The International Monetary Fund (IMF) has noted that although emerging market economies have instituted measures to deal with the impact of the Coronavirus (Covid-19) on their economies, the economies remains clouded by considerable uncertainty.
The Bretton Woods institution in its latest June World Economic Outlook update noted that many emerging market economies including South Africa, eased monetary policy during the cycle.
In a few cases, limited room to cut policy rates further and distressed market conditions induced use of unconventional monetary policy measures for the first time.
These included purchases of government and corporate bonds, although the amounts remain modest so far compared to the larger advanced economies. Conversely, the use of capital flow measures to deter capital outflows has been quite limited so far.
Emerging market economies have relaxed their fiscal stance in an attempt to tackle the health crisis, support people and firms, and offset the economic shocks. While more modest than that of advanced economies, these efforts were significantly greater than during the global financial crisis.
Despite these actions, the IMF said, “the outlook for emerging market economies remains clouded by considerable uncertainty. Chief among many risks is the possibility of a more prolonged health crisis, which would hurt more lives and could have dire economic consequences.
“Confronting a more severe downturn will be challenging because most emerging markets entered the current crisis with limited room for traditional fiscal, monetary, and external policy support. And much policy room has already been used up by actions undertaken in recent months.
“Dwindling policy space may force some countries to take recourse to more unorthodox measures. From price controls and trade restrictions to more unconventional monetary policy and steps to ease credit and financial regulation. Some of these measures—which are also being implemented by some advanced and low-income economies—have significant costs, particularly if used intensively.
“Export restrictions, for example, could seriously distort the multilateral trading system, and price controls hamper the flow of goods to those who need it most.
“The effectiveness of other unorthodox policies will depend on the credibility of the institutions; for instance, whether a country has a track record of credible monetary policy. As we navigate the contours of the ongoing crisis, little time is available to properly analyze the risks and benefits of these actions in a careful manner.”
By Laud Nartey|3news.com|Ghana