The coronavirus has already driven the global economy into recession and countries must respond with “massive” spending to avoid a cascade of bankruptcies and defaults emerging in the market, the head of the International Monetary Fund warned on Friday.
IMF managing director Kristalina Georgieva said that emerging countries will need at least $ 2,5 trillion in financial resources to overcome the crisis, and their own domestic reserves and fundraising capacity will fall short of meeting that. need.
"It is now clear that we have entered a recession as bad or worse than in 2009," Georgieva said at a news conference, adding later that it will be "quite profound".
But, unlike the slow recovery from the 2008-2009 global financial crisis, she said there could be a “considerable recovery” in 2021, “but only if we can contain the virus everywhere and prevent liquidity problems from becoming a problem. of solvency ”.
The worst is yet to come for many countries in emerging markets, which, according to her, have not yet been directly affected by the virus, but are suffering from capital outflows, reduced demand for their exports and a sharp drop in commodity prices.
To date, 81 countries have requested or consulted emergency IMF financing, including 50 low-income countries and 31 middle-income countries, including Pakistan, Ghana, Iran and Kyrgyzstan, which received first aid under the program on Thursday evening. -market. .
Lebanon, heavily indebted, expressed interest in such financing, but did not make a formal request for financing, IMF officials said on Friday.
Georgieva told Reuters in an interview that IMF member countries had encouraged the Fund to focus its efforts on measures that could be taken quickly, including doubling emergency funding to $ 100 billion and creating a new liquidity facility a short term.
Asked whether the global economy needs more than $ 5 trillion in new bailout spending promised by G20 countries on Thursday, Georgieva said: "Our advice is great."
"This is a very big crisis and it will not be resolved without massive resource deployment," she said, noting that low interest rates have made it easier for countries to provide significant fiscal support.
The promise of $ 5 trillion from the G20 is equal to what was spent in 2009 during the global financial crisis, although economists say that this crisis could be much worse because it essentially involves large portions of the global economy.
Georgieva received a $ 2,2 trillion aid package signed by President Donald Trump on Friday to cushion the blow to consumers and businesses - nearly three times the $ 831 billion that the United States spent on stimulus in 2009.
The project includes a $ 38,5 billion contribution to doubling the IMF crisis lending fund to $ 500 billion. The expansion of the new loan agreements was agreed by member countries last year.
Speaking to CNBC, Georgieva warned against premature measures to reopen the US economy. "There is no way to achieve a strong recovery without strong restraint," she said.
Also on Friday, the IMF executive board approved changes that will allow it to provide up to two years of debt service relief to its poorest and most vulnerable members in responding to the coronavirus outbreak.
The World Bank approved similar changes to allow debt relief to all member countries and said the council is now considering health financing projects for coronavirus in 25 countries, totaling almost $ 2 billion. The development creditor made $ 14 billion available for immediate coronavirus health care needs.
Source: Reuters // Image credits: REUTERS / Remo Casilli