Coronavirus: Economies across the globe will be downgraded, says IMF
Former Chancellor Sajid Javid and Sky economics editor Ed Conway talk to policy makers about life after the pandemic.
Tuesday 16 June 2020 13:31, UK
The world must brace itself for a slew of economic downgrades as the International Monetary Fund prepares its latest round of forecasts, the managing director has told Sky News.
In an exclusive interview, Kristalina Georgieva said that the IMF would downgrade its outlook for "the majority" of countries, though a small handful of nations, including Germany, were doing better than it originally expected.
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Ms Georgieva said that the Fund had had to go further than it ever had before in supporting countries around the world affected by what it calls "the great lockdown".
"Never before in our history have we done anything like this," she said. "Never in 75 years have we had to do so much at such a rapid pace."
She revealed that the Fund had already had to disperse $23 billion (£18.2bn) of emergency support for countries which "would have seen hunger roaming and massive bankruptcies in businesses making the crisis much deeper".
But she signalled that the Fund, which is a lender of last resort to the international economy, might not have enough resources to hand out to members in the event of a second wave of the disease, raising the prospect that it may need to get a fresh infusion of cash from its members.
In the wake of the financial crisis the IMF's members increased its war chest of crisis-fighting funds. Ms Georgieva said: "We have $1 trillion capacity; we have only used a fifth so far. For now, we are in a strong position to respond.
"We need to watch carefully what happens next. If in 2021 we are in a much-improved situation with the pandemic behind us it might be that our capacity is up to par with the challenge. But we don't yet know."
The Fund, like its multilateral counterparts the United Nations and World Health Organisation, is reliant to a large extent on US endorsement and support, but thus far the US Treasury has been reluctant to countenance any extra support being given to the organisation for crisis-fighting, including a proposal to issue more special drawing rights (SDRs), a kind of international reserve currency given out to IMF members.
Ms Georgieva said: "Our membership is very willing to help us use existing special drawing rights in hands of advanced economies to be moved towards low income and small island economies where the liquidity problems are very severe.
"There is also a discussion about a new allocation of special drawing rights, [but] there we don't yet have a consensus of the membership."
Asked what kind of "shape" of economic recovery Ms Georgieva was expecting - a V-shape with a quick bounce back or an L-shape with no bounce - she said: "We concluded when we debated this that we've run out of letters. It may very well be a 'check' sign - a bit like the Nike logo.
"We have to recognise uncertainty though. Are we going to have a second wave? Will vaccines arrive early next year?
"That would have a significant impact on the speed and shape of the recovery.
"So a W shape is not out of the question. But now we are in this Nike Universe."
The World Tomorrow is a series of podcast interviews with Sajid Javid and Ed Conway. Over the coming weeks they will speak to policymakers, politicians and thinkers about how the coronavirus pandemic may change the world permanently.