Coronavirus or Covid-19 has been declared as a global public health emergency which has led to curfews, quarantines and lockdowns all across the world. Along with adverse effects on human health, the pandemic has also inflicted negative impacts on the societies and global economy.
Where does international community stand in this universal crisis?
Give it a read to know about the efforts of international financial institutions in dealing with the effects of the covid-19.
An epidemic is defined as “the occurrence of an illness is a community or a region that exceeds normal expectancy”. On the other hand, an epidemic that occurs over a large area, crosses international borders and affects a huge number of people is known as pandemic. The word pandemic comes from the Greek word “pan” which means “all” and “demos” which means people”. The difference between pandemics and epidemics is based on the coverage of the geographical area, rather than the severity of disease and illness. In the 17th and 18th centuries, the terms epidemic and pandemic were used interchangeably with the common vague meaning of “vernacular- as a disease always reigning in a country”. However, the integration of global economy and the excessive transportation and communication across the continents since the industrial revolution have been the reason of spread of diseases across continents, and this had led to the differentiation between the terms epidemics and pandemics. The first time a disease was classified as a pandemic was the cholera outbreak in 1831-1832 that spread across Asia and Europe from the trade routes.
The covid-19 pandemic has inflicted highly adverse impacts on the global economy. Many sectors of the economy have faced serious consequences of the pandemic spread due to the decline in business activity. The stock markets all over the world have been crashed and also wed down, there is an incline in the unemployment rate, gold and oil prices have declined, tourism industry has been hit hard and the aviation companies are also facing major losses.
As the virus spread out of China, its economic implications also began to spread worldwide. Beginning with USA, the Federal Stock Exchange and the Dow Jones Industrial Average witnessed a decline of 3% with the worsening of the crisis. As the pandemic continued to spread, the stock markets all over the world closed down. The US treasury securities had fallen down to the lows of 0.7% and 1.26%. In March 2002, the stock markets of Asia Pacific closed down to around 20 percent, the stock markets in European Union closed down to 11 percent and the Dow Jones Industrial Average further declined to 10 percent.
According to the prediction statistics of IMF, corona virus could lead to a global recession that would be as bad as the global financial crisis of 2008-2009
As the business activity has been slowing down and the markets have been becoming devoid of capital, over 80 states have requested IMF for the emergency financial assistance.
The analytical statistics of OECD have indicated that the economic downturn due to the coronavirus could be worse than the ones after the September 11 attacks and the 2008-2009 financial recessions. Furthermore, it has also been indicated that the outbreak could reduce the average global growth rate to less than 1.5 percent.
In the view of the economic downturn due to the pandemic, the US Federal Reserve has led to an intervention in the economy by introducing a quantitative easing of US$ 700 billion. The Federal Reserve has also dramatically cut down the interest rate from 1.25 percent to less than 0.25 percent.
According to the International Labor Organization,
The Coronavirus pandemic could cost up to 25 million jobs worldwide. The investment bank of USA predicts that the unemployment rate in USA could suddenly sky-rocket from 3.5 percent over 9 percent.
Considering the travel bans, visa restrictions, quarantine and social distancing requirements of covid-19 pandemics, the tourism industry has also been facing a sharp decline and is further expected to decline if the virus continues. According to the World Tourism Forum Industry, the corona virus could lead to a loss of $1 trillion in the global tourism industry. WTFI has also made claims that such a continued loss in the tourism industry could lead to 50 million people losing their jobs in the tourism industry. While the global tourism industry collects an annual revenue of $1.7 trillion, since the outbreak-losses of over $ 600 million have already occurred.
The International Financial Corporation under the World Bank has provided assistance to states and companies in a fast track financing package of worth $14 billion.
The package is aimed at strengthening national mechanisms for public health, ensuring effective systems for the containment of diseases, timely diagnosis and effective treatment. The support package of World Bank has been comprised of $ billion from fast-track resources, $2.7billion from the International Bank for Reconstruction and Development (IBRD), 1.3 billion from International Development Assistance, $6 billion from International Financial Cooperation and $2 billion from the existing trade facilities of the bank.
Under the program, Real Sector Crisis Response Facility has been established. It is directed towards supporting the sectors of economy that are considered more prone to the adverse effects of pandemics such as the manufacturing, agriculture and service industries. The facility aims at providing loans to companies facing finance shortages despite increased demand such as the health sector.
Another part of the World Bank’s program for Covid-19 is the Global Trade Finance Program.
The program mitigates the risk of financial institutions to facilitate trade financing and the import and export of goods. Working Capital Solutions Program has been created in order to provide funds to businesses to pay bills and give salaries to the workers (World-Bank-Staff, 2020). The IDA has been aiming at providing loans at low-interest rates to low income countries. States and IBRD directs its loans towards middle income states. IFC has been directing its activities towards supporting companies to continue their operations and sustain the jobs of the workers. The financial assistance from World Bank is aiming at strengthening the health care facilities; improve disease monitoring, training health workers, and improving the access to health facilities for poor workers.
In order to respond to calamities such as natural disasters and health emergencies as pandemics and epidemics, IMF’s emergency financing instruments are composed of Rapid Credit Facility and Rapid Financing Instrument. These instruments are distinguished from other types of financing and financial assistance based on their size, speed and flexibility. The assistance provided under emergency instruments usually comprises of one-off payments intended at resolving some urgent problems in balance of payments. These assistance packages are no subjected to IMF Conditionality.
In response to the sudden and severe economic decline caused by the coronavirus pandemic, IMF has provided an amount of $ 50 billion as the emergency financing assistance to the developing countries in order to facilitate their initial response to the disease outbreak. Out of these $50 billion, $10 billion has been specified for the developing countries to be provided as loans on concessional terms.
Apart from the emergency assistance, IMF has also announced that in the view of the global health emergency of corona virus, member states can request new loans. These loans are to be based on the quota resources and the borrowed sums of IMF that amount up to $1 trillion.
The ongoing pandemic has led to serious economic impacts worldwide. It had led to the crashes of stock markets all across the world indicating a recession worse than the financial crisis of 2008-2009. It has increased the statistics of unemployment and has led to losses of over $600 million in the tourism industry. As the business activity has declined, the global oil consumption has declined which has caused a decline in the production and prices of oil. Apart from the economic effects that have already become visible, many more are yet to be seen as the crisis still continues. For dealing with the economic effects of the pandemic, both IMF and World Bank have offered their assistance programs. While World Bank has ensured emergency financial assistance of worth $ 14 billion, IMF has IMF has provided an amount of $ 50 billion as the emergency financing assistance to the developing countries in order to facilitate their initial response to the disease outbreak. Although both the institutions are making efforts to prevent the world from receding into a serious economic crisis that would follow the global health crisis, it is still unpredictable that how far these institutions could actually be successful in mitigating the economic effects of the pandemic, as the pandemic is still spreading across the world rapidly.