11/28/2020Experts call the correction of bitcoin healthy and necessary before the rise to $ 86,000

Strategy in emerging and developing countries in response to the pandemic

Strategy in emerging and developing countries in response to the pandemic

The coronavirus crisis is unprecedented and also an unprecedented policy driver of response for EMDE economies, both in scale and size.

Although this large group of countries, which include emerging and low-income countries, are in some cases diverse and resource-limited, they have strengthened their health services and provided unprecedented support to families. Business and Financial Markets. Due to limited political mobility, the response in these countries has been weaker than in advanced economies, although some other countries have been able to assist.

It's a whole new world. Economic activity in emerging and developing countries has slowed to a pace that has not been seen in at least 50 years as the Covid-19 pandemic continues to tear the global economy apart. Several countries are experiencing sharp falls in trade and capital flows, as well as the effects of an unprecedented drop in oil and other commodity prices. There has also been a wave of sovereign credit rating downgrades.

The policy tracker tool created by the fund summarizes the main policy measures that have been taken in response to the COVID-19 pandemic and which share some common characteristics.

In terms of using fiscal policy to save human lives and protect livelihoods, the financial policy has driven the response of emerging and developing countries to this pandemic. The health crisis in this group of countries requires significant expenditure on the health sector, even if the additional expenditure appears insignificant compared to the resources required to support the entire economy. Countries have granted loans, guarantees, and tax cuts to businesses and small and medium-sized enterprises, as well as providing vulnerable families with higher unemployment benefits and price subsidies for public services.

Funding for these new measures has come from a variety of sources including loans, withdrawals from reserves, adjustment of priorities in existing budgets, and multilateral support.

Some economies entered the crisis when they were weak because of slow growth, high levels of debt, limited space in their public finances to support the health sector, and a weak economy. Even before the crisis, the IMF estimates that based on the Debt Sustainability Framework, around half of the total number of low-income countries was considered critical or very vulnerable. For reasons partly due to these limits, the general fiscal discretionary response is due to the fact that the shock in emerging and low-income countries is small and "although large", reaching 2, 8 and 1. 4% of GDP. in the form of additional spending and tax cuts compared to the reactions of developed countries, which reached 8.6% of GDP.

Regarding monetary and financial sector support: As a pillar of stability, central banks in emerging and developing countries have mitigated the impact of the shock on credit conditions by lowering the base rate and injecting liquidity. And unlike in previous periods of crisis due to capital inflows, including the events at the beginning of the global financial crisis, most emerging economies lowered the rate. Instead of increasing "benchmark interest" of 50 basis points or more in most cases, this is due to lower inflationary pressures and more credible monetary policy conditions in general.

Like many advanced economies, emerging markets have little leeway to lower interest rates any further and have taken "unconventional monetary policy" measures such as buying government bonds. Company and state. Regulatory restrictions, including those on liquidity and credit classification, have been relaxed. Help banks play a more unified role during the pandemic.

Some countries, including China and Colombia, have eased some macroprudential measures: credit and credit restrictions that were put in place to contain the rise in excessive lending and the build-up of systemic risk in the financial sector that can arise in good times. Currently, easing the restrictions could increase credit for individuals.

Many economies used their margins of safety to offset some of the pressures, by interfering in the foreign exchange market and withdrawing from their international reserves. A few countries have eased capital restrictions applied to inflows while resorting to measures to curb capital outflows has been very limited. On digitalization, which is a lifeline to protect those at risk, countries such as Bolivia and Indonesia are using digital technology to confront the sudden economic slowdown that affected families and small and medium enterprises, and reduce the spread of disease by encouraging non-cash payments. And there are other countries, such as Colombia and Kenya, that allow access to digital services at reasonable prices "by easing restrictions on the use of the Internet" and financial services "by reducing fees for portable electronic money and electronic payment methods." Zambia provided support to small farmers through a digital platform. Moreover, "digital solutions have helped direct the relief needed to vulnerable groups and enhance the effectiveness of traditional macro policies."

In dealing with the disruption of global supply chains due to the pandemic and the extension of the general lockdown period, many countries have taken steps to ensure food security and continued access to medical supplies, most of which are temporary. For example, several countries imposed price controls and regulations against opportunism in raising the prices of basic foodstuffs and medical supplies, while some countries relaxed import restrictions. Unfortunately, restrictions have been imposed on food and pharmaceutical exports in many cases.

Global solidarity - helping countries achieve more, is a response to the Covid-19 shock, and the global financial safety net has been activated and strengthened. And the Federal Reserve Bank of the United States established new lines of currency exchange with central banks in several major advanced and emerging economies.

The Debt Payments Deferral Initiative led by the G20 and financial assistance from the International Monetary Fund and other institutions are working to support the emerging market and developing economies in the face of challenges. The fund quickly provided emergency aid to more than 60 member states. With the increase in the demand for liquidity, the Fund, in its response to the Covid-19 pandemic, has also created a new financing facility, the Short Term Liquidity Line (SLL), to strengthen its tools used in lending to member states. In addition, the huge amount of liquidity provided by central banks in the major advanced economies, despite being directed primarily to support domestic financial conditions, eased pressures on emerging markets and developing economies.

At the same time, emerging market and developing economies are providing assistance to each other and to other countries that need it. Specifically, regional development banks are providing support to private sector enterprises, financing trade, and continuing access to medical supplies. An example of bilateral aid is Albania sending a team of doctors to Italy, and Vietnam donating medical supplies to neighboring countries as well as developed economies.

Emerging markets and developing economies have been severely affected by the Covid-19 shock and the market reaction it has caused. The analysis provided by the IMF's Policy Tracker tool illustrates the exceptional response that policies have produced, supported by innovation and international cooperation. In this unprecedented and rapidly developing situation, countries can benefit by learning from their peers. On its part, the Fund is committed to collecting and sharing best practices and including this data in its analyzes to assist its member states.