More than 80 poor and middle-income countries have sought financial help from the International Monetary Fund in recent weeks as they struggle to cope with the economic fallout from the Covid-19 epidemic.
Kristalina Georgieva, the head of the IMF, said the world economy had entered a recession “as bad or worse” than the global financial crisis of 2008-09 and that the fund needed to increase its firepower to deal with the unprecedented number of requests for help.
The IMF is particularly concerned about the risk of a new debt crisis among the world’s poorest countries, and Georgieva said there was pressure on all creditors – including the private sector – to work out a solution before it was too late.
“We are working specifically on the tremendous burden on low-income countries. Many of them were not in a strong position before this crisis and many of them have high levels of debt. We need to deal with countries in debt-distress early before it turns into a big problem for them and the world economy.”
David Malpass, the president of the World Bank, said his organisation was working with the IMF on a relief plan. The Bank would be front-loading grants and soft-loan support for the poorest countries, but they would also need debt relief, he said.
“This is the only way they can concentrate any new resources on fighting the pandemic and its economic and social consequences,” Malpass said, adding that debt payments to rich-country creditors were estimated to be $14bn (£11.3bn) this year.
Georgieva, speaking after a virtual meeting of the IMF’s governing body, said 50 low-income countries and 31 middle-income countries – accounting for more than 40% of the fund’s 189 members – had been in touch, and that more requests for assistance were inevitable.
She added that even a conservative estimate put the financing needs of distressed emerging market countries at $2.5tn and that it was impossible for them to come up with the money themselves. Since financial markets began to take fright at the impact of Covid-19, $83bn of capital has left emerging markets as investors seek out safe havens.
“We have never before had more than a handful of requests,” Georgieva said, adding that many countries were being hit simultaneously by falling domestic demand, a drop in exports, capital flight and a collapse in commodity prices. “We are concentrating on providing a rapid response to emergency financing requests,” she said.
IMF staff are working on their half-yearly forecasts for the global economy, which are due to be published next month. Georgieva said: “Unfortunately we are projecting a recession for 2020 and we expect it to be quite deep. We very much urge countries to step up containment measures aggressively so we can contain the duration of time our economies are at a standstill.”
She added: “We are projecting a recovery in 2021, and it may be a sizeable rebound, but only if we succeed in containing the virus everywhere and prevent liquidity problems turning into solvency problems.”
The IMF supported the $5tn of stimulus pumped into the global economy in the past three weeks because there was a risk of “a wave of bankruptcies and layoffs” that would not only hinder recovery but erode the fabric of societies.
Donald Trump has expressed a desire in recent days to get the US back to work, but the IMF managing director warned that tackling Covid-19 had to come first: “Until the virus is contained it will be very difficult to return to the life we love.”