Business in Times of Corona: World Bank and IMF Ready to Assist Low- and Middle-Income Countries

As concerns grow over the impact of the pandemic on less resilient economies, multilaterals such as the World Bank Group (WBG) and the International Monetary Fund (IMF) are readying and deploying emergency response packages. Earlier this week, Kenya received a $60 million World Bank financing facility to help the government design and implement an effective containment policy. A further $14 million was disbursed for the fight against the locust plague that has destroyed crops.

The World Bank and the International Finance Corporation (IFC) earlier this week decided to earmark an initial $14 billion of ‘fast track financing’ to assist countries with their efforts to detect, contain, and treat corona patients, and help private businesses to survive the crisis. The bulk of the $8 billion IFC component is tagged for financial institutions that facilitate cross border trade. IFC CEO Phillipe Le Houérou warned that the impact of the pandemic on economies and living standards will likely outlive the medical emergency phase.

Writing on the bank’s blog, WBG Vice-President Ceyla Pazarbasioglu, urges policymakers to rise to the occasion and act ‘quickly, decisively, and in coordination’. She also outlined a number of steps for developing countries to take immediately such as a boost in health spending and a robust support programme for businesses and families affected by the pandemic.

Meanwhile, the IMF has made $50 billion available to low- and middle-income countries via its rapid-disbursing emergency financing facility. IMF Managing Director Kristalina Georgieva noted that economic growth will likely come in well below forecasted levels and called for a global ‘coordination mechanism’ to accelerate the post-corona recovery. Ms Georgieva emphasised that the IMF’s overall lending capacity amounts to about $1 trillion. She said that the fund is committed to offer assistance to its most vulnerable members, acting in coordination with partner institutions such as the World Bank.

Even if developing nations somehow manage to escape the brunt of the pandemic, a prospect that seems increasingly unlike, they must still deal with its economic fallout. As Ms Georgieva stated during a recent press conference, the corona crisis has hit at the precise moment that growth rates in many frontier and emerging markets were picking up at long last and returning to normal.

That trend has stopped. In a study of the impact of the virus on Africa, the Institute for Strategic Studies (ISS) points to the ‘violent sell-off’ of the South African rand, widely seen as a proxy for emerging market risk sentiment, as an ominous sign of things to come. ISS analysts worry that African countries may experience difficulty in finding the resources needed to combat the virus and shield their economy. In particular, these countries will likely test the limits of China’s benevolence. Given that most – though certainly not all – African countries struggle with fiscal deficits, shaky sovereign risk ratings, and rely on a narrow tax base, governments must cope with severely restrained policy flexibility.

The ISS study also fears that the corona scare may lead some leaders to suggest a delay in the implementation of the African Continental Free Trade Area which, the analysts note, could further curtail medium-term growth.

With the ‘commodity super cycle’ now confined to almost ancient history, demand for the continent’s export staples such as iron ore, copper, and oil is unlikely to pick up soon, depriving countries of income at almost precisely the time it is most needed. Hope that the corona virus might skirt the continent is likely forlorn: whilst still infinitesimally small, infection rates are gathering speed. That follows the now well-known viral script: contagion happens slowly at first, and then suddenly.

It is not entirely unreasonable to fear that whilst China, Europe, and the United States are fighting their own battles with increased desperation, attention to the plight of the developing world will wane significantly. Though most countries in Latin America have at least some room to formulate a decisive response, those in Africa and the less well-off parts of Asia may find little succour should the outbreak arrive in force.

Latin America Prepares

Meanwhile in Latin America, the response to the impending corona outbreak has been varied.

The discount stores that line the Rua 25 de Março in downtown São Paulo report a sharp decline in business. The crowds that normally pack the street have thinned noticeably. On an average business day, Tatiana Vasconcellos, who owns a shop selling religious articles, registers about 500 sales. Now she is lucky to welcome a hundred paying customers to her tiny shop. Elsewhere in the street and the surrounding district, shopkeepers report similarly steep declines in business.

Considered a bellwether of Brazilian consumer confidence, the sentiment on the street worries economists. They fear that the country may struggle to deal effectively with a full-blown outbreak of the corona virus. Over the last ten days, the number of reported cases has ballooned from 34 (March 9) to 642 (March 19).

The government was also slow to recognise the seriousness of the threat. Until a few days ago, President Jair Bolsonaro dismissed corona as a ‘fantasy’ cooked up by the media even as close aides tested positive for the virus. Though he has since taken charge of the still timid federal effort to limit the spread and impact of the contagion, events have forced state and municipal authorities to take the lead and order the closure of schools.

President Bolsonaro was not alone in only belatedly realising the true scope of the threat. In Mexico, President Andrés Manuel López Obrador came under fire for his cavalier attitude to the crisis. He doggedly stuck to his agenda and ignored advice to refrain from greeting, hugging, and kissing adoring fans. Instead, President Obrador suggested people revisit the classic Love in Times of Cholera by Gabriel García Márquez which, he said, offers readers a ‘calming balm’.

The initial head-in-the-sand approach that marked the response to the pandemic in Brazil and Mexico – both ruled by populist presidents – contrasts sharply with the drastic measures taken in Peru and Colombia to limit the spread of the virus. On Wednesday, the Peruvian government imposed a curfew and called out the army to patrol the streets and keep people inside. A brand-new hospital in Lima was set aside to treat corona patients. In Colombia, President Iván Duque declared a state of emergency, sealed the borders, and commended Bogotá mayor Claudia López for ordering a ‘trial lock-down’ this weekend.