The IMF on Monday called for increased coordinated action to boost confidence and provide stability to the global economy, amidst fast spread of coronavirus that has killed over 6,500 people worldwide and resulted in lockdown-like situations in several countries.
"Many governments have already taken significant steps, with major measures being announced on a daily basis - including yesterday's bold, coordinated moves on monetary policy," International Monetary Fund Managing Director Kristalina Georgieva said in a blog post.
"But clearly, even more needs to be done. As the virus spreads, increased coordinated action will be key to boosting confidence and providing stability to the global economy," she wrote.
Asserting that the case for a coordinated and synchronized global fiscal stimulus is becoming stronger by the hour, she said that during the Global Financial Crisis, for example, fiscal stimulus by the G-20 amounted to about 2 per cent of GDP, or over USD 900 billion in today's money, in 2009 alone.
"So, there is a lot more work to do," she said and called for additional fiscal stimulus will be necessary to prevent long-lasting economic damage.
"Fiscal measures already announced are being deployed on a range of policies that immediately prioritize health spending and those in need. We know that comprehensive containment measures - combined with early monitoring - will slow the rate of infection and the spread of the virus," she said.
Governments should continue and expand these efforts to reach the most-affected people and businesses - with policies including increased paid sick leave and targeted tax relief, she added.
In advanced economies, she said, central banks should continue to support demand and boost confidence by easing financial conditions and ensuring the flow of credit to the real economy. For example, the US Federal Reserve just announced further interest rate cuts, asset purchases, forward guidance and a drop in reserve requirements.
"Policy steps that we know have worked before - including during the GFC- are on the table. Yesterday, major central banks took decisive coordinated action to ease swap lines and thus lessen global financial market stresses. Going forward, there may be a need for swap lines to emerging market economies," she added.
Noting that investors have removed nearly USD 42 billion from emerging markets since the beginning of the crisis, which is the largest outflow they have ever recorded, Georgieva said that central banks' policy action in emerging-market and developing economies will need to balance the especially difficult challenge of addressing capital flow reversals and commodity shocks.
"In times of crisis such as at present, foreign exchange interventions and capital flow management measures can usefully complement interest rate and other monetary policy actions," she said.
Calling for a regulated response, the IMF head said that financial system supervisors should aim to maintain the balance between preserving financial stability, maintaining banking system soundness and sustaining economic activity. This crisis will stress test whether the changes made in the wake of the financial crisis will serve their purpose, she added.
"Banks should be encouraged to use flexibility in existing regulations, for example by using their capital and liquidity buffers, and undertake renegotiation of loan terms for stressed borrowers. Risk disclosure and clear communication of supervisory expectations will also be essential for markets to function properly in the period ahead, Georgieva said.
On its part, the IMF, she said, stands ready to mobilize its USD 1 trillion lending capacity to help its membership. As a first line of defense, the Fund can deploy its flexible and rapid-disbursing emergency response toolkit to help countries with urgent balance-of-payment needs, she added.
These instruments could provide in the order of USD 50 billion to emerging and developing economies. Up to USD 10 billion could be made available to our low-income members through our concessional financing facilities, which carry zero interest rates, she said.
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