IMF Declares a Global Recession; UN Keeps India and China in Exceptions

The Coronavirus pandemic has affected more than 200 countries across the globe. The International Monetary Fund (IMF) has reported that the COVID-19 crisis has caused a global recession this year, after a meeting by its International Monetary and Financial Committee (IMFC). 

The IMF Managing Director, Kristalina Georgieva, stated, “We do project a recovery in the year 2021. There may be a notable rebound, but only if we succeed in containing the virus everywhere and prevent liquidity problems from turning out to be a solvency issue.”

The IMF is planning to double its financial capacity to mitigate the crisis and has asked the emerging countries to seek financial assistance sooner than late. The incoming requests for help have also rapidly risen in the last week of March 2020, wherein 31 middle-income and 50 low-income countries have approached the IMF.

The team at IMF has developed a COVID-19 response policy tracker covering 192 countries. The tracker outlines the vital economic responses of the governments until the end of March 2020, to restrain the human and economic impact of the COVID-19 pandemic. Countries across the world have voluntarily cut the monetary rates to ensure a smooth flow of credits in their nation. 

Among the developed countries such as the U.K. and USA, huge funds are earmarked towards the fiscal recovery from the COVID-19 crisis. It is close to 10-20% of their respective GDPs. USA has devoted close to 2 trillion U.S. dollars for the Coronavirus Aid, Relief, and Economic Security Act. In both countries, several measures have been taken to fund the small businesses and the vulnerable sections of society. The compliances of tax regulations have been extended for about three months. 

India, among the developing economies, has also taken appropriate steps to mitigate the crisis by extending the statutory deadlines, assuring financial security to the poor and vulnerable sections of the society.

Also Read: COVID-19 lockdown: Businesses need GST return filing extensions

The United Nations has also stated that the world economy will go into recession with a predicted loss of the global income in trillions of dollars. However, there is a possible escape for India together with China as per the United Nations (U.N.) trade report. However, the report did not further justify the statement. The United Nations Conference on Trade and Development regularly publishes this report.

Regarding the low-income nations, the IMF MD stated, “A wide range of issues is building up in the emerging markets. We zeroed in on some primary factors such as the rapid spread of the virus, capital outflows, complete shut-down of the economies, and price shock for the commodity exporters.”

She further added, “Many of these markets shall experience a contraction, as the necessary containment measures take hold. Already, they are shocked by the reduced global demand for their exports- tourism, commodities and manufactured goods which provide a critical stream of foreign exchange. For such economies, our current estimate for the overall financial needs is 2.5 trillion U.S. dollars. Their reserves and domestic resources would not be sufficient.”

On the other hand, the IMF MD made some crucial remarks on Monday, the 31st of March 2020 at the extraordinary conference call of the G20 Finance Ministers and Central Bank Governors. It was called in by the Saudi G20 presidency and was also attended by India’s Union FM Nirmala Sitharaman. 

The IMF MD appreciated many countries for taking immediate steps to combat an economic downturn due to COVID-19. She further addressed as follows, “An ambitious G20 action plan is required to strengthen the capacity of health systems to manage the epidemic. it should cover steps to stabilise the world economy through timely, focussed and coordinated measures, and to pave the way towards recovery.”

It was further suggested that the official bilateral creditors must make a significant contribution by offering a debt stop to the countries eligible under the International Development Association (IDA). The Catastrophe Containment and Relief Trust (CCRT) is reformed to allow the poorest member countries to invest in crisis response instead of repaying the fund.

The IMF has over 189 member countries signed up. It can lend over one trillion U.S. dollars to its member countries in the times of need. Apart from lending, the IMF oversees the international monetary system together with the financial and economic standing of its 189 member countries.

For any clarifications/feedback on the topic, please contact the writer at annapoorna.m@cleartax.in