Policymakers should prepare for 'pent-up bankruptcies' after COVID-19: Gita Gopinath

Aggressive and swift monetary, fiscal and financial sector policies during the COVID-19 pandemic led to a decline in firms filing for bankruptcies, but policymakers should be prepared for 'pent-up bankruptcies' after the pandemic, IMF Chief Economist Gita Gopinath said.

Sharing International Monetary Fund's (IMF's) World Economic Outlook Update for January on Twitter, Gopinath said unlike previous recessions, firm bankruptcies in advanced economies declined 25 per cent relative to pre-COVID normal due to exceptional policy measures.

Despite historic recession, in 2020 firm bankruptcies in advanced economies declined over 25% relative to pre-Covid normal due to exceptional policy measures, in contrast to previous recessions. Policy makers should prepare for possible "pent-up bankruptcies." pic.twitter.com/auz6m65Mk4

- Gita Gopinath (@GitaGopinath) February 2, 2021

IMF's report had said that aggressive policy measures amidst the pandemic helped prevent worse outcomes during the recession. Cash transfers by governments to households has quickly boosted consumer spending, especially for those with liquidity constraints

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"Transfers to firms, together with credit guarantees and funding-for-lending programs, have prevented bankruptcies that might otherwise have occurred (but also keeping some unviable firms afloat, which could put a drag on overall productivity in the future)," the report had said.

The decline may also reflect moratoria on bankruptcy filings implemented in some countries.

"...bankruptcy frameworks that apportion losses across investors, creditors, and owners will be central to dealing with any backlogs that may arise. Moreover, special out-of-court restructuring frameworks may need to be strengthened (or established) to expedite processing," the report had said.

It forecasted 11.5 per cent growth for India in 2021, making it the only major economy expected to register a double-digit growth amidst the COVID-19 pandemic.

The global economy, the IMF had said, is projected to grow 5.5 per cent in 2021. Vaccine approvals have raised the hope of an economic turnaround later this year, but it warned about surge in coronavirus infections, and said strong multilateral cooperation is required to bring the pandemic under control everywhere and ensure universal access to COVID-19 vaccines.

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