The coronavirus has impacted the financial sector in many ways but the common denominator is negative. At this extraordinary time, as a result of negative exposure brought about by the coronavirus, most small financial institutions are closing shop and filling for bankruptcy. Extraordinary times call for a unique approach. In response to Coronavirus, the International Monetary Fund (IMF) has moved with exceptional magnitude and speed to offer financial help to member states to mitigate the adverse effects of the pandemic. Economic sustainability and stabilization, however, will need more than financial help which offers short-term guarantees. For a sustainable recovery, individual countries will have to strengthen their financial institutions by enacting inclusive and resilient policies.
Strengthening financial foundations has the greatest long-term effect on the social and economic wellbeing of people.
How can we Incorporate Financial Support with Capacity Development?
Countries today face challenging policy decisions, in addition to lacking a robust economic foundation and the technical know-how to implement the requisite policies. Consider, for example, the effect of Coronavirus on government budgets, which includes lost revenues, high debt, and massive spending pressure. This makes a shift towards Sustainable Development Goals (SDGs) even more problematic, especially for the most vulnerable and fragile countries that lack the financial muscle to carry out even the most basic form of capacity development.
This is among the main reasons why the International Monetary Fund has been offering real-time and immediate policy development and advice to over 160 member states to solve urgent emergencies like financial supervision, economic governance, cybersecurity, and cash management. Direct, ongoing talks with governments to grow capacity to handle these challenges always goes in tandem with IMF financial help. Thus far, over 90% of states that asked for Coronavirus-related financial help have also received free capacity development assistance in the form of practical tools, policy-oriented training, and technical advice.
How can we strengthen debt management and ensure proper public finance spending?
Protecting revenue streams and business continuity is crucial for countries to maintain and swiftly mobilize domestic resources. As countries increase emergency spending, as a tool to mitigate the adverse effect of the coronavirus pandemic, they should also strive to put in place good governance and robust institutional frameworks so that help can quickly be distributed to those in need – especially the social protection and health expenditure systems. The International Monetary Fund has partnered with budget offices and tax administrations in various countries to assist them to strengthen support and restore operations to households and businesses, without compromising accountability and safeguards.
An even greater problem lies ahead for countries in debt management. As most government revenues decline and emergency spending increases as a result of the Coronavirus pandemic, most countries and organizations are resulting in borrowing to meet their spending needs. Debt levels are now spiking in most countries as a result of higher financing costs and worsened fiscal positions. The Worst hit is the bottom 50 poorest countries. As a swift reaction to cushion these countries and to help them not to fall into further poverty levels, the International Monetary Fund has offered immediate debt relief to 27 member states classified as the poorest so that they could mobilize most of their resources in fighting the Coronavirus pandemic and not in debt repayment.
Debt managers globally are dealing with recording, management, and strategic issues in the Coronavirus environment—and are partnering with International Monetary Fund technical experts to update their debt management systems and strategies. A vital element in this plan is data collection because it offers key information to evaluate the pandemic and associated financial needs. For better debt management, data is crucial.
As countries carefully begin to reopen and resume their normal economic activities, robust financial institutions will help the relevant policymakers to better evaluate the challenges brought about by the COVID-19 pandemic and recommence efforts on strategies that will help in building back better and support opportunities for all—like taking climate action, leveraging digitalization and tackling inequality.
Maintaining close cooperation among countries to build back better and foster a robust recovery.
It is no secret that we are all traveling through uncharted territory trying to adapt to life under the COVID-19 pandemic. Most countries and international bodies like the International Monetary Fund have recognized this and are encouraging the use of virtual platforms to facilitate knowledge sharing and documenting the various actions taken by various countries to fight COVID-19. Drawing from the documented actions, one thing comes out clear, countries need to strengthen their financial institutions for a robust recovery.