The International Monetary Fund (IMF) is warning that continued government support for the corporate sector will be necessary for countries to emerge from their economic doldrums and for companies to rebound.
That was highlighted on Tuesday by IMF Counsellor Tobias Adrian, as he presented the Global Financial Stability Report during a press briefing on day two of the 2021 IMF Spring Meetings, which are being held virtually for the second year as a result of the COVID-19 pandemic.
Adrian said a range of policy measures is needed to address vulnerabilities within companies and to aid economic recovery.
The IMF has revised upwards, its global economic growth outlook for this year, predicting that the world economy will expand by six per cent, up from the 5.5 per cent it had estimated in January.
Zeroing in on the corporate sector across economies, Adrian said in addition to addressing vulnerabilities, the repairing of balance sheets remained a priority.
“The corporate sector is going to be a policy priority for our membership going forward…. So what we are seeing is that in countries where the recovery is taking longer to be realized, the stress on the corporate sector is higher. That is particularly so in contact-intensive industries – tourism has been hit extremely hard, but also entertainment and restaurants are particularly adversely impacted by this crisis,” he said.
“We do hope that governments are able to bridge the recovery and provide the kind of policy framework to assess which companies should get additional support in terms of equity, or should have a restructuring of their liabilities. And, of course, there are some companies that do need resolve as well, so these are key priorities,” Adrian added.
Stating that this development in the corporate sector would “impact the health of the banking sector”, the director of the IMF Monetary and Capital Markets Department said that “having a very timely and holistic view that is data sensitive and is collecting all the necessary information for further policy steps is key”.
“So, to the extent that countries can provide further fiscal support that would certainly be helpful in order to bridge the recovery and get economies back on track, including in the corporate sector,” Adrian added.
In the 92-page Financial Stability Report, Pre-empting a Legacy of Vulnerabilities, IMF directors highlighted that emerging markets and developing economies with market access should take advantage of easy financing conditions while they can.
They said the ability of banks to lend will be crucial for the success of their recovery, while emphasizing the importance of continued international cooperation “to overcome the pandemic and strengthen the recovery”.
“In addition to ramping up production and ensuring access to vaccines worldwide, ensuring that financially constrained countries have adequate access to international liquidity will be important. Collective solutions are also essential in the areas of climate change, international tax policy, and international trade. The IMF will continue to play a critical role,” the document added.
Adrian pointed out that given their large external financing needs and slow progress on vaccinations, emerging markets and developing economies were likely to face “daunting challenges” in the months ahead.
However, highlighting that the IMF has been playing a critical role over the past year in providing financial support to its member states, Adrian added that the Washington-based lending institution stood ready to provide additional financing to any member state that needed it.
In addition to its regular drawdowns from the IMF under the Barbados Economic Recovery and Transformation (BERT) programme, Barbados was approved for an additional $180 million in mid-2020 under the Extended Fund Facility to help it cope with the effects of the COVID-19 pandemic.