March 16, 2020

IMF advocates monetary stimulus to combat impact of COVID-19


By Babajide Komolafe


THE International Monetary Fund, IMF, has called for broader monetary stimulus as part of fiscal and monetary measures to combat the economic impact of the Coronavirus (COVID-19).

Making this call in a presentation titled: “Limiting the Economic Fallout of the coronavirus with Large Targeted Policies”, IMF Chief Economist, Gita Gopinath, said, “Central banks should be ready to provide ample liquidity to banks and nonbank finance companies, particularly to those lending to small- and medium-sized enterprises, which may be less prepared to withstand a sharp disruption.

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“Governments could offer temporary and targeted credit guarantees for the near-term liquidity needs of these firms. Financial market regulators and supervisors could also encourage, on a temporary and time-bound basis, extensions of loan maturities.”

Speaking further, Gopinath averred that, “Broader monetary stimulus such as policy rate cuts or asset purchases can lift confidence and support financial markets if there is a marked risk of a sizable tightening in financial conditions (with actions by large central banks also generating favorable spillovers for vulnerable countries).

“Broad-based fiscal stimulus consistent with available fiscal space can help lift aggregate demand but would most likely be more effective when business operations begin to normalize. Considering the epidemic’s broad reach across many countries, the extensive cross-border economic linkages, as well as the large confidence effects impacting economic activity and financial and commodity markets, the argument for a coordinated, international response is clear.

“The international community must help countries with limited health capacity avert a humanitarian disaster. The IMF stands ready to support vulnerable countries with different lending facilities, including through rapid-disbursing emergency financing, which could amount up to  $50 billion  for low-income and emerging market countries.”