IMF chief calls for more fiscal stimulus to limit coronavirus damage

International Monetary Fund Managing Director Kristalina Georgieva on Monday called on governments to take coordinated fiscal and monetary stimulus measures to stop the coronavirus from causing long-term economic damage. In a blog message posted on the IMF website, Georgieva said the global lender has received interest from about 20 additional countries for financing programs and will follow up with them in the coming days. She did not identify any of them.

The IMF stands ready to mobilize its $1 trillion in lending capacity to aid its 189 member countries, she said. "As the virus spreads, the case for a coordinated and synchronized global fiscal stimulus is becoming stronger by the hour," Georgieva said.

The IMF chief suggested that coordinated fiscal action on the scale of the 2008-2009 financial crisis may be necessary. She said that in 2009 alone, Group of 20 countries deployed about 2% of their GDP in stimulus, or about $900 billion in today's money, "so there is a lot more work to do." She said that governments should continue to prioritize health spending and provide support to the most affected people and businesses with policies such as paid sick leave and targeted tax relief.

On the monetary policy front, she said central banks "should continue to support demand and boost confidence by easing financial conditions and ensuring the flow of credit to the real economy," citing emergency actions by the U.S. Federal Reserve and other central banks on Sunday as an example.

EMERGING MARKET RISKS

She applauded the opening of swap lines between major central banks, adding that such swap lines may need to be extended to emerging market countries in the future. She said central banks' policy actions will need to balance the difficult challenge of addressing capital outflows from emerging markets and commodity price shocks, citing recent record outflows of $42 billion reported by the Institute of International Finance last week.

"In times of crisis such as at present, foreign exchange interventions and capital flow management measures can usefully complement interest rate and other monetary policy actions," Georgieva said. She said financial system supervisors should aim to preserve stability, ensuring banking system soundness while sustaining economic activity.

"This crisis will test whether the change made in the wake of the financial crisis will serve their purpose," she said, referring to increased capital requirements and other policies put in place over the past decade to rein in financial market excesses. Georgieva said banks should be encouraged to use their capital and liquidity buffers and renegotiate loan terms for stressed borrowers.

The IMF earlier this month announced that it would make about $50 billion available to emerging and developing economies through various emergency financing programs. In addition, Britain has contributed $195 million to the Catastrophe Containment and Relief Trust, a fund for the poorest countries, bringing its debt relief fund to about $400 billion.

All of the fiscal, monetary and regulatory actions would be "most effective when done cooperatively," she said, adding that IMF research shows that spending increases have a multiplier effect when countries act together.

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