Capital Flows During the Pandemic: Lessons for a More Resilient International Financial Architecture

Abstract

This paper studies the sudden stop in capital flows that emerging markets experienced throughout the first months of the pandemic. First, we find that the sudden stop in capital flows was strongly affected by lower portfolio investments by non-bank financial intermediaries: for many emerging markets, the magnitude of the sudden stop exceeded that of the Global Financial Crisis. Second, we show that emerging markets adopted expansionary fiscal and monetary policies to deal with the sudden stop and the resultant recession; moreover, the use of macroprudential measures and unconventional monetary policy are part of a wider policy toolkit, compared with other crises. Third, we estimate the adequacy of current IMF resources if emerging markets were hit by a systemic sudden stop. We find that the IMF's resources are adequate in the event of a moderate sudden stop; in the event of a more severe scenario, the financing needs of emerging markets could go beyond the IMF's lending capacity, even after the other layers of the global financial safety net have been deployed.

Disruptive financial innovations: the case of Nigerian micro-entrepreneurs

“…First, these crises have generated disruptive forces and reforms of the international financial architecture and the greater awareness of need to increase financing options or alternative for investment projects (Eguren-Martin et al , 2020). The global economic crisis of 2008 exposed the weaknesses of the traditional financial institutions and consequently led to the rise of informal financial institutions and financial start-ups (FinTech) to meet the fast-growing financial needs of the private sectors, particularly small and medium-sized enterprises (SMEs) and or micro-entrepreneurs.…”