MIL OSI Translation. Government of the Republic of France statements from French to English –
Source: IMF in French
Jihad Azour and Joyce Wong
October 19, 2020
COVID-19 has plunged countries in the Middle East and Central Asia into a health emergency never seen in our lifetime, while causing an unprecedented economic slowdown. The pandemic is exacerbating existing economic and social problems, hence the need to implement very quickly measures capable of countering the threat of sustained degradation of incomes and growth.
As we have shown in our Regional economic outlook, the prompt and vigorous reaction of the public authorities in the region has saved lives, and the authorities have put in place exceptional measures to cushion the shock suffered by economic activity as a result of the containment measures, which does not does not prevent many difficulties remaining.
Thus, we forecast for 2020 a contraction of 6.6% of the GDP of the oil-exporting countries of the MENAP region (Middle East, North Africa, Afghanistan and Pakistan) due to the sharp fall in demand for oil and the price per barrel. The crisis has also hit trade and tourism, wiping out much of the gains from lower oil prices for oil-importing countries in the MENAP region, whose GDP is expected to contract by 1%. The Caucasus and Central Asia (CAC) region is also affected: according to our forecasts, its GDP should contract by 2.1% in 2020, due to a significant decline in activity in the oil importing countries in the region.
As the region experiences serious geopolitical tensions, countries are grappling with declining fiscal revenues, rising debt, rising unemployment, and growing poverty and inequality.
While most countries are expected to return to growth by 2021, the outlook remains worrisome.
Oil exporters are likely to continue to suffer from weak demand and abundant stocks; moreover, while the OPEC + agreements have helped stabilize prices, they should remain 25% below their 2019 average.
The threat of serious economic damage, ie long-term losses to growth, jobs and incomes, is a major concern. More specifically, according to our estimates, the GDP of the countries of the region could be in five years at a level 12% below their pre-crisis trend. In addition, countries heavily dependent on tourism, heavily affected, could see their GDP and their benchmark employment decline by 5 percentage points this year, the effects may be felt over the next 2 to 5 years, while the poverty could increase by more than 3½% in 2020 if remittances do not recover.
The pandemic will exacerbate the serious challenges facing fragile and conflict-ridden states, and could foster social unrest. The poor living conditions of refugees and internally displaced people could also favor the emergence of new outbreaks of COVID-19.
In many countries, budget deficits and debt have increased in proportions not seen in twenty years (see graph), making the region vulnerable to a resurgence of the virus, given the likely increase in spending needs and the foreseeable fall in tax revenues. The widening deficits will also lead to a median increase in the region’s financing needs of 4.3% of GDP.
The crisis has also increased the risk of corporate default and the credit risk for banks: losses could amount to $ 190 billion, or 5% of GDP. Left unchecked, these trends could threaten financial stability and hinder progress towards greater financial inclusion.
These difficulties are considerable and the future more uncertain than ever; nonetheless, we believe that it is possible to chart a course for recovery. While continuing to limit the damage of the pandemic, policymakers must pay more attention to planning and financing the recovery to come: they must therefore redouble their efforts to build the foundations of a more environmentally friendly economy. , more inclusive and more resilient.
For the time being, combating the pandemic and protecting income remain top priorities. As the threat to public health diminishes, countries will need to focus on fostering inclusion and addressing vulnerabilities, adopting well-calibrated solutions that support economic activity without taking unnecessary risks. Countries with some fiscal space, such as some oil-exporting countries, would do well to implement larger stimulus packages to stimulate demand. Authorities in countries without such leeway should reorient spending with a focus on health, education and social spending. As the recovery takes hold, countries will need to rebuild their margins and seek to make their tax systems more equitable, while ensuring that public money is spent as well as possible.
It is essential to guarantee access to health care for all workers in the region, especially in oil-exporting countries with large numbers of foreign workers. The extension of aid schemes to small and medium-sized enterprises and start-ups must also be a priority for oil-exporting countries, which can thus ensure that future economic prosperity is more inclusive. It will be just as crucial to accelerate the diversification of the economy and to invest in the future of young graduates: this is one of the lessons of the crisis we are going through. To achieve this, it will be necessary to create an institutional environment conducive to private sector growth; the public sector must play a facilitating role, setting clear rules of the game, eliminating unnecessary red tape and combating corruption.
At the same time, oil-importing countries must constantly strengthen their social protection systems, improving their coverage and using digital technology to better target beneficiaries. Fostering recovery will require addressing the problems caused by the crisis, in particular the high level of debt and the depletion of the buffers. In addition, to better resist future shocks, many countries would benefit from overcoming their excessive dependence on tourism (such as Georgia, Jordan and Lebanon) and remittances (such as the Kyrgyz Republic, Tajikistan, Egypt and Pakistan).
Finally, the existential threat posed by climate change today will have serious consequences for the region, and especially for the oil-exporting countries, which will undergo a profound transformation of their economies. Through investments in green infrastructure and innovation, coupled with a steady increase in carbon prices, the region will not only be able to take its share of reducing global greenhouse gas emissions, but also create jobs. and usher in a new era of economic growth.
We need multilateral cooperation more than ever to guide our steps on this difficult and uncertain path. It is by joining forces that governments, non-governmental organizations, international institutions and citizens can lay the foundations for a better future.
As they work to save lives and begin to rebuild their economies, countries in the Middle East and Central Asia can count on IMF support. In addition to its advice (a) and technical assistance, the IMF has provided new funding to the tune of 17 billion dollars since the beginning of the year, including 6 billion in the form of emergency aid paid to 10 countries in the MENAP and CAC regions: the IMF’s outstanding credit to countries in the region has thus increased by almost 50%. We will continue to be present during this difficult time.
The year 2020 will undoubtedly be remembered as a year of suffering for far too many people. But we will also not forget that this was the period when our region reaffirmed its commitment to lay the foundations for a better, more environmentally friendly and more inclusive future.
Jihad Azour heads the Middle East and Central Asia department of the International Monetary Fund; in this capacity, he oversees the activities of the IMF in the Middle East, North Africa, Central Asia and the Caucasus.
Minister of Finance of Lebanon between 2005 and 2008, Mr. Azour orchestrated the implementation of important reforms, such as the modernization of the tax and customs systems. Before and after his tenure as Minister, he held numerous positions in the private sector, most notably at McKinsey and Booz and Co., where he was Vice President and Executive Advisor. Before joining the IMF in March 2017, he was managing partner of the investment company Inventis Partners.
Mr. Azour studied at the Institute of Political Studies in Paris and obtained a doctorate in international finance and a graduate degree in economics and international finance. As a postdoctoral fellow at Harvard University, he has conducted research on emerging countries and their integration into the global economy. Mr. Azour has published several books and articles on financial economics, and has taught extensively.
Joyce Wong is a Senior Economist in the Regional Analysis and Strategy Division of the IMF’s Middle East and Central Asia Department. Previously, she was an economist in charge of Argentina, Jamaica and other Central American countries in the Western Hemisphere department of the IMF. She holds a doctorate in economics from New York University; his research focuses on inequalities, labor force and household decisions throughout their life cycle.
EDITOR’S NOTE: This article is a translation. Apologies should the grammar and / or sentence structure not be perfect.