Coronavirus: Coordinated action, key to stability in global economy – IMF

The Managing Director, International Monetary Fund (IMF), Kristalina Georgieva, says as COVID-19 (Coronavirus) spreads, increased coordinated action is key to boost confidence and provid stability to global economy.

She said this in a publication titled “Policy Action for a Healthy Global Economy”, part of a special blog series on the response to the coronavirus.

Georgieva said that while quarantining and social distancing was the right prescription to combat COVID-19’s public health impact, the exact opposite was needed to secure the global economy.

“Constant contact and close coordination are the best medicine to ensure that the economic pain inflicted by the virus is relatively short-lived.

“The case for a coordinated and synchronised global fiscal stimulus is becoming stronger by the hour,” she explained.

She, however, said that three action areas for the global economy were necessary.

Firstly, she said that additional fiscal stimulus would be necessary to prevent long-lasting economic damage.

“Fiscal measures already announced are being deployed on a range of policies that immediately prioritise health spending and those in need.

“We know that comprehensive containment measures combined with early monitoring will slow the rate of infection and the spread of the virus,” she stated.

The IMF boss advised governments to continue with their efforts and expand them to reach the most-affected people and businesses, with policies including increased paid sick leave and targeted tax relief.

Secondly, she talked about monetary policy, adding that in advanced economies, central banks should continue to support demand and boost confidence by easing financial conditions and ensuring the flow of credit to the real economy.

“For example, the U.S. Federal Reserve just announced further interest rate cuts, asset purchases, forward guidance and a drop in reserve requirements.

“Yesterday, major central banks took decisive coordinated action to ease swap lines and thus lessen global financial market stresses.

“Going forward, there may be a need for swap lines to emerging market economies.

“As the Institute for International Finance said last week, investors have removed nearly 42 billion dollars from emerging markets since the beginning of the crisis.

“This is the largest outflow they have ever recorded,” she added.

Georgieva advised that central banks’ policy action in emerging-market and developing economies would need to balance the especially difficult challenge of addressing capital flow reversals and commodity shocks.

She added that in times of crisis such as was being experienced presently, foreign exchange interventions and capital flow management measures could usefully complement interest rate and other monetary policy actions.

Thirdly, on regulatory response, she said financial system supervisors should aim to maintain the balance between preserving financial stability, maintaining banking system soundness and sustaining economic activity.

According to her, the crisis will stress test whether the changes made in the wake of the financial crisis would serve their purpose.

“Banks should be encouraged to use flexibility in existing regulations, for example by using their capital and liquidity buffers and undertake renegotiation of loan terms for stressed borrowers.

“Risk disclosure and clear communication of supervisory expectations will also be essential for markets to function properly in the period ahead.

“All this work, from monetary to fiscal to regulatory, is most effective when done cooperatively.

“Indeed, IMF staff research shows that changes in spending, for example, have a multiplier effect when countries act together,” the IMF boss said

On what the IMF could do, she said that the Fund was ready to mobilise its one trillion dollars lending capacity to help its membership.

According to her, as a first line of defense, the Fund can deploy its flexible and rapid-disbursing emergency response toolkit to help countries with urgent balance-of-payment needs.