The global economy is facing uncommon situations such as market volatility, defaults and evolving regulations amid COVID-19 to create a major alteration in the financial sector.
The first deputy managing director of the International Monetary Fund (IMF), Geoffrey Okamoto says that individuals, businesses and countries have to adapt their financial aspect as per the changes happening due to the pandemic.
Mr. Okamoto points out in a report for IMF that ‘in the COVID-19 world, risk has become riskier’ and the fluctuation in market conditions that occurred in the beginning stage of the pandemic outbreak will impact the risk management models especially in the area of liquidity and capital buffer.
The policymakers are aiming to avoid such volatility recurrence and to reduce situations that force the monetary authorities to intervene for balancing the market functioning.
The sudden fall in income and crisis occurred is also going to create changes in individuals’ risk management perceptions which would lead to maintaining higher precautionary savings.
Individuals having high risk in their health will make severe changes in their consumption patterns and also people may tend to invest more into essential goods in a fear of new movement restrictions and lockdowns.
The pandemic has created social as well as economic challenges which bring new uncertainties for companies including lack of supplies which leads to choosing multiple supply chains or hoarding more supplies, limited employees and risk of their health.
Changing suppliers, stockpiling inventories or introducing new machinery will involve more investment for manufacturers but in the current scenario raising the price to overcome the thin profit margin is also difficult.
For essential products like medical supplies, the governments may change laws and subsidize their domestic production altering the competitive landscape.
Geoffrey Okamoto First Deputy Managing Director – IMF
“Finding a new equilibrium between risk and resilience when there is so much uncertainty is a challenge we will face far into the future. It will require effort, patience and innovative thinking. Fundamentally we will require more global cooperation. Everyone will be safe only when each one is safe.”
According to the IMF, one of the solutions is to improve risk assessment and management in the household, business and national level.
