Almost 90 percent of the world will be worse off by year end - IMF’s Managing Director

Almost 90 percent of the world will be worse off by year end – IMF’s Managing Director

Jun 10, 2020 News

In early January, the International Monetary Fund (IMF) had predicted that 160 countries would finish the year with larger economies and positive per capita income growth. With the onset of the COVID-19 pandemic, the IMF’s Managing Director, Kristalina Georgieva, recently noted that those positive predictions have been shattered.
According to the IMF’s latest assessment, Georgieva said that 170 countries—which represent almost 90 percent of the world—will be worse off with lower per capita income by the end of 2020. The official said that such a tremendous reversal of fortunes has never been seen before.

IMF’s Managing Director, Kristalina Georgieva

In response to these unprecedented times, the IMF Managing Director noted that massive fiscal measures totalling US$9 trillion have been unleashed globally. Thanks to this massive injection of liquidity in economies, she noted that some emerging markets were able to go back to the markets and issue bonds with competitive yields.
Unfortunately, for countries in debt distress, affected by fragility and conflict or with bad underlying conditions, the crisis is terrible the Managing Director said. But even as some economies still struggle to grapple with the effects of the pandemic, others which are doing better for the time being had floated ideas on how to reopen their borders and even initiated steps to recovery.
The IMF Managing Director acknowledged that indeed now is the moment to think carefully about what comes next. She said, “We must choose what kind of recovery we want. There are those who talk about building back better. But I believe we should think about building forward—not back—and building a recovery that is focused on a great transformation as we emerge from this exceptional crisis.”
At the IMF, she said that efforts are concentrated on the risks and opportunities that the recovery will present. On the risk side, the IMF predicts that the world will emerge from this crisis with more debt, higher deficits and—in all likelihood—higher structural unemployment and higher levels of poverty. The official said that all must think carefully about how to mitigate these risks with the right economic policies, based on lessons learnt in the past in dealing with debt, deficits, unemployment and poverty.
“This time, we need to do it at scale. Take the example of debt—interest rates are low so governments and firms can carry more debt. But we must consider their capacity to carry this debt over time and put measures in place to ensure debt levels are sustainable,” said the Managing Director.
Turning her attention to opportunities as seen by the Fund, the Managing Director was quick to point out that digital transformation will be a big winner from this crisis. In this regard, the official said that many organizations are not going back to the old ways of working before the pandemic.
The Managing Director said, “We have seen that we can telecommute effectively. We know that we can organize work more flexibly and accommodate our staff’s conditions and preferences. So, we are going to see a rapid modernization in how we operate. And we will also see a tremendous expansion of e-commerce, e-learning, e-transfers, e-payments, and e-governance.”
The official added, “E-governance is particularly important, and at the IMF we would like to see more transparency and accountability in governance as well as in the way the economy functions.”
While going digital will be the new way forward, the official was keen to note that countries must avoid a great divide in which access to digital skills and infrastructure is limited for some and unlimited for others.
As for the Fund’s role in managing the crisis, the Managing Director said that the organization has stepped up massively. After the global financial crisis, she said that the Fund’s shareholders boosted the financial strength of the IMF. The Fund’s resources she said, has increased from US$250 billion to US$1 trillion – four times as strong.
The Managing Director said that the Fund is deploying these resources with speed and impact while adding that it is providing emergency financing for the countries that need support the most. The organization is also providing flexible credit lines to countries with strong fundamentals.
“We have done a lot and obviously we are poised to do more,” the Managing Director concluded.