International Monetary Fund Chief Economist Gita Gopinath has called upon governments to move their “equity-like” support from one that is focused on loans.

The announcement arrived as numerous firms battle the protracted implications of the coronavirus pandemic. 

Gopinath said the wide disruptions caused by the global health crisis will lead to more companies going bankrupt after suffering losses in revenues for months. 

Government support, particularly loans, would help such companies with piling debt, which acts like a tax making it difficult for companies to resurface from the crisis, Gopinath said. 

“Because there’s a bigger insolvency issue here, government support would have to shift more towards being equity-like as opposed to debt-like. Otherwise, you would end up with a lot of firms that exit this crisis with a huge amount of debt over-hang,” she said.

“If the lending takes form more like equity ... then that’s less onus on the firms. That will make it easier for firms to recover from the crisis,” Gopinath said in a webinar co-hosted by the IMF and the University of Tokyo on Friday.

Gopinath did not specify how this form of financial aid would work. 

She noted that any global economic recovery will be “highly uneven and highly uncertain”, urging countries to continue working on aggressive fiscal and monetary stimulus packages in order to sustain their economies. 

The IMF has stated that the current global recession is the worst wince the Great Depression in the 1930s. In its latest forecasts made in June, it said it expects 2020 global production to contract by 4.9%, compared to an initial 3.0% projection in April. 

 

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