The coronavirus has already driven the global economy into recession and countries must respond with “very massive” spending to avoid a cascade of bankruptcies and emerging market debt defaults, the head of the International Monetary Fund warned on Friday.
IMF Managing Director Kristalina Georgieva said emerging market countries will need at least $2.5 trillion in financial resources to get through the crisis, and their own internal reserves and market borrowing capacity will fall short of meeting this need.
“It is now clear that we have entered a recession as bad or worse than in 2009,” Georgieva told a news conference, adding later that it will be “quite deep.”
But unlike the slow recovery from the 2008-2009 global financial crisis, she said there be may be a “sizeable rebound” in 2021, “but only if we succeed with containing the virus everywhere and prevent liquidity problems from becoming a solvency issue.”
The worst is yet to come for many emerging market countries, which she said have not yet been hit hard directly by the virus, but are suffering from capital outflows, reduced demand for their exports and a steep drop in commodity prices.
So far, 81 countries have requested or inquired about emergency financing from the IMF, including 50 low-income countries and 31 middle-income countries, including Ghana, Iran and Kyrgyzstan, which was granted the first aid under the program late on Thursday.
Heavily-indebted Lebanon expressed interest in such financing, but has not made a formal request for funds, IMF officials said on Friday.
Georgieva told us in an interview that IMF member countries had encouraged the Fund to focus its efforts on steps that could be done quickly, including a doubling of emergency financing to $100 billion and creation of a new short-term liquidity facility.
Asked whether the global economy needs more than the $5 trillion in new rescue spending pledged by G20 countries on Thursday, Georgieva said: “Our advice is go big.”
“This is a very big crisis and it’s not going to be sorted out without a very massive deployment of resources,” she said, noting that low interest rates made it easier for countries to provide significant fiscal support.
The G20’s $5 trillion pledge is equal to what was spent in 2009 during the global financial crisis, although economists say this crisis could be far worse because it involves essentially large portions of the global economy.