In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP
As governments rushed out funding to prevent an economic collapse amid the coronavirus pandemic, global public debt swelled to the highest in history, but the IMF warned Friday that cutting back too soon could undermine the recovery.
Government spending “will need to remain supportive and flexible until a safe and durable exit from the crisis is secured,” IMF fiscal policy chief Vitor Gaspar and chief economist Gita Gopinath said in a blog post.
The debt figures are staggering — surpassing the size of the global economy, and deficits in advanced economies five times higher than pre-pandemic estimates for 2020.
The IMF and World Bank Group announced Thursday that their annual fall meetings will be mostly virtual due to the coronavirus pandemic.
“As we continue to monitor the situation of COVID-19 around the world, and given the ongoing health concerns related to the pandemic, the Managements of the IMF and World Bank Group recommend that the 2020 IMF-World Bank Annual Meetings, to take place in the week of October 12-18, be held in a primarily virtual format this year,” the two organizations said in a joint statement.
IMF chief Kristalina Georgieva and WBG president David Malpass said they will be “flexible with the format of the meetings in light of developments.”
“Our goal is to serve our membership effectively while ensuring the health and safety of Annual Meetings’ participants, staff, and the local community in the Washington DC area,” they said in the statement.
The groups’ spring meetings were held virtually in April as the United States — after China and Europe — was battered by the coronavirus, forcing many states into lockdown.
Normally, the meetings draw tens of thousands of participants from around the world.
In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP
The coronavirus pandemic could set back incomes in sub-Saharan Africa by a decade as weak oil prices, a tourism standstill and business lockdowns shrink the region’s economy 3.2 percent in 2020, an IMF official said Monday.
Activity is expected to recover in 2021, but countries first will have to get through a year in which many will see tepid growth at best, while those that rely on commodities or tourism will suffer severe declines.
“It is a worrisome picture, really, in terms of the economic outlook, and really reflects the continuing weak global economic environment that countries in the region face,” Africa director for the International Monetary Fund Abebe Aemro Selassie told AFP.
The continent is grappling with more than 383,000 cases of coronavirus, according to the Africa Centres for Disease Control and Prevention.
The IMF on Monday released its updated outlook for sub-Saharan Africa, showing the downturn is set to cause a drop in real per-capita income of as much as 15 percent in all but two countries, meaning the region overall will suffer a decline of 7.0 percent, back to where it was a decade ago.
With oil prices low globally, crude exporters will be badly hit. Nigeria is expected to shrink by 5.4 percent and Angola by 4.0 percent, its fifth straight year of economic contraction.
Flight bans and health concerns mean less tourists, and the IMF expects the Seychelles to shrink by 13.8 percent in 2020 and Mauritius by 12.2 percent.
Even diversified economies will suffer. Ethiopia’s GDP is expected to grow just 1.9 percent in fiscal year 2020 then “stall completely” the following year, the IMF said.
South Africa, the continent’s most-industrialized economy — which also has the highest number of recorded coronavirus infections — will contract 8.0 percent in 2020 due to lockdowns imposed to curb the virus, a risk Abebe said countries across the continent face.
“Unfortunately, the region remains still on the exponential side of how the pandemic is playing out in the vast majority of countries,” he said.
“Absent vigilance, there’s no reason why we cannot expect the same kind of dynamics that we’ve seen elsewhere in terms of the pandemic.”
– Fear of spillovers –
The Washington-based crisis lender has moved quickly to roll out support programs to help African economies weather the downturn, with aid totaling up to $10 billion over the last two months or so, and more to be announced, Abebe said.
Africa also stands to benefit from debt relief agreed to in April by the G20 representing the world’s largest economies.
There is “strong willingness to provide” the relief and about 25 countries have applied, though details are still being discussed with some creditors, Abebe said.
The world’s poorest continent is expected to rebound in 2021 with growth in sub-Saharan Africa of 3.4 percent, assuming lockdowns have eased and the pandemic does not get markedly worse with a second wave of infections.
But given the tentative nature of the “phase one” trade deal between the United States and China, and Washington’s threat of new taxes on European goods amid a trade feud, Abebe warned that wider tensions could threaten Africa’s recovery.
“A tense geopolitical environment, one which leads to adverse trade outcomes, growth outcomes, economic outcomes, will also have some spillover on the region.”
In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP
The global coronavirus pandemic has sparked an economic “crisis like no other,” sending world GDP plunging 4.9 percent this year and wiping out $12 trillion over two years, the IMF said Wednesday.
Worldwide business shutdowns destroyed hundreds of millions of jobs, and major economies in Europe face double-digit collapses.
The prospects for recovery post-pandemic — like the forecasts themselves — are steeped in “pervasive uncertainty” given the unpredictable path of the virus, the IMF said in its updated World Economic Outlook.
“The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast,” the fund warned.
While businesses are reopening in many countries and China has seen a bigger rebound in activity than expected, a second wave of viral infections threatens the outlook, the report said.
World GDP is expected to rebound by just 5.4 percent in 2021, and only if all goes well, the IMF warned.
– Poor most vulnerable –
IMF chief economist Gita Gopinath said under current forecasts, the crisis will destroy $12 trillion over two years, and cautioned, “we are not out of the woods.”
“Substantial joint support from fiscal and monetary policy must continue for now,” Gopinath said in a blog post.
The downturn is particularly damaging for low-income countries and households, and threatens to endanger the progress made on reducing extreme poverty, the Washington-based crisis lender said in its report.
The fund made drastic downward revisions to most of the April forecasts made in the early days of the pandemic, and IMF economists fear the coronavirus will leave lasting scars on employment, businesses and trade.
Hanging over the predictions is the bill for massive government stimulus plans, which were fueled by extremely low interest rates and likely prevented the recession from turning into a depression even as they created huge and ever-increasing debt levels.
– Drastic, downward revisions –
The damage is nonetheless stunning, and more widespread than any downturn in recent decades. The recession in many major economies will be more than double that suffered during the global financial crisis in 2009, which came as major developing economies like China, India and Brazil were booming.
China will eke out growth of one percent this year, the only positive figure on the long list of key economies the IMF tracks.
The United States will shrink eight percent and Germany slightly less, while France, Italy, Spain and Britain will suffer double-digit contractions. Japan makes out a bit better with a drop of just 5.8 percent, according to the forecasts.
Mexico also will see a double-digit decline while Brazil just misses that mark, as does Argentina, which is in the middle of a massive debt crunch on top of its health and economic crises after the country once again defaulted on its foreign obligations.
The IMF pointed to International Labour Organization data estimating more than 300 million jobs were lost in the second quarter of the year.
The “sizeable” flood of government funds to support workers and businesses “have forestalled worse near-term losses,” but the IMF urged countries to avoid a situation where aid is “prematurely withdrawn or improperly targeted” since that could worsen the economic damage.
“A more prolonged decline in activity could lead to further scarring, including from wider firm closures, as surviving firms hesitate to hire jobseekers after extended unemployment,” the fund warned.
– Trade hit, recovery weak –
With transport and manufacturing shut down for weeks, the IMF projects global trade volume will collapse by just under 12 percent — and advanced economies will see an even more dramatic drop.
The IMF also warned of dangers posed by eroding relations between and within countries.
“Beyond pandemic-related downside risks, escalating tensions between the United States and China on multiple fronts, frayed relationships among the Organization of the Petroleum Exporting Countries (OPEC+) coalition of oil producers and widespread social unrest pose additional challenges to the global economy,” the report said.
Trade disruptions could undermine productivity as firms shift supply chains to try to protect themselves against future breakdowns, and companies also face higher costs as they adopt enhanced cleaning procedures and social distancing requirements.
Amid the uncertainty, there is a chance the recession could be less severe than forecast, the report said.
“Downside risks, however, remain significant,” it warned.
In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP.
The International Monetary Fund has approved a $5 billion aid package for Ukraine aimed at helping the country “to cope with COVID-19 pandemic challenges,” with an immediate release of $2.1 billion, the institution announced in a statement on Tuesday.
The new 18-month program is geared towards “providing balance of payments and budget support, while safeguarding achievements to date and advancing a small set of key structural reforms, to ensure that Ukraine is well-poised to return to growth when the crisis ends,” the Fund said in a statement published on its website.
The program was agreed in principle on May 21 but has now received the green light from the body’s board of directors.
The Washington-based institution said Ukraine’s track record in stabilizing the economy over the last five years has been “strong.”
“However, more reforms efforts are needed to ensure robust and inclusive growth,” it added in the statement.
The COVID-19 outbreak has “significantly worsened” the country’s outlook, it said, forcing authorities to focus primarily on virus containment measures.
“Uncertainty is large, and the economy is projected to contract sharply in 2020 as strict containment measures — in Ukraine and globally — led to sizable falls in domestic and external demand,” the IMF warned.
The 2020 budget is “expected to be hit hard, with a sharp decline in revenues and large emergency spending needs to address the crisis,” it continued.
The agreement was reached under what the Fund calls a Stand-By Arrangement (SBA), the technical term for one of the financing instruments most commonly used by the Fund, usually in exchange for a reform program.
It succeeds the previous 14-month $3.9 billion program approved in December 2018 to maintain stability during the election year, the Fund said.
At the end of March, the Ukrainian parliament lifted a long-standing ban on the sale of farmland, a crucial and controversial piece of legislation needed to unlock support from the IMF.
In May, Kiev also adopted a law targeting owners of banks that go bankrupt, preventing them from regaining their assets.
Under the previous plan, Ukraine, one of the poorest countries in Europe, received a single payment of $1.4 billion due to insufficient reforms and corruption.
Separately Tuesday the IMF approved $363.6 million in emergency aid for Papua New Guinea, for use in its fight against the coronavirus pandemic.
The support “provides resources to the authorities to maintain macroeconomic stability with the aim of assisting the private sector adversely affected by COVID-19,” the IMF said.
The Fund said it welcomed measures the country had taken to support businesses, workers and households.
However, due to export losses and the cost of measures put in place to mitigate spread of the virus, Papua New Guinea is expected to be in recession this year.
An IMF team has agreed on a one-year, $5.2 billion financing package for Egypt.
This will help the country alleviate the economic impact of the COVID-19 pandemic, the fund announced Friday.
The IMF board must still approve the financing from the fund’s Rapid Financing Instrument (RFI), which allows nations to circumvent the lengthy negotiations usually needed to secure a full economic assistance program — time most countries do not have as they struggle to cope with the coronavirus crisis.
In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP
The IMF board approved $2.77 billion in emergency aid for Egypt on Monday, to help the country deal with the impact of the coronavirus pandemic, but said the government will need more financial help.
The country had seen a “remarkable turnaround” prior to the COVID-19 shock, under a fund-supported economic reform program, but that progress is now threatened, the IMF said in a statement.
The emergency funding will help finance “targeted and temporary spending, aimed at containing and mitigating the economic impact of the pandemic,” First Deputy Managing Director Geoffrey Okamoto said.
However, he cautioned that Cairo will need “additional expeditious support from multilateral and bilateral creditors … to close the remaining balance of payments gap, ease the adjustment burden, and preserve Egypt’s hard-won macroeconomic stability.”
The emergency funds come from the Washington-based crisis lender’s Rapid Financing Instrument, which has been ramped up to get aid quickly to developing nations most vulnerable to the economic effects of shutdowns to contain the outbreak.
IMF Managing Director Kristina Georgieva said the fund has received over 100 requests for aid from its members, and that developing countries will need about $2.5 trillion to deal with the impacts of the pandemic. Last week the fund said it had approved 50 such loans.
Egypt has suffered over 500 COVID-19 fatalities with nearly 10,000 cases, according to John’s Hopkins University’s tally.
The country has gradually started to reopen after President Abdel Fattah al-Sisi’s government has loosened a strict curfew for the Muslim holy month of Ramadan in an effort to kickstart North Africa’s largest economy.
Having shuttered shops and cafes in late March and forced millions of civil servants to stay home, it is slowly reversing some of these measures, bringing back many state workers and extending the trading hours of shops and malls.
Minister of Finance, Budget and National Planning, Zainab Ahmed, has explained why Nigeria is borrowing $3.4bn from the International Monetary Fund.
In an interview on Channels Television’s Politics Today Programme, the minister said the loan will help in curbing the spread of the COVID-19 pandemic and regulating the crash in crude oil prices.
The minister also said that the money will support the budget and stabilize the country’s economy especially the revenue from oil and gas.
“The financial package is for assistance to curb this COVID-19 pandemic and the shock that we have had in terms of the crash in the crude oil prices.
“It’s broad, it will support the budget, stabilize the economy from the significant decline in the revenues from oil and gas as well as large expenditure to manage the health crisis”.
Ahmed said that the loan is to be paid within five years with an interest cost of one percent.
“This $3.4bn loan is to be paid over a period of five years but before the payment starts, we have a moratorium of three and a quarter year which makes it about eight and quarter years.
“It is a facility with an interest cost of one percent”.
On the structure of the loan whether the Federal Government will be getting the naira equivalent while the Central Bank of Nigeria will be getting the dollar equivalent, the minister explained that the loan is a dollar currency loan which will come into a special account that will be opened in the CBN and be accessed and converted into Naira.
“It is a dollar currency loan so it will come into a special account that we will be opened in the CBN.
“The loan will be accessed and converted into naira.
“Yes, it is coming into the CBN as dollars but the amount we are using will be in naira”.
The minister assured Nigerians that the funds will be used judiciously for the purpose of health, social development, and breaching the revenue gap that has affected the economy.
She added that the National Assembly will be exact in the use of these funds.
The board of the IMF had on Tuesday approved the sum of $3.4 billion to support Nigeria’s COVID-19 fight.
The assistance, facilitated via the Rapid Financing Instrument (RFI), will help limit the decline in Nigeria’s international reserves, the IMF said.
The money will help to provide financing for the country’s budget, which has been severely affected by falling oil prices triggered by the pandemic and price wars.
The IMF praised the Nigerian government’s “immediate” response to the crisis, describing it as “welcome.”
However, it noted that short-term focus should be on higher health spending and palliative for households and businesses.
The financial body also said Nigeria should take steps to unify its exchange rate as quickly as possible.
After the COVID-19 crisis passes, Nigeria’s “focus should remain on medium-term macroeconomic stability, with revenue-based fiscal consolidation essential to keep Nigeria’s debt sustainable and create fiscal space for priority spending,”, Deputy Managing Director and Acting Chair of the IMF, Mr. Mitsuhiro Furusawa said.
The emergency financial assistance to Nigeria is the highest so far in any member country.
The assistance, facilitated via the Rapid Financing Instrument (RFI), will help limit the decline in Nigeria’s international reserves, the IMF said.
It will also help to provide financing for the country’s budget, which has been severely affected by falling oil prices triggered by the pandemic and price wars.
The IMF praised the Nigerian government’s “immediate” response to the crisis, describing it as “welcome.”
However, it noted that short-term focus should be on higher health spending and palliative for households and businesses.
The financial body also said Nigeria should take steps to unify its exchange rate as quickly as possible.
After the COVID-19 crisis passes, Nigeria’s “focus should remain on medium-term macroeconomic stability, with revenue-based fiscal consolidation essential to keep Nigeria’s debt sustainable and create fiscal space for priority spending,”, Deputy Managing Director and Acting Chair of the IMF, Mr Mitsuhiro Furusawa said.
No need for debt relief
On April 13, the IMF had announced immediate debt relief for 25 poor countries – most in Africa, but also in the Middle-East – to help them free up funds to fight the coronavirus pandemic.
The news was greeted with dismay by some Nigerians.
“We call for the inclusion of Nigeria in the beneficiary list for the COVID-19 related debt relief and debt moratorium based on very cogent reasons,” President of the Nigeria Labour Congress, Ayuba Wabba, said.
She added that Nigeria had applied for new financing at the IMF and the country’s application “is under consideration and receiving attention.”
Now that the application has been granted, it will provide the country with more financing options to tackle the effects of the pandemic on the economy.
The International Monetary Fund (IMF) is expected to recommend the approval of $3.4 billion in emergency funding for Nigeria as part of measures to cushion the impact of COVID-19 on the nation’s economy.
According to Bloomberg, the IMF Executive Board will meet on Tuesday next week to review the request.
The loan, which is scheduled to be repaid in not more than five years, is considered the largest allocation by the IMF to an African country to assist with the coronavirus pandemic.
Minister of Finance, Zainab Ahmed, earlier this month referred to the loan as part of funds being expected from multilateral organisations to aid the country’s battle against the pandemic.
Since COVID-19 was confirmed in the country on February 27, the pandemic has gone on to disrupt daily life, forcing the government to shut schools, impose lockdowns, and restrict large gatherings among other things.
As of 10 pm on Saturday, Nigeria had 1,095 confirmed coronavirus cases out of which there have been 208 recoveries and 32 deaths.
Globally, there have been more than two million confirmed cases and over 200,000 deaths.
The Minister of Finance, Budget and National Development Zainab Ahmed, explained on Thursday why Nigeria was not among 25 countries recently granted debt relief by the International Monetary Fund (IMF).
Quoting the IMF, she said the relief was for the “poorest and most vulnerable” IMF members.
And “since Nigeria is not indebted to the IMF, there is no outstanding debt obligation to be forgiven,” Ahmed said on her official Twitter page.
She said Nigeria had applied for new financing at the IMF and the country’s application “is under consideration and receiving attention.”
“The new application is for financing under the Rapid Financing Initiative (RFI),” the Minister said.
“Nigeria is entitled to access up to 100% of its quota under the Rapid Financing Initiative (RFI). Our current financial position at the IMF is public information on International Monetary Fund website.”
On Monday, the IMF had announced immediate debt relief for 25 poor countries – most in Africa, but also in the Middle-East – to help them free up funds to fight the coronavirus pandemic.
The economic stresses caused by the global coronavirus pandemic could spark an outbreak of protests, the International Monetary Fund warned Wednesday, urging governments to take steps to prevent unrest.
The IMF cautioned that “some countries remain vulnerable to new protests, particularly if policy actions to mitigate the COVID-19 crisis are perceived as insufficient or as unfairly favoring large corporates rather than people.”
Already in South Africa, police on Tuesday fired rubber bullets and tear gas in clashes with Cape Town township residents protesting over access to food aid during a coronavirus lockdown.
Hundreds of angry people fought running battles with the police, hurling rocks and setting up barricades on the streets with burning tires to protest undelivered food parcels.
In the semi-annual Fiscal Monitor report, the IMF said protests are “more likely in countries with histories of widespread corruption, lack of transparency in public policy, and poor service delivery.”
Even well-intentioned government spending measures to ease the harm inflicted by the lockdowns to contain the virus “may not quell such tensions given that protesters are not necessarily the poorest,” or if the programs are “viewed as transfers to outsiders.”
The report points to increasing waves of protests from the past two years over economic policies: in Ecuador, Haiti and Iran, the protests were over increased in fuel prices; in France, pension reforms and planned fuel tax increases. While in Chile, “a small increase in public transport fares sparked social protests on much broader issues.”
The authors urged governments to take steps to reduce the likelihood of triggering unrest, including clear communication with advance notice and the rationale behind any policies; a strategy for overcoming opposition; and steps to lessen the burden in advance of policies such as fuel price increases.
“New rounds of protests could exhaust reform momentum (for example, regarding pension or energy subsidies) and put public finances at risk,” the IMF said.
Governments have been pumping cash into their economies at a rapid rate: emergency lifelines provided globally include higher spending and foregone revenues ($3.3 trillion), public sector loans and equity injections ($1.8 trillion) and guarantees ($2.7 trillion), the report said.
The Group of 20 advanced and emerging economies are at the forefront with actions totaling $7 trillion.
IMF officials have stressed the need for a massive response to deal with the health crisis as well as the economic impact. However, the Fiscal Monitor reminds authorities of the need to wind down the measures once the crisis has passed.
“We do not know enough to foresee the timing and circumstances of the eventual recovery. But in times of emergency, the implication for policymakers is do whatever it takes but make sure to keep the receipts,” the authors said.
