The International Monetary Fund (IMF) is an agency that continuously monitors the global economy and acts as the lender of last resort for nations and central banks across the globe. It said that the sudden halt caused by Coronavirus to the world economy may bring bankruptcies and layoffs. IMF Managing Director Kristalina Georgieva said that the quantum of the recession would depend upon two things: Stemming the virus and making a coordinated effort to resolve the financial crisis.
World on a Standstill
The IMF Chief also believes that the current situation presented by COVID-19 is unprecedented as the world economy has hit a standstill. Recession is defined as two consecutive quarters of negative growth. And the fact that the ‘real economy’ is not churning right now is posing the threat of a financial crisis worse than Global Financial Crisis 2008-09, when at least the ground level economy, factories, restaurants, essential services, were still working.
Rebounding From Recession
The IMF has said that it is ready to offer $1 trillion help to the world economies that are having economic and humanitarian impact due to COVID-19. IMF Chief Kristalina believes rebounding from the recession this year is difficult. In 2021, the global economy can rebound if, a) the world has contained the virus very well and quickly, and b) liquidity is continuously provided to nations. And for the latter, the supranational body has doubled its financial assistance fund to $1 trillion. Already, 81 nations have reached out to the IMF for financial assistance.
It has also urged nations to avoid taking ‘small independent measures’ to solve this gigantic crisis and take part in the coordinated efforts.
A Déjà Vu of GFC1 for India?
India was not affected to a large degree by the Global Financial Crisis 2008-09. RBI’s measures to tackle the current slowdown are in tandem with global economies – liquidity is the key. However, right after the 2008-09 crisis, the increased lending put Indian banks in an NPA-hit era. As easy credit will be available again this time once there is a sizable rebound, RBI and Indian Banks must keep a tab on quality lending.