NGHINOMENWA ERASTUS and LAZARUS AMUEKESHETHE International Monetary Fund has made available US$50 billion for low income and emerging countries to borrow to fund operations for containing the coronavirus.
The facility was opened on Wednesday as the fund recognises that the virus has transcended from a regional issue to a global problem.
Kristalina Georgieva, the managing director of the International Monetary Fund (IMF) said the impact of the coronavirus on the global economy is set to significantly increase.
“The IMF is making available about US$50 billion through its rapid-disbursing emergency financing facilities for low income and emerging market countries that could potentially seek support,” she said.
Part of the US$50 billion is US$10 billion which is available at zero interest for the poorest members through the IMF’s rapid credit facility for low-income countries.
The rapid-disbursing emergency financing of up to US$10 billion (which is 50% of the quota of eligible members) can be accessed without a full-fledged IMF programme.
The remaining US$40 billion is set aside for most emerging markets. The IMF also indicated that they have about US$1 trillion in overall lending capacity, which nations can capitalise on, provided they can service their debt.
Georgieva indicated that “as one-third of our members are affected directly, this is no longer a regional issue – it is a global problem calling for a global response”.
She said they are certain that the virus will eventually retreat, but for now, the world is in a loop and does not know how fast it will happen.
Georgieva added that the IMF knows that the virus shock on the global economy is somewhat unusual as it affects significant elements of both supply and demand.
She said there are many members at risk, including those with weak health systems, inadequate policy space, commodity exporters exposed to terms-of-trade shocks, and others that are particularly vulnerable to spillovers.
“I am particularly concerned about our low-income and more vulnerable members – these countries may see financing needs rise rapidly as the economic and human cost of the virus escalates,” she pointed out.
The managing director explained that the potential impact on the global economy as of now is, either with what is known or not and under any scenario, global growth in 2020 is set to drop below last year’s level.
The havoc caused by the virus, especially in China and its spreading around the country will disrupt the supply of goods and services due to morbidity and mortality, she said.
Georgieva explained that supply will also be disrupted by the containment efforts that restrict mobility and higher costs of doing business due to restricted supply chains and a tightening of credit.
In case of demand, she said “it will also fall due to higher uncertainty, increased precautionary behaviour, containment efforts, and rising financial costs that reduce the ability to spend”.
The effects are also spilling over across borders.
She highlighted that past observation shows that about one-third of the economic losses from the disease will be direct costs from loss of life, workplace closures, and quarantines.
With coronavirus, the whole city of Wuhan and the province are quarantined, travel bans are in effect to prevent the spread and exporting of the virus.
The two-thirds will be indirect economic losses, reflecting a retrenchment in consumer confidence and business behaviour and a tightening in financial markets.
Georgieva said under any scenario, global growth in 2020 will drop below last year’s level, however, how far it will fall, and for how long, is difficult to predict and would depend on the epidemic, but also on the timeliness and effectiveness of countries’ actions.
“This is particularly challenging for countries with weaker health systems and response capacity — calling for a global coordination mechanism to accelerate the recovery of demand and supply,” she stated.
Despite the IMF making funds available to fight the deadly virus for low income and emerging markets, the concern is how most of the nations are going to repay the loans, especially African states that are drowning in debt.
According to the African Development Bank Economic outlook for 2020, public and publicly guaranteed debt levels are high and rising in most African economies, with the average ratio of government debt-to-GDP climbing over 56% in 2018, up from 38% 10 years ago.
Namibia’s debts stand at N$91,41 billion which was 50% (49,3) of GDP by the end of 2019. The majority of these funds are borrowed from the domestic market (N$59 billion), while the rest are from external markets (N$32,41 billion).
Economists who spoke to The Namibian have advised the government to use the contingency fund, rather than borrow and increase its debts to unsustainable levels, which will eventually increase its debt obligations.
They also indicated that the fund made available by the IMF to developing economies to contain the coronavirus is history repeating itself as most African countries are still paying off loans extended to them by European lenders to fight HIV.
