Active Stocks
Thu Feb 29 2024 15:49:54
  1. Kotak Mahindra Bank share price
  2. 1,690.80 0.43%
  1. Axis Bank share price
  2. 1,075.70 0.10%
  1. Tata Steel share price
  2. 140.90 0.11%
  1. Power Grid Corporation Of India share price
  2. 282.55 1.07%
  1. ITC share price
  2. 406.50 -0.51%
Business News/ News / India/  Emerging markets like India staring at prolonged health, economic crises: IMF
BackBack

Emerging markets like India staring at prolonged health, economic crises: IMF

Chief among many risks is the possibility of a more prolonged health crisis, which would hurt more lives and could have dire economic consequences
  • As the crisis develops, there is also a high risk that liquidity problems morph into solvency concerns.
  • IMF said covid-19 is still to play out fully in the emerging markets universe, posing risks to both people and economies (REUTERS)Premium
    IMF said covid-19 is still to play out fully in the emerging markets universe, posing risks to both people and economies (REUTERS)

    NEW DELHI: The International Monetary Fund has said emerging market (EM) economies like India are likely to face an uphill task in reviving their economies as their outlook remains clouded by considerable uncertainty, given the persistent spread of the coronavirus pandemic and rising corporate default risks.

    "Chief among many risks is the possibility of a more prolonged health crisis, which would hurt more lives and could have dire economic consequences. As the crisis develops, there is also a high risk that liquidity problems morph into solvency concerns. Besides sovereign debt stresses, corporate default risks are alarmingly high in a number of emerging market economies," IMF economists said in a blogpost.

    Moreover, the crisis has hit poor people much harder, and this increase in inequality will amplify policy challenge in many countries, it said.

    Aware of the rising risk of corporate defaults, the Reserve Bank of India (RBI) on Thursday permitted a one-time loan restructuring of stressed accounts, allowing banks a special window to recast stressed retail and corporate loans without classifying them as non-performing, giving a breather to pandemic-hit borrowers. The central bank set up an expert committee under veteran banker K.V. Kamath to set the sector specific benchmarks for the special window.

    The IMF said covid-19 is still to play out fully in the EM universe, posing risks to both people and economies. “While countries such as China, Uruguay, and Vietnam have managed to contain the virus, others such as Brazil, India, and South Africa continue to grapple with a rise in infections," it added.

    In June, the IMF estimated Indian economy to contract by 4.5% in FY21, while Goldman Sachs expected the June quarter to be the worst, with GDP shrinking by 45% as business activity came to a standstill for at least two months due to stringent lockdown measures.

    The multilateral lending institution said policy support by advanced economies has provided EM economy policymakers with wiggle room to soften the economic blow.

    “Unlike previous episodes, where emerging market economies tended to tighten policy to avoid rapid capital outflows and the inflationary effect of exchange rate depreciations, the current crisis has seen emerging market economies’ policy reaction more in line with that of advanced economies. Most emerging market economies used reserve buffers more sparingly and allowed exchange rates to adjust to a larger extent, while many countries injected liquidity as needed to ensure market functioning," it added.

    RBI has cut its policy rates by 115 basis points this year, taking the repo rate down to 4%, the lowest since it was introduced in 2000. On Thursday, it left interest rates unchanged amid rising inflation and stayed on the path of accommodative monetary policy.

    IMF said that having exhausted traditional fiscal, monetary and external policy support, dwindling policy space may force some EM economies 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," it cautioned.

    Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

    Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Check all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates.
    More Less
    Published: 07 Aug 2020, 01:23 PM IST
    Next Story footLogo
    Recommended For You
    Switch to the Mint app for fast and personalized news - Get App