The global economic outlook has darkened further since the IMF forecast last month that it would suffer the worst blow since the 1930s as a result of the coronavirus crisis, according to its managing director Kristalina Georgieva.
The fund will next month publish downward revisions to its global economic forecasts, reflecting the fact that the virus had spread further and the economic impact had intensified in recent weeks, Ms Georgieva said on Tuesday.
In mid-April the IMF forecast a contraction of 3 per cent in global output, with emerging and developing economies contracting 1 per cent and advanced economies 6.1 per cent over the course of this year.
Speaking in an interview during the FT’s Global Boardroom online conference on Tuesday, she said: “With the crisis still spreading, the outlook is worse than our already pessimistic projection. Without medical solutions on a global scale, for many economies a more adverse development is likely.”
Ms Georgieva said the IMF’s previous forecast that emerging and developing countries would need $2.5tn of financial assistance to see them through the crisis would also be revised upwards.
“It is very important to concentrate on understanding clearly what protection measures we can offer to [emerging and developing] countries, so that a liquidity problem does not become a solvency problem,” she said.
Countries had announced fiscal support measures adding up to $8.7tn since the onset of the crisis, Ms Georgieva said, adding that the IMF’s message to its members was, “please, spend as much as you can and then a little bit more”.
But, she added, the record capital outflows that emerging economies experienced in March had “seen a reversal” in April. This was thanks in part to liquidity injections by central banks including the US Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan, which had fuelled investors’ bond-buying.
Data from the Institute of International Finance show that big emerging economies suffered cross-border outflows of more than $100bn from their equity and bond markets in March. But IIF data show flows turning positive again in April, with overseas bond issuance by emerging economies at record strength as countries raise extra finance to help them cope with the economic consequences of the pandemic.
Thanks to such liquidity, Ms Georgieva said, “emerging markets with good fundamentals have been able to issue at very reasonable yields, and that helps them and also helps the rest of the world through this difficult time”.
The IMF has been under pressure to expand its special drawing rights — a form of reserve assets that can be used by countries as additional liquidity — to further help countries facing cash flow problems. But the US vetoed the proposal last month.
Ms Georgieva expressed regret that the IMF had been unable to expand SDRs, but she said existing SDRs would be put to use to help countries most in need.
“We do not have unity among our members [on a fresh allocation of SDRs] but what they did agree to is to use existing SDRs that are in the hands of wealthy countries,” she said. “So we are building a transmission line [to make that possible].”
She added: “In our spring meetings it was clear that everything was on the table, and one thing I was given confidence about was that the IMF membership is determined for the IMF to play its role at the centre of the global financial safety net.”