IMF on impact of Coronavirus on global economy

Coronavirus is having profound and serious impact on the global economy and success in containing it has come at a high price, IMF has observed.

While reviewing the Chinese experience, the IMF blog noted that what started as a series of sudden stops in economic activity quickly cascaded through the economy and evolved into a full-blown shock, simultaneously impeding supply and demand.

The shock is “very severe even compared to the Great Financial Crisis in 2007-08, as it hit households, businesses, financial institutions, and markets all at the same time, fist in China and now globally,” noted IMF.

Besides the economic tumble brought about by liquidity shortage and market disruptions, the pandemic comes with high costs among massive deaths, and terrible human suffering including enforced curfews.

This has sent policy makers looking for ways to respond with the Chinese case experience again showing that the right policies make a difference in fighting the disease and mitigating its impact.

IMF notes that in China for instance, the authorities stepped in early to backstop inter-bank markets and provide financial support to firms under pressure.

Other policies included guiding banks to work with borrowers affected by the outbreak, incentivising them to lend to smaller firms via special funding from China’s central bank and providing targeted cuts to reserve requirements for banks.

However, IMF warned that allowing a broad range of debtors more time to meet their financial obligations could undermine financial soundness later, subsidised credit could be misallocated, while keeping already non-viable firms could later hold back productivity growth.

Kenya is clearly taking lessons from China with Central Bank of Kenya releasing over Sh 7 billion Friday as its contribution towards shielding the economy from the impact of the corona pandemic.

Meanwhile, KCB, in conjunction with Safaricom, also announced measures to support customers in financial distress, availing more affordable lending and significantly cutting transaction costs on mobile.

Health Cabinet Secretary Mutahi Kagwe declared a mini lockdown Friday, with far reaching mitigation measures ranging from transport guidelines reducing PSV passengers by 40 per cent, imposing 7.30pm curfew on social spaces and workplace scale down.


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