Can the IMF bailout the global economy?
The International Monetary Fund (IMF) has 189 members, and among other functions, fosters global monetary cooperation, secures financial stability, facilitates international trade, promotes high employment and sustainable economic growth.
Due to the COVID-19 crisis, Governments are desperate for cash, with more than 90 countries having already approached the IMF for financial support – more simultaneous request for assistance than in the entire history of the IMF.
Kristalina Georgieva, IMF MD, predicts via a series of model scenarios that the Covid-19 healthcare crisis will cause the worst economic fall-out since The Great Depression. She declared: “It’s humanity’s darkest hour” and that urgent measures need to be taken to protect people and the economy. Ms. Georgieva also claimed that never in the history of the IMF had so many countries asked for support at the same time.
The IMF is confident however, that if there is no second wave of the virus, it will have enough resources to help, with over a trillion dollars lending facilities (of which 20% is already committed). The IMF is also creating new instruments to allow the poorest countries to apply for financial assistance and in order to and ease their current debt repayments. Nevertheless, overall debt restructuring for the poorest countries remains firmly on everyone’s agenda.
We have recently expressed a view similar in flavour to that of the IMF, through a series of analytical briefings, which concludes that financial markets will bounce back recouping much of their losses rapidly, and in advance of any return to global economic growth.
The IMF’s current baseline scenario adds support to our capital markets view by implying that the global economy will bounce back sooner than expected, projecting 5.8% global GDP growth in 2021, though this will not quite recapture the $9 trillion of lost GDP in its baseline 2020 scenario that projects a 3% contraction in global GDP (and a 6% contraction in GDP in the leading 8 advanced economies). Ms. Kristalina has said that in one scenario the global economy could bounce back in the 3Q 2020 and remains confident the IMF has the resources to bailout economies…if fiscal and monetary policy deployed by developed economies can continue for the duration of the Covid crisis.