On 27th March 2020, IMF Managing Director Kristalina Georgieva, after her meeting with the Financial Committee representing 189 countries, announced that the world has entered a recession as bad or worse than the 2008-09 Global Financial Crisis. Complete Coverage: Coronavirus
Crux of the Matter
The International Monetary Fund (IMF) is an agency that continuously monitors the global economy and acts as the lender of last resort for nations and central banks across the globe. It said that the sudden halt caused by Coronavirus to the world economy may bring bankruptcies and layoffs. IMF Managing Director Kristalina Georgieva said that the quantum of the recession would depend upon two things: Stemming the virus and making a coordinated effort to resolve the financial crisis.
World on a Standstill The IMF Chief also believes that the current situation presented by COVID-19 is unprecedented as the world economy has hit a standstill. Recession is defined as two consecutive quarters of negative growth. And the fact that the ‘real economy’ is not churning right now is posing the threat of a financial crisis worse than Global Financial Crisis 2008-09, when at least the ground level economy, factories, restaurants, essential services, were still working.
Rebounding From Recession The IMF has said that it is ready to offer $1 trillion help to the world economies that are having economic and humanitarian impact due to COVID-19. IMF Chief Kristalina believes rebounding from the recession this year is difficult. In 2021, the global economy can rebound if, a) the world has contained the virus very well and quickly, and b) liquidity is continuously provided to nations. And for the latter, the supranational body has doubled its financial assistance fund to $1 trillion. Already, 81 nations have reached out to the IMF for financial assistance. It has also urged nations to avoid taking ‘small independent measures’ to solve this gigantic crisis and take part in the coordinated efforts.
.@KGeorgieva to #G20 Leaders: the human and economic challenge posed by #coronavirus is enormous. Emerging market and developing economies are particularly hard hit. They are the main focus of our attention. https://t.co/K1DNnAwpxt #G20VirtualSummit pic.twitter.com/hlv8OeFrwD — IMF (@IMFNews) March 26, 2020
A Déjà Vu of GFC1 for India? India was not affected to a large degree by the Global Financial Crisis 2008-09. RBI’s measures to tackle the current slowdown are in tandem with global economies – liquidity is the key. However, right after the 2008-09 crisis, the increased lending put Indian banks in an NPA-hit era. As easy credit will be available again this time once there is a sizable rebound, RBI and Indian Banks must keep a tab on quality lending.
Curiopedia
The Great Recession was a period of marked general decline (recession) observed in national economies globally during the late 2000s and early 2010s. The causes of the Great Recession include a combination of vulnerabilities that developed in the financial system, along with a series of triggering events that began with the bursting of the United States housing bubble in 2005–2006. When housing prices fell and homeowners began to walk away from their mortgages, the value of mortgage-backed securities held by investment banks declined in 2007–2008, causing several to collapse or be bailed out in September 2008. This 2007–2008 phase was called the Subprime mortgage crisis. The combination of banks unable to provide funds to businesses, and homeowners paying down debt rather than borrowing and spending, resulted in the Great Recession that began in the U.S. officially in December 2007 and lasted until June 2009, thus extending over 19 months. More Info
The International Monetary Fund (IMF) is an international organization headquartered in Washington, D.C., consisting of 189 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world while periodically depending on the World Bank for its resources. It now plays a central role in the management of balance of payments difficulties and international financial crises. Countries contribute funds to a pool through a quota system from which countries experiencing balance of payments problems can borrow money. More Info
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