In an interdependent world, not all countries are equal but the rich countries try to help the poorer ones through institutions such as the World Bank and the International Monetary Fund or IMF. These institutions lend money to some of the poorest countries in the world, sometimes there is a kicker that they have to buy products from a richer country, but when a country is poor, what choices are there?
Along comes the virus which all countries shut their border to people, one has to remember the biggest export of a poor country will be its people who send money back home to their families and relatives. The countries typically have little resources or if they do have a resource it is tied to the commodity prices which go up and down depending on the world’s economy. Prior to the virus shutdown, the countries had a weak health system, high debt levels and few resources to manage both. With the virus what does a poor country do?
According to an article by Andrea Shalal of Reuters, IMF managing director Kristalina Georgieva said the IMF was going to revise its forecast that the global output would shrink by 3% in 2020 and developing countries would need more than $2.5 trillion to weather the storm.
At the moment, the IMF is going to cover the debt service payments of 25 of the poorest countries for 6 months. The IMF said further assistance was likely needed, but if it cancelled debt payments the IMF’s credit rating and ability to provide low cost funding would be harmed.
Linking to dividend paying stocks, the reasons why the countries are in trouble are always multiple but you can easily apply the same logic to the poorest citizens in your country. Should they be helped? how do you help? what does that mean? When you bring the analysis to companies focus on cash flow – how do they receive it? how much are they getting? is it enough?
There are more questions than answers, till the next time – to raising questions.