The International Monetary Fund (IMF) has announced a $50-billion support for the developing countries grappling with the coronavirus outbreak and warned that the epidemic could drive down 2020 global economic growth to the worst level since the 2008 financial crisis.
In a late-night statement on Wednesday, the multilateral body pledged to make the funds available to help poor and middle-income countries where healthcare system remains inadequate to deal with such an epidemic.
With this, the IMF joined governments, central banks and multilateral bodies globally to firm up steps to deal with the epidemic that has spread to over 70 countries, with its epicentre in China.
The World Bank this week announced $12 billion to support poor and developing countries to deal with the coronavirus threat. The Bank’s package included low-cost loans, grants and technical assistance.
“Global growth in 2020 will dip below last year’s levels, but how far it will fall and how long the impact will be is still difficult to predict,” IMF managing director Kristalina Georgieva cautioned.
In January, the IMF had predicted that a slowdown in global growth appeared to have bottomed out but there was no rebound in sight, thanks to risks ranging from trade war to climate shocks. It had then forecast global growth at 3.3% in 2020, lower than its October 2019 projections of 3.4%. The global economy expanded by only 2.9% in 2019, its slowest pace since the global financial crisis.
Already, the US Federal Reserve cut the interest rates by 50 basis points to 1%, the first emergency rate reduction since the 2008 financial crisis, apprehending the negative impact of the coronavirus outbreak on the economy. Even central banks of Australia and Malaysia have cut interest rates. The UK central bank is also expected to follow suit. The Reserve Bank of India, too, has declared its intent to intervene, if required.
Finance ministers from the group of seven (G7) developed nations have also announced their resolve to use “appropriate policy tools” at their disposal.
In her remarks, the IMF chief said this shock is “somewhat unusual as it affects significant elements of both supply and demand”. “Supply will be disrupted due to morbidity and mortality, but also the containment efforts that restrict mobility and higher costs of doing business due to restricted supply chains and a tightening of credit. Demand will also fall due to higher uncertainty, increased precautionary behavior, containment efforts, and rising financial costs that reduce the ability to spend. These effects will spill over across borders.”
