Source: Socialist Republic of Vietnam
In countries like Iran, Saudi Arabia, Egypt, and Algeria, the number of new infections are increasing. The Institute of International Finance (IIF) has recently forecast that the Middle Eastern – North African economic area’s growth could drop by 2.4 percentage points and would only grow by 0.8% this year, marking its lowest growth since the early 1990s.
According to IIF, the global recession will lead to a decline in trade, foreign direct investment, tourism and remittance sources of countries such as Egypt, Jordan, Morocco, and Lebanon. Notably, Egypt will witness a sharp decline in revenue from the Suez Canal.
Nine major oil exporting economies in the Middle East and North Africa are forecast to lose a total of about US$192 billion this year due to plummeting oil prices. These countries are at risk of record budget deficits and rising public debt.
The current account balance of the region’s oil-dependent economies will shift from an average of US$65 billion in 2019 to a deficit of US$67 billion in 2020, while the budget deficit will increase from 2.9 to 9.1% of GDP.
“Black clouds” are covering these economies where the Covid-19 epidemic is disrupting the supply chain, with many businesses having to close. The sharp drop in oil prices combined with prolonged drought could cause great damage to the economy of Algeria, one of the countries that depends greatly on its “black gold” revenues. This North African country’s oil revenue in 2020 is expected to reach US$20 to 30 billion, compared with US$ 36 billion in 2019 and US$42 billion in 2018. The budget deficit of this country could double from US$12.8 to US$25 billion.
With the risks caused by the pandemic and falling oil prices, the International Monetary Fund (IMF) has called on governments in the region to take drastic action. The Covid-19 pandemic became the biggest short-term challenge when it rocked the regional economy through a series of shocks such as declining internal and external demand, falling trade, disrupted production, reduced consumption and tightened financial conditions. Occupations that are the main sources of labour use, such as tourism, hotels and retails, are severely affected and are experiencing rising unemployment.
The IMF also lowered its growth forecast for the Middle East due to fluctuating oil prices, instability and US sanctions on Iran. The financial institution urged governments in the region to quickly provide bailouts in response to a potentially prolonged recession.
Foreign capital flows into the Middle East and North Africa is expected to decrease from US$182 billion in 2019 to US$101 billion in 2020. Saudi Arabia, the country affected by the double effects of the Covid-19 epidemic and oil prices plummeting with economic activities stalled, announced emergency economic stimulus measures ofup to US$32 billion. The Iranian government has allocated nearly US$24 billion to support the economy, which has been plagued by US sanctions.
This year’s global economy is expected to fall into a more severe recession than during the 2008-2009 financial crisis. Therefore, most countries in the Middle East and North Africa, which are suffering double losses due to the pandemic and low oil prices, have to work harder to overcome the “storm”.