The Role of IMF in the Fight Against COVID-19: The IMF COVID-19 Recovery Index

The COVID-19 pandemic came as an unprecedented shock to the world economy and many countries had to quickly resort to aid from the International Monetary Fund (IMF). The central banks and finance ministries of most advanced economies swiftly advanced swap lines, domestic liquidity support, and expansionary fiscal measures to shore up dollar markets and provide lifelines to the vulnerable. Few emerging markets and developing countries had access to these measures and lacked their own monetary or fiscal space to confront the virus, protect the vulnerable and mount a sustainable recovery. The pandemic panic and very act of securing dollar markets resulted in a ‘flight to safety’ in the form of the largest levels of capital flight from emerging market and developing countries recorded. Exchange rates subsequently plummeted and external debt ballooned across the developing world at a time when tourism dropped alongside commodity prices—leaving fewer sources of export revenue to pay foreign debt.

A new journal article published in Covid Economics by Kevin P. Gallagher and Franco Maldonado Carlin details an IMF COVID-19 Recovery Index that attempts to quantify the extent to which International Monetary Fund (IMF) communications and guidance on the pandemic response have become operationalized in the IMF response to the COVID-19 crisis. The study discusses the methodology and preliminary results of the analysis covering 75 IMF programs implemented between March-July 2020, and outlines a research agenda for using this new variable to examine IMF policy behavior and social outcomes.

On April 9, 2020, IMF Managing Director Kristalina Georgieva stated “These are the times for which the IMF was created – we are here to deploy the strength of the global community, so we can help shield the most vulnerable people and revitalize the economy” and committed the IMF to a four-point “all hands on deck approach to the crisis that would focus on supporting health systems, protecting vulnerable firms and people, containing financial panic and mounting a recovery.” Over ten times between April-July 2020, Georgieva and senior staff stated that “for our world is to become more resilient—we must do everything in our power to promote a ‘green recovery.’” Expanding on this notion, IMF Deputy Managing Director Tao Zhang emphasized that a green recovery should promote a just transition, meaning assisting vulnerable households, workers, regions and trade-exposed or fuel producing firms and using carbon pricing revenues in broad tax reductions or public investments that boost growth and benefit all households. 

To back up these statements, the IMF’s Fiscal Affairs Department developed and published a set of guidances, called Special Series on COVID-19, oriented to assist countries in their responses to the pandemic. Among these, Gallagher and Maldonado highlight the following three given their parallels with the top-level guidance in Managing Director speeches and remarks:

  • Health expenditure: Outlining principles and considerations that countries should take into account in the design of actions oriented to support the monitoring, containment, and mitigation of the pandemic.
  • Support for the vulnerable: Highlights different sets of fiscal measures and considerations that countries should take into consideration in the design of programs oriented to support the most vulnerable (firms and households) to address the consequences of the shock.
  • Greening the recovery: This document highlight different measures oriented to support a green recovery. Among the possible measures, the IMF considers that the governments could finance ‘green’ activities, rather than “brown” ones; like climate-smart infrastructure and technologies, support adaptation, or avoid carbon-intensive investments. In addition, governments could raise carbon taxes and eliminate fossil fuel subsidies, in the context of low oil prices and fiscal reallocation needs.

Gallagher and Maldonado’s preliminary research indicates the IMF is prioritizing health and social spending during, albeit more so in programs where it has leverage over the implementation of such recommendations. However, IMF support for greening the recovery has not matched the rhetoric from IMF leadership or from fiscal guidance notes issued by the IMF Fiscal Affairs department at the time of study.

The IMF COVID-19 Recovery Index will be updated in real time on the internet, and eventually be used in econometric exercises that examine the extent to which IMF support for confronting the virus, protecting the vulnerable and mounting a green recovery is associated with those desired outcomes.

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