The International Monetary Fund is on track to get roughly an extra $200 billion of funds from EU members to aid with the rescue of wealthy Europe. But the downgrade of Hungary’s credit rating is a reminder that there could be more traditional middle-income demands for assistance, too.
The latest boost to the fund’s coffers is about $70 billion less than the EU targeted earlier this month. Even so, it would increase the lender’s firepower by about half from its current $390 billion to just shy of $590 billion.
The IMF may end up needing every penny. The governments of Spain and Italy between them need to borrow around $1.25 trillion over the next three years, according to Barclays. Any package of assistance would probably aim to cover these financing needs. With Greece, the IMF’s slice of the deal was just under 30 percent; after Europe’s latest contributions, that number could be higher next time.
Suppose the fund has to provide 40 per cent, and both Spain and Italy need help, that could swallow around $500 billion and leave less than $100 billion in the kitty.
Meanwhile, the IMF may face a queue of more familiar borrowers. Hungary, which has come to the fund three times over the past 15 years, may be seeking as much as $20 billion, according to Citigroup. With a diving forint and surging interest rates, it is probably only a matter of time — despite the fund’s challenges negotiating with the Hungarian government. Another previous IMF client potentially in need of succor is Egypt. With its economy languishing amid political uncertainty, its fiscal deficit could top 11 percent of GDP this year.
A sharp global downturn could hit others, too. While Turkey, for instance, is growing fast, it also runs a current account deficit of nearly 10 percent of GDP - close to $80 billion a year, second in dollar terms only to America’s.
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The calls on the IMF from countries in this kind of predicament could soon mount up, easily topping $100 billion. And the fund needs dry powder, too, to retain credibility as a backstop lender.
Of course, it can always hand the hat around its members. In the meantime, even with its pot of money growing, the IMF will have to allocate its resources carefully.
