No One Left Behind? Assessing the Global Financial Safety Net Performance During COVID-19

The global financial safety net (GFSN) has become increasingly voluminous and complex. The ever-increasing capacity for crisis prevention and liquidity support of emergency financing institutions and arrangements at the bilateral, regional, and global level sums up to a total lending capacity of at least US$ 3.5 trillion (Mühlich, L., B. Fritz, W. N. Kring, and K. P. Gallagher. 2020. The Global Financial Safety Net Tracker: Lessons for the COVID-19 Crisis from a New Interactive Dataset. GEGI Policy Brief 10. Boston: Global Development Policy Center. Also available at:www.bu.edu/gdp/files/2020/04/GEGI-GDP_PolicyBrief_FInal.pdf). This represents a more than tenfold increase to available short-term liquidity compared to before the global financial crisis of 2008/09. Yet despite this tremendous increase in resources, the GFSN remains scarcely utilized throughout the COVID-19 crisis. This article develops a framework, that builds upon concepts in economics and international political economy, to analyze GFSN inefficiencies and to evaluate the utilization of the GFSN. Combining balance of payments models with the concept of regime complexity, we analyze and compare patterns of GFSN utilization in response to COVID-19 with past usage. We ask if the current GFSN is adequately built to efficiently respond to such a crisis. We are especially interested in examining the role that the six existing RFAs between EMDEs play in the GFSN.

The Re-Emergence of Sovereign Spread in Emerging Countries in the Post-Covid-19 Economy

The Covid-19 crisis and its economic consequences for emerging countries have highlighted the role of robust, inclusive, and equitable elements of multiple contingency lines to keep these economies away from falling into a devastating cycle of rising sovereign spread. This study first summarizes the crisis-fighting performance of the IMF and eight major RFAs since the outbreak of Covid-19. Then our theoretical model focuses on the deterioration of market expectations (namely about future global economic growth, funding conditions in key currencies and public default) influence on the sovereign spread, by employing a structural panel Vector Autoregression. The results showed that sovereign spread depended not only on the global and local growth or the external funding environment but on the market sentiment as well. Also, the results pointed out the importance of financial supports by international actors like the IMF and partially the RFAs in managing the sovereign spread.

Whatever it takes? The global financial safety net, Covid-19, and developing countries.

Multilateral financial institutions have pledged to do whatever it takes to enable emerging market and developing countries to fill a $2.5 trillion financing gap to combat Covid-19 and subsequent economic crises. In this article, we present new datasets to track the extent to which multilateral financial institutions are meeting these goals, and conduct a preliminary assessment of progress to date. We find that the International Monetary Fund and the principal regional financial arrangements have made relatively trivial amounts of new financing available and have been slow to disburse the financing at their disposal. As of July 31, 2020, these institutions had committed $89.56 billion in loans and $550 million in currency swaps, totaling $90.11 billion-just 12.6% of their current capacity. The new datasets allow scholars, policymakers, and civil society to continue to track these trends, and eventually examine the impact of such financing on health and development outcomes.