to not withdraw support prematurely.


If we do so, then we risk massive bankruptcies and massive unemployment.” She said the global economy is in “less dire” shape than it was in June, but risks crashing again if governments withdraw the stimulus packages too soon, fail to control the coronavirus and ignore emerging market debt problems.


Georgieva said the IMF will make a small upward revision to its global economic output forecasts next week, adding: “My key message is this: The global economy is coming back from the depths of this crisis.


“But this calamity is far from over. All countries are now facing what I would call ‘the long ascent’ – a difficult climb that will be long, uneven, and uncertain, and prone to setbacks.”


According to her, “Extraordinary policy measures put a floor under the world economy – but not all have sufficient resources for it. Advanced economies do whatever it takes. Poorer nations do only what is possible.


They need help.” The Fund, in June, forecast that coronavirusrelated shutdowns would shrink global Gross Domestic Product (GDP) by 4.9 per cent, marking the sharpest contraction since the Great Depression of the 1930s, and called for more policy support from governments and central banks.


The IMF will publish its revised forecasts next week as member countries participate in the meetings, which will be held largely in an online format. Georgieva said the IMF was continuing to project a “partial and uneven” recovery in 2021. In June, it forecast 2021 global growth of 5.4 per cent.


But $12 trillion in fiscal support, coupled with unprecedented monetary easing, has allowed many advanced economies, including the United States and the euro zone, to escape the worst damage of the pandemic, and some business sectors proved more able to operate amid it, Georgieva said.


China also has recovered faster than expected. While this has provided some positive spillovers for emerging markets, Georgieva urged countries to keep up support for their economies, warning that global growth would stay subdued for the medium term and the risk of “severe economic scarring” was high. Emerging markets and low-income countries face a precarious situation with weak health systems, high external debt and dependency on sectors most exposed to the pandemic such as tourism and commodities, she said.


“In low-income countries, the shocks are so profound that we face the risk  of a ‘lost generation,” Georgieva said, signalling that the IMF and World Bank will press hard for more debt relief for low-income countries next week. She called for more debt help quickly for low-income countries beyond a moratorium on official bilateral debt payment until the end of 2020. She said development gains could be reversed without access to more grants, concessional credit and debt relief.


“In some cases, global coordination to restructure sovereign debt will be necessary, with full participation of public and private creditors,” Georgieva added.


She also urged highly indebted countries not to wait to seek debt restructuring, stressing that tax reform was necessary to collect needed revenues and help countries service debt obligations. The IMF MD said that very low, negative interest rates can be helpful to nurse economies through the pandemic, but pose increased risks for savers and the banking system. The IMF’s board, on Monday, approved a relief from debt payments to the Fund for 28 low-income countries for another six months, until April 13, 2021.


The benefitting countries are: Afghanistan, Benin, Burkina Faso, Burundi, Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Ethiopia, Gambia, Guinea, Guinea- Bissau, Haiti, Liberia, Madagascar, Malawi, Mozambique, Nepal, Niger, Rwanda, Sao Tome and Principe, Sierra Leone, the Solomon Islands, Tajikistan, Tanzania, Togo and Yemen. In a statement, the Fund said the grants will be disbursed under the Catastrophe Containment and Relief Trust (CCRT) for payment of eligible debt service falling due to the Bretton Woods institution from October 14, 2020.


According to IMF, “Subject to the availability of sufficient resources in the CCRT, the debt service relief could be provided for a total period of two years through to April 13, 2022, estimated at nearly $959  million. “Relief on debt service will free up scarce financial resources for vital emergency medical and other relief efforts while these members combat the impact of the COVID-19 pandemic.”


The IMF said the debt service relief under the CCRT requires $1.4 billion, adding that so far, it has received about $506.5 million from donors, including the UK, China, Japan, Germany, Netherlands, Switzerland, Norway, Mexico, Sweden, Bulgaria, Luxembourg and Malta.


The IMF and the World Bank have urged bilateral and multilateral lenders to offer debt relief to the world’s poorest countries  to allow governments to concentrate on health spending. Nigeria’s Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, had said on April 16 that Nigeria did not benefit from the IMF’s debt relief because the country was at the time not indebted to the Fund.


On April 28, however, the IMF Board approved $3.4 billion in emergency support loan for Nigeria to enable the country address the devastating impact of the pandemic. Although Nigeria was one of the International Development Association (IDA) countries that were deemed eligible to receive debt relief from China and the G-20 as from May 1, the nation has not accepted the assistance due to rating downgrade concerns.

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