‘A crisis like no other’: IMF warns global economy could be permanently scarred

The global economy’s recovery from the pandemic recession is tentative and uneven and “marked by significant uncertainty” as confirmed coronavirus cases spread in many countries, international finance ministers warned.

The policy-setting panel of the 189-nation International Monetary Fund concluded a virtual meeting on Thursday (US) with a joint statement that warned of permanent damage from the worst global downturn since the Great Depression of the 1930s unless countries are given further economic support.

"This is a crisis like no other": IMF managing director Kristalina Georgieva.
“This is a crisis like no other”: IMF managing director Kristalina Georgieva.Credit:Bloomberg

“The crisis threatens to leave long-lasting scars on the global economy, such as weaker productivity growth, heavier debt burdens, heightened financial vulnerabilities and higher poverty and inequality,” the IMF panel said.

“This is a crisis like no other,” Kristalina Georgieva, the IMF’s managing director, said at a closing news conference. “It calls for steps to enable a recovery like no other.”


The IMF’s communique said it was committed to supporting “the most vulnerable countries and people.” It endorsed a six-month extension of a suspension on debt payments that was approved Wednesday by the Group of 20 major industrial countries.

The IMF panel urged the G-20 to go further and adopt at a meeting next month a framework for managing the crushing debt burdens of many low-income countries. International aid groups say rich nations should not merely suspend debt payments but forgive large chunks of debt that are leaving poor countries unable to devote their limited resources to health care and other urgent needs during the pandemic.

The fall meetings of the IMF and its sister lending organisation, the World Bank, were held virtually against a grim backdrop of the damage the pandemic has inflicted on the world. In its economic outlook, the IMF forecast that global growth would shrink 4.4 per cent this year, which would mark the worst downturn since the Great Depression. And the World Bank forecast that the pandemic could send an additional 114 million people into extreme poverty, defined as living on less than $US1.90 ($2.70) a day.

Eric LeCompte, executive director of the international aid group Jubilee USA Network, said more debt relief and and other steps must be taken.

“Wealthy countries, who are making decisions for the entire world about the crisis, are more insulated from the extreme shocks,” LeCompte said. “Nearly 90 per cent of all global stimulus was spent in wealthy countries and less than 3 per cent in developing countries.”

The IMF communique said more involvement by the private sector in granting debt relief is needed, as well as more widespread support by governments.

Treasury Secretary Steven Mnuchin (left) and Federal Reserve Chair Jerome Powell represented the US at the meeting.
Treasury Secretary Steven Mnuchin (left) and Federal Reserve Chair Jerome Powell represented the US at the meeting.Credit:AP

China, a major creditor country, has been criticised by international aid groups for not doing enough to grant debt relief to low-income countries. While not singling out China by name, the IMF communique said that debt relief efforts need the “full support” of all countries as well as greater transparency.

The United States was represented at the finance meetings by Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell.

In his speech to the IMF panel, Mnuchin said the United States, the world’s largest economy, was doing its part to support the recovery by “deploying the largest economic relief package in American history” with Congress’ passage last spring of $US3 trillion ($4.2 trillion) in support for workers and businesses.

The Trump administration and Congress have failed to reach agreement on further aid after the expiration of a $US600-a-week benefit for the unemployed, $US500 billion in forgivable short-term loans to small businesses and other financial assistance.

Asked how the failure of US officials to approve more support could affect the global economy, Georgieva told reporters that the decisive action taken in the spring had offered critically needed aid that had spillover effects for the global economy.

“Don’t cut the lifelines,” she said.


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