Economic measures taken by countries during the pandemic may have unintended consequences: IMF

According to a top IMF official, actions taken by countries during the coronovirus epidemic to prevent a deep economic recession could have unintended consequences.

Tobias Adrian, director of the IMF’s Department of Monetary and Capital Markets, said the global economy has begun to emerge from the economic shock caused by the COVID 19 pandemic, told reporters at a press conference here on Tuesday.

“The economy has benefited from extraordinary policy measures that have eased the economic situation, preventing an economic slowdown. But those actions can have unintended consequences, ”said Adrian.

He said that the value of risky assets has increased, financial weaknesses have intensified and policy support remains constant, but several policy measures are needed to address weaknesses and protect economic reforms.

“We see three priorities: first, removing the weaknesses of the corporate sector and fixing the balance sheet is a priority,” he said.

Second, tightening some macro instruments in advanced economies is critical to securing financial stability and enhancing monitoring and regulation of non-financial institutions, and third, rebuilding buffers in emerging markets for potential revaluation and reversal of risk A policy is a priority to prepare. Capital flow, he said.

Adrian said that central bankers have proven to be highly efficient during this past year as they have achieved success in financial rescue.

In the coming year, creativity is likely to be critically tested again, as they face the challenge of directing their economies through asynchronous recoveries, market valuations and tense social divisions.

Thus, overall the financial situation remains orderly, he said, which is good news, and policy makers should continue to promote those easy conditions until the strength of recovery is ensured.

Conversely, in countries where recovery is slow and vaccination is lagging, policemen may be forced to harass unfairly.

He said that such a recovery is expected to be asynchronous, with a profound shift between advanced economies on the one hand and emerging markets on the other hand, and developing economies on the other.

An IMF official said that given their large financial needs and the slow progress of vaccination, emerging markets may face daunting challenges.

Earlier this year, international investors drifted into emerging market debt, a sudden reversal for several weeks, unchanged since last summer.

In addition, the recent increase in US real yields has also been related to the cost of financing in emerging markets, he said.

With their huge financial needs this year, emerging markets have been made aware of the rollover risk that will be further complicated if domestic inflation rises or global long-term interest rates continue to rise. For many marginal market economies, market access has been impaired, he said.

In response to a question, Adrian stated that in many countries, the corporate sector is emerging from debt-ridden to epidemic, although with notable differences in firm size and economic sectors.

“Whether the economic recovery will be uneven and whether it will suffer from serious effects will depend on the ability and willingness of banks to lend once with the help of governments.

“Concerns about the credit quality and profitability outlook of hard-hit borrowers are likely to reduce the risk appetite of banks. Even if most banks have sufficient capital buffers, only a few may be willing to lend to buffers and support recovery, ”he said.

Adrian said that China has recovered from the crisis more quickly than any other country in the world. The measures that were taken to prevent the epidemic were very quick and effective, and as a result, the Chinese economy already reached crisis levels in 2020 last year, he said.

“And so China is in a very good position; But … there were measures that were deployed that led to further leverage and some weaknesses. Of course, there have been already pre-existing weaknesses in China from the epidemic, such as some weaknesses in small and provincial banks, as well as leverage in some segments of the corporate sector.

“Therefore, having a policy approach that is addressing those weaknesses and wants to stimulate the economy on the one hand, but doing so in a way that is safe on the other side, and therefore easier policy and intergovernmental trade in between Getting this balance in the medium-term buildup of vulnerabilities, getting this balance in the policy mix right, is a very first order, ”said Adrian.