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This paper, prepared by a working group of IMF staff, provides a preliminary assessment of the risks and potential impact to the global economy and financial system from a possible avian flu pandemic, discusses the IMF’s role in helping member countries prepare their economic and financial systems for such a pandemic, and summarizes common elements of business continuity planning in the financial sector
1. There is growing concern about the possibility of an avian flu pandemic (AFP) and its implications for humans and the global economic and financial system. While such pandemics are not new—the last one occurred in 1968—health experts are particularly concerned about the current strain of the virus (H5N1). This strain has spread quickly in bird populations, caused high mortality among poultry, and occasionally infected humans, with about half of the cases proving fatal. But human infections remain rare as the strain has not been spreading easily from birds to humans, nor has it been spreading from person to person.2
5. If the pandemic is severe, the economic impact is likely to be significant, though predictions are subject to a high degree of uncertainty. The severity of a pandemic will, inter alia, depend on its attack and fatality rates,4 its duration, and the behavior and preparedness of households and firms, as well as the capacity and preparedness of health care systems. A pandemic similar to the 1918 Spanish flu could result in high levels of illness and death, and a sharp but only temporary decline in global economic activity (Box 1). Economic disruptions on the supply side would come directly from high absenteeism, as people may be asked to stay at home, or may choose to do so to care for sick relatives or because of fear of being exposed themselves. There may also be disruptions to transportation, trade, payment systems, and major utilities, exposing some financially vulnerable enterprises to the risk of bankruptcy. Moreover, demand could contract sharply, with consumer spending falling and investment being put on hold. Financial repercussions could further exacerbate the economic impact.
12. The need to help prepare for a pandemic is becoming an important focus for many governments and international organizations, including the Fund. At the Beijing International Conference, US$1.9 billion was pledged to support efforts at all levels to help fight avian flu and prepare for a possible human flu pandemic. The World Bank, the World Health Organization, the Food and Agriculture Organization, and the World Organization for Animal Health are taking the lead in preparing a global coordinated response strategy on the possibility of an avian flu crisis, and helping members improve surveillance and control capacity and to develop national action plans that focus primarily on human and animal health.
The proposed three-month extension would enable conclusion of the discussions for the review. In the past months, the authorities and staff have made progress towards completion of the review, but further discussions are needed in some areas, including the issues described above. The requested extension would provide the time needed to reach staff-level agreement in these areas, and, if needed, build broader consensus in the country on the agreed policies. The conclusion of the outstanding fourth program review could, in staff's view, also provide an opportunity for the authorities to request a rephasing of the fifth and sixth reviews and a further extension of the arrangement.
KEY ISSUESBackground. The Ebola outbreak that started in one district in late May has spread to theentire country, overwhelming already weak institutions and ill-equipped medical facilities. At end-August, over 1000 people were infected and more than a third had died from the disease. The country�s social and economic fabric is also adversely affected by the epidemic. Economic growth has slowed, inflationary pressures have intensified, and new balance of payments and fiscal financing needs have emerged. The epidemic has heightened food insecurity and impacted livelihoods for a large portion of the population, generating additional distress for vulnerable groups.The program. In October 21, 2013, the Executive Board approved a three-year arrangement under the Extended Credit Facility (ECF) for Sierra Leone totaling SDR 62.2 million (60 percent of quota). The first review under the program was completed on June 19, 2014. Preliminary indications are that performance under the program is on track, in spite of weaknesses in budget execution at end-June.The authorities� requests. In the attached letter of intent, the Sierra Leone authorities are requesting an Ad Hoc review under the ECF arrangement, and an augmentation of access in an amount equivalent to 25 percent of quota (SDR 25.925 million), in a single disbursement. These resources, together with contributions from other donors will help cover balance of payments and budgetary financing needs generated by the Ebola epidemic. The authorities are also requesting a modification of end-December 2014 performance criteria on net domestic bank credit to the central government, and on net domestic assets of the central bank.Safeguard assessment. A safeguards assessment of the Bank of Sierra Leone (BoSL) was completed in March 2014. The BoSL is taking steps to strengthen its safeguards framework and staff is monitoring implementation of the recommendations from the assessment.Staff views. Staff supports the completion of the Ad Hoc review, and the authorities�requests.
EXECUTIVE SUMMARYGuinea is suffering from an outbreak of Ebola, which has become a humanitarian crisis with a significant economic impact. Preliminary estimates suggest a negative impact on 2014 growth, which will be markedly lower. Government revenue is showing a substantial shortfall and the response to the Ebola outbreak entails additional critical spending needs. The exchange rate has started to depreciate. The authorities intend to adopt a tighter monetary policy to address the transitory balance of payments shock.Performance under the ECF-supported program has remained satisfactory. Preliminary data indicate that all performance criteria (PCs) under the program for end-June 2014 were met. There has also been further progress with structural reform.The authorities have requested additional IMF financial assistance to meet urgent fiscal and balance of payments needs not anticipated at the time of the recent program review. Such assistance cannot be provided in the form of an augmentation of access under the ECF arrangement at this time since a review associated with the most recent availability date has not yet been completed because of delays in program implementation associated with the 2013 parliamentary elections. The authorities have requested a disbursement under the Rapid Credit Facility (RCF) because the urgent balance of payments need is characterized by a financing gap that, if not addressed, would result in an immediate and severe economic disruption. Moreover, Guinea�s balance of payments difficulties are caused primarily by a sudden exogenous shock and not by a withdrawal of financial support by donors, and its balance of payments need is expected to be resolved within one year with no major policy adjustments being necessary. As such polices remain guided by the objectives of the ECF-supported program.Staff supports the authorities� request for a disbursement under the RCF of25 percent of quota (SDR 26.775 million). It also supports the authorities� request for a modification of the end-September indicative targets and end-December 2014 PCs underthe ECF arrangement, including program adjustors.