“The success and pace of recovery will depend crucially on policies undertaken during the crisis. If policies ensure that workers do not lose their jobs, renters and homeowners are not evicted, companies avoid bankruptcy, and business and trade networks are preserved, the recovery will occur sooner and more smoothly”

Dell’Ariccia et al. (2020)

The COVID-19 is presenting unprecedented challenges for the economy. The (well-deserved) stringent measures that are being taken to slow down the spread of the disease are putting entire sectors of the economy in distress. Fortunately, it is likely that the COVID-19 disruption will be temporary. Unfortunately, large sectors of the population are losing their income sources at a fast pace, and business are experiencing enormous financial distress as their revenues are halted.

Governments around the world are taking measures to shield the economy during the contingency. Some measures include subsidizing salaries of closed business, providing (un)employment benefits, and subsidizing loans or providing grants so business can stay afloat. Those who live paycheck to paycheck, require immediate support to fulfill their basic needs. Business also require support, as a job that is lost due to a business going bankrupt will not be recovered after the epidemic has ended.

The crisis affects government finances two-fold. Their expenditure requirements increase to provide the aforementioned measures, meanwhile their tax revenues are significantly decrease as the economic activity decreases. There is a large need for government funding, but financing alternatives are scarce.

International Financial Institutions are rapidly taking measures to inject liquidity into the public and private sectors of countries in distress. We provide below a list of measures and programs that are being undertaken by several International Financial Institutions.

The World Bank (WB)

  • The World Bank will provide up to $160 billion in support to client countries over the next 15 months.
  • One component will be $6 billion for expedited loan guarantees from the Multilateral Investment Guarantee Agency (MIGA). This will enable the purchase of urgent medical equipment and provide working capital for companies, including smaller businesses, while also supporting governments’ short-term funding needs.
  • Special provisions for fast-track financing are allowing an initial group of World Bank projects totaling $1.9 billion to get underway quickly in 25 countries. Bank teams are also working with clients to rapidly redeploy a further $1.7 billion from existing projects to urgent pandemic response and recovery.
  • Emergency financing includes $8 billion from the International Finance Corporation (IFC), where work is underway to help the private sector cope with the pandemic.

International Monetary Fund (IMF)

  • Provision of Emergency Financing through the Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI).
    • RCF provides financial assistance to low income countries facing an urgent balance of payments need without ex-post conditionality. Limited to 50 percent of quota per year and 100 percent on cumulative basis. This amount could go up if the damage caused by a natural disaster exceeds 20% of GDP. This loan has zero interest-rate, a grace period of 5.5 years, and a maturity of 10 years. There is $10 billion available for RCF.
    • RFI provide financial assistance facing an urgent balance of payments need. Requesting country is required to cooperate with the IMF to make efforts to solve its balance of payments difficulties and to describe the general economic policies that it is supposed to follow. It is available to all members. It does not require to have a full-fledged program in place. Access to the RFI is limited to 50 percent of quota per year and 100 percent on cumulative basis. This amount could go up if the damage caused by a natural disaster exceeds 20% of GDP. Same financing terms as Flexible Credit Line, and Precautionary and Liquidity Line. Should be repaid within 3.5-5 years. There is $40 billion available for RFI.
  • Catastrophe Containment window. The IMF can provide debt relief grants for poorest and most vulnerable countries to help address public health disasters. The relief on debt service frees additional resources to meet exceptional balance of payments needs created by the disaster, and for containment and recovery efforts. Countries eligible are those below IDA operational threshold and have experienced a cumulative loss of 10 point of GDP, or a cumulative loss of revenue and increase of expenditure equivalent to at least 10 percent of GDP. The amount of grant support is typically capped at 20% of the country’s quota.
  • The IMF can also provide support trough augmentation under existing programs and new financing arrangements, although they are generally more expensive than the alternatives and might be conditional to policy changes.

European Investment Bank (EIB)

  • Provision of guarantee schemes to banks based on existing programs for immediate deployment, mobilizing up to €20 billion of financing.
  • Provision of liquidity lines to banks to ensure additional working capital support for Small and Medium Enterprises (SMEs) of €10 billion.
  • Provision of asset-backed securities (ABS) purchasing programs to allow banks to transfer risk on portfolios of SME loans, mobilizing another €10 billion of support.
  • The EIB is also discussing a €25 billion guarantee fund to scale up its support for companies in all 27 EU Member States by an additional up to €200 billion.

European Bank for Reconstruction and Development (EBRD)

  • Development of a package to provide up to €1 billion to clients suffering temporary difficulties.
  • Expanding trade finance and where required short term (up to 2 years) financing through financial institutions, notably in support of SMEs.
  • Provision of short-term (up to 2 years) working capital facilities for corporates and energy developers.
  • Balance sheet restructuring and short-term liquidity support for sub-sovereign municipal, energy and infrastructure clients.
  • Restructuring of existing loans adjusted repayment schedules, collateral, interest rates and fee structures.

Asian Development Bank (ADB)

  • The ADB announced a $6.5 billion initial package to address the immediate needs of its developing member countries.
  • The initial package includes approximately $3.6 billion in sovereign operations for a range of responses to the health and economic consequences of the pandemic, and $1.6 billion in non-sovereign operations for micro, small, and medium-sized enterprises, domestic and regional trade, and firms directly impacted.

Inter-American Development Bank (IDB)

  • Reprogramming its existing portfolio of health projects to address the crisis
  • Directing $3.2 billion more to the lending program initially stipulated for 2020. These funds, added to the available resources already programmed for this year, would make up to $12 billion available to countries for the purpose of responding to the health crisis and its consequences.
  • Governments can also request the redirection of resources from projects in execution in other sectors to meet needs related to the virus. These resources could total up to $1.35 billion.
  • IDB Invest, the private sector institution of the IDB Group, will contribute up to $5 billion in 2020. Of that total, $4.5 billion will come from its investment program, focusing on companies impacted by the crisis. The other $500-million will be directed towards a Crisis Mitigation Facility targeting investments that provide a direct response to the pandemic through health and health-related sectors and access to short-term lending for small and medium-sized enterprises through financial institutions and supply chain finance.

Islamic Development Bank (IsDB)

  • The Board of Executive Directors of the Islamic Development Bank (IsDB) has approved US$ 2,279.5 billion for the IsDB Group Strategic Preparedness and Response Programme for COVID-19 pandemic. The Programme envisages a holistic approach in the short, medium and long term, accommodating priorities beyond the immediate and emergency response to the health sector, while putting Member Countries back on the path of economic recovery through restoring livelihoods, building resilience and kick-starting economic growth.

African Development Bank (ADF)

  • The African Development Bank (AAA) has raised $3 billion in a three-year bond to help alleviate the economic and social impact the Covid-19 pandemic will have on livelihoods and Africa’s economies.
  • There will be a comprehensive response that will soon be announced.

Asian Infrastructure Investment Bank (AIIB)

  • The AIIB is proposing a Crisis Recovery Facility that will offer an initial USD5 billion of financing to both public and private sector entities facing serious adverse impacts as a result of the pandemic. The facility is designed to be flexible and adaptive to emerging demands. It will offer dedicated financing for the next 18 months for qualifying projects within its membership. The size of the facility could be increased depending on client demand.

CAF - Banco de Desarrollo de América Latina

  • CAF made available the Emergency Credit Line of rapid disbursement of up to USD 2.5 billion, which will allow authorities to offer a rapid and timely response to mitigate the effects of COVID-19’s expansion, and contribute to the continuity of business operations and the recovery of economic growth.

Sources

Dell’Ariccia, Mauro, Spilimbergo, and Zettelmeyer. “Economic Policies for the COVID-19 War”. IMF Blog. 2020. https://blogs.imf.org/2020/04/01/economic-policies-for-the-covid-19-war/

WB - https://www.worldbank.org/en/news/feature/2020/04/02/the-world-bank-group-moves-quickly-to-help-countries-respond-to-covid-19

IMF - https://www.imf.org/en/About/Factsheets/Sheets/2020/02/28/how-the-imf-can-help-countries-address-the-economic-impact-of-coronavirus

EIB - https://www.eib.org/en/about/initiatives/covid-19-response/index.htm

EIB - https://www.eib.org/en/press/all/2020-094-eib-group-moves-to-scale-up-economic-response-to-covid-19-crisis.htm

EBRD - https://www.ebrd.com/what-we-do/coronavirus-solidarity

ADB - https://www.adb.org/news/adb-announces-6-5-billion-initial-response-covid-19-pandemic

IDB - https://www.iadb.org/en/news/idb-group-announces-priority-support-areas-countries-affected-covid-19

AfDB - https://www.afdb.org/en/news-and-events/press-releases/african-development-bank-launches-record-breaking-3-billion-fight-covid-19-social-bond-34982

IsDB - https://www.isdb.org/news/the-islamic-development-bank-group-strategic-preparedness-and-response-programme-for-the-covid-19-pandemic-allocates-us23-billion-to-member-countries

AIIB - https://www.aiib.org/en/news-events/news/2020/AIIB-Looks-to-Launch-USD5-Billion-COVID-19-Crisis-Recovery-Facility.html