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‘Underwhelming’ response


Despite G20 pledge to do ‘whatever it takes’, the IMF has offered only ‘trivial’ new funding toward a $2.5 trillion pandemic financing gap in developing countries, says new article co-authored at Cambridge Judge Business School.

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The International Monetary Fund and regional financial agencies made only ‘trivial’ amounts of new money available in the first five months of the coronavirus crisis despite a $2.5 trillion financing gap in developing countries, says a journal article by academics in the UK, US and Italy.

While the G20 declared in March it will “commit to do whatever it takes” to offset the pandemic’s economic and social effects, the article published in the journal World Development developed new datasets to find that just $90.11 billion in loans and currency swaps – 12.6 per cent of their capacity – had been committed by multilateral financial institutions through the end of July.

This low level of commitment has been coupled with slow disbursal of financing at the disposal of the International Monetary Fund (IMF) and regional financial arrangements (RFAs) such as the Latin American Reserve Fund and Eurasian Fund for Stabilisation and Development, compounding problems for emerging markets whose foreign reserves have dwindled as they sought to protect their currencies during the crisis.

The article is co-authored by Dr Thomas Stubbs, a Research Associate at the Centre for Business Research at Cambridge Judge Business School, University of Cambridge and Senior Lecturer in International Relations at Royal Holloway, University of London.

“In March 2020, the G20 declared that “We commit to do whatever it takes and to use all available policy tools to minimise the economic and social damage from the pandemic,” says the article. “To date, these words have not been met with equally bold action.”

Also in March, a joint statement by IMF Managing Director Kristalina Georgieva and World Bank President David Malpass said they would help address issues related to the pandemic “with special attention to poor countries” – yet the article says there has since been little effective action.

“Taken together, adjustments to the IMF’s financial architecture since the COVID-19 joint statement … are underwhelming,” the article says. “The only genuinely fresh funding is the $285 million committed to the Catastrophe Containment and Relief Trust, a mere fraction of existing lending firepower and far short of the acknowledged $2.5 trillion need.”

The article conducted specific case studies for Ghana and Ecuador, finding that only a ‘fraction’ of new resources made available by the IMF or RFAs contributed to greater healthcare or social assistance, with most new funding spent elsewhere including debt repayments to private creditors.

The article acknowledges that it takes an early snapshot of the crisis and is “far from the last word” on developing country financing to combat the pandemic’s effects. Yet based on the article’s findings to date, the authors say that multilateral financial institutions will need to meet emerging nations’ financing gaps through other means such as an increase in base capital of the IMF and RFAs, issuance of IMF Special Drawing Rights and significant debt relief.

“Until such measures are considered and come to fruition, the world community is failing to deliver its own assessment of current gaps and is falling far short of doing ‘whatever it takes,'” the article concludes.

The article – entitled “Whatever it takes? The global financial safety net, COVID-19, and developing countries” – is co-authored by Dr Thomas Stubbs of the Centre for Business Research at Cambridge Judge Business School and Royal Holloway, University of London; Dr William Kring and Professor Kevin Gallagher of Boston University; Christina Laskaridis of SOAS University of London and the Open University; and Dr Alexander Kentikelenis of Bocconi University in Italy.