IMF Warns Coronavirus to Trigger ‘Worst’ Economic Fallout Since 1930’s Great Depression

'[p;/[The Managing Director of International Monetary Fund (IMF) Kristalina Georgieva stated on Thursday, 9 April 2020, that the coronavirus pandemic will be pushing the global economy into a deeper recession that could be worse than the Great Depression of 1930. She added that the Fund fears about the world’s poorest countries to suffer the most due to densely populated cities, poor public health infrastructure and massive levels of government debts.

While interacting with reporters via a virtual meeting, Kristalina Georgieva stated that IMF anticipate the economic fallout of this pandemic to be greater than the Great Depression as significant portions of the world’s labor force will become unemployed for an extended period of time. This statement by the IMF is ironical in a way as only three months ago it was forecasting that as much as 160 nations would be enjoying positive income growth on a per capita basis this year, whereas now the expectation is that over 170 nations will have negative per capita income growth this year. IMF expects that emerging markets and low-income nations across Africa, Latin America and large parts of Asia are at high risk of this economic fallout.

In response to the question of aid to weaker countries fighting the virus pandemic, she said that IMF is ready to commit upto a $1 trillion of lending support in order to help those nations.

The pandemic in the past two months has brought the world to a grinding slow and has till now infected more than 1.7 million people and killed at least 100,000 of them while causing billions of dollars of losses to businesses worldwide. Speaking about the impact of the pandemic on the world economy the IMF Chief stated that the uncertainty regarding how long the pandemic is going to continue is the biggest contributing factor on the extent of its economic impact among the host of other factors. She further stated that the current year is going to an exceptionally difficult year for the world economy and if the pandemic were to be contained soon enough then a partial recovery can be expected in 2021.

The organization expects that the contribution to the global economic slowdown will come mostly from developing countries, from where global investors would gradually start pulling out their money as GDP growth rate would start to stall in these countries. It is to be noted here that global investors have already pulled out more than $100 billion in funds from emerging markets in the past two months which is at least three times than what it was in the period beginning the 2008 global financial crisis. This is expected to be followed by countries who have an export oriented economy due to the steep fall in commodity prices. As a result, the massive unemployment rates and rapid fall in public expenditure will be seen as their earning levels start to fall drastically. The price war situation initiated by Saudi Arabia last month has also brought the vulnerability of oil dependent Middle Eastern countries to the fore.

Both the IMF and the World Bank are scheduled to conduct a virtual meetings this week where they are expected to deliberate on a proposal to adopt a motion to extend a moratorium on debt payments over the next year to the world’s poorest nations. Freeing up this money in the hands of these countries will help them to use it for critical health care needs. Already both the organisations have released billions of dollars of funding to help needy countries to prop up their healthcare systems in the recent past along with fast tracking of their existing loan requests in the past one month. Apart from that, a humanitarian crisis has also emerged in many countries because of the pandemic. Several of the part time and daily laborer’s in many of the developing and underdeveloped countries are now on the verge of starvation, forcing them to move out of large cities to the countryside risking a far widespread of the pandemic to get even more accentuated. It is when the prior objective of the World Bank and IMF is to prevent the spread of coronavirus.

Across the world, either unilaterally or through multilateral organisations, countries have taken a number of measures to deal with the problem. On 26 March 2020, the G20 countries announced that they will be injecting as much as $8 trillion in the world economy. The European central bank on the 18 of March announced a bond repurchase scheme amounting to €750 billion to inject liquidity in the Eurozone while the Bank of England has also initiated a loan guarantee scheme whereby £350 billion of loans extended to the industries in the United Kingdom will be guaranteed by the central bank. Across the Atlantic also, the United States government has rolled out several stimulus packages worth several trillions of dollars. So have many of the large economies in the Asia and Pacific region have announced fiscal and monetary measures to contain the economic impact of the pandemic on their domestic economies and provide a strong footing for the recovery process. There are, however, smaller countries who do not have much resources like the above to fight the pandemic on their own. Speaking about these countries the IMF Chief in her statement said that the Fund has received an unprecedented number of calls from more than 90 such countries till now requesting for emergency funds and that the executive board of the fund has already agreed to double the loan amounts it would provide from its emergency facilities to such low-income level countries which would work out to about $100 billion.

The IMF Managing Director also said that the Fund would be coming out with a revised world economic forecast on Tuesday, 12 April 2020, which will show how dramatically the coronavirus pandemic has turned the year 2020, which was earlier expected to be a solid year of growth for the world economy but will now even dwarf the 1930’ Great Depression. The greatest risk of this pandemic, however, will be for the weakest sections of the world who were already reeling under the malnutrition and poor public health availability; they further face the prospect of an extended unemployment period. It is critical to see how soon the health authorities around the world are able to contain the pandemic. And it would be their success to determine how effectively these measures announced by the IMF, World Bank and other national and international Central Banks and National governments will be bringing back the word from recession.

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