Transcript of the Press Conference on the Regional Economic Outlook Update for the Middle East and Central Asia
IMF News, July 13, 2020
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- Published: July 13, 2020
Regional growth outlook and revisions
- Overall regional growth now projected at -4.7 percent in 2020, which is two percentage points lower compared to the April outlook.
- MENAP (Middle East, North Africa, Afghanistan, and Pakistan) region growth projected at -5.1 percent in 2020, two percentage points lower than in April.
- MENAP oil exporters projected growth at -7.3 percent in 2020, a 3.1 percentage point drop from April forecasts.
- MENAP oil importers projected growth at -1.1 in 2020, largely unchanged from April.
- Caucuses and Central Asia projected growth at -1.5 percent in 2020 and a recovery to 4.4 percent in 2021.
- High uncertainty ahead with elevated risks of a second-round pandemic and protracted global impact.
Oil market, energy exporters, and GCC impact
- The double shock of lockdowns and oil price collapse is estimated to cost MENAP oil exporters $270 billion in oil revenues this year.
- Oil price behavior and outlook:
- Recent price level noted at $43 a barrel (recent days referenced).
- Price at beginning of year referenced as $68 a barrel.
- Expectation cited for oil price to remain in the corridor of $40 to $45.
- GCC regional projections and fiscal impact:
- GCC growth expected to be negative by 7.3 percent in 2020.
- Expected deficits to reach levels of 8 to 10 percent on average in 2020.
- Non-oil fiscal balance described as more resilient than the overall balance.
- Long-term assets note: prior IMF study referenced on GCC $2 trillion wealth projection to 2034; assessment of asset value impacts depends on sovereign wealth fund managers.
Country-level notes and policy recommendations (select countries)
- Egypt
- Authorities requested IMF support from two programs and obtained around $11 billion of assistance.
- Key affected sectors: tourism, industrial sectors, and Suez Canal revenues.
- Tunisia
- IMF provided support equal to 100 percent of its quota share to assist preparedness of the health system and protect small and medium institutions.
- IMF advises: domestic dialogue focusing on (1) protecting lives, (2) supporting problem handling in certain areas, and (3) supporting economic transformation to create more jobs and incentivize private sector participation.
- Jordan
- Fund supported a reform program (endorsed in March) adjusted for COVID-19 emergency needs.
- Program pillars include: improving business environment, creating an efficient progressive tax system, increasing productivity, reducing labor and financial costs, harmonizing tax regimes, and reforming the energy sector.
- IMF emergency financing: rapid financing facility used to elevate health preparedness and support balance of payments; countries created transparent budget lines and tender criteria to track use.
- Iran
- Government introduced a fiscal stimulus package of 6 percent of GDP.
- IMF highlights need to: expand health capacity and social protection, unify exchange rate, address multiple exchange rates and inflation, and implement fiscal and financial reforms.
- Iraq
- Over 90 percent of government revenues come from oil (oil sector very important; non-oil sector remains small).
- IMF advises three steps: (1) protect lives (including internally displaced and vulnerable groups), (2) stabilize the economy and public finances, and (3) expand non-oil sectors like agriculture and industry to create jobs.
- UAE
- Second largest economy in GCC; affected by COVID-19 and oil shock.
- Authorities regained market access (noted successful Abu Dhabi Eurobond transaction).
- Policy recommendations: expand technology use, support SMEs (central bank liquidity/support packages), protect financial stability, continue transformation of government-related entities, and accelerate non-oil diversification.
- Lebanon
- Discussions with authorities ongoing; IMF team recently reviewed electricity and energy sector reform plan.
- IMF sees key challenges: unsustainable public debt, weak fiscal framework and tax administration, unviable banking model, loss-making state-owned enterprises, narrow and uncompetitive economic base.
- IMF position: program should (1) stop immediate deterioration, (2) protect the vulnerable, and (3) lay conditions for sustainable growth via public debt restructuring, fiscal framework strengthening, bank recapitalization, SOE reforms, and improved governance and transparency.
- IMF recommends passing a capital controls law and steps to restore fiscal and debt sustainability, including a 2020 budget.
- Yemen
- IMF provided grant facility support; active technical assistance to Central Bank and Ministry of Finance.
- IMF also working to mobilize international grants and medical assistance; focus on maintaining core state functions and addressing exchange rate and economic instability.
- Morocco
- Government expects growth to lose 5 percent (government expectation referenced).
- IMF notes Morocco’s recent reforms, rapid government measures, and IMF contribution including a $3 billion credit line now being used to improve reserves and support monetary policy.
- Challenges: large informal sector and agriculture affected by climate change; need to reach informal workers with assistance.
- Algeria
- Entered pandemic with weak fundamentals: deteriorated public finances and monetized deficits.
- IMF in active discussions; IMF recommends activating and strengthening reforms to protect reserves and reallocate resources for social support.
Social impacts, vulnerabilities, and labor markets
- Vulnerable groups and structural weaknesses highlighted:
- Informal sector: limited reach of policy support; need for creative electronic/administrative mechanisms to reach informal workers.
- Youth and women: high unemployment and low labor participation are key priorities and opportunities for growth; Middle East population noted as over 65 percent below 30 years (youth demographic cited as a regional asset).
- Internally displaced and refugees: severe vulnerability and weak health infrastructure; example provided for Yemen with 0.7 beds per 1,000 persons versus an average referenced as 2.7 percent (as stated).
- Fragile and conflict-affected states:
- Remittances: sharp reduction will strongly affect fragile states where remittances account for about 14 percent of GDP.
- Per capita GDP in fragile/conflict-affected states projected to fall from $2,900 last year to $2,000 this year, reflecting a projected 13 percent drop in output on average.
- Social unrest risk:
- IMF monitoring social unrest since 2017; upticks observed as countries reopen.
- IMF recommends expanding social safety nets, targeting support, investing in training and capacity building, and prioritizing social protection in recovery packages.
Policy guidance for recovery and medium-term reforms
- Immediate priorities:
- Ensure strong and resilient health systems; increase readiness and investment in health and emergency capacity.
- Support economic recovery with well-targeted social safety nets.
- Gradually roll back emergency measures when COVID-19 threat diminishes and implement policies to assist resource reallocation.
- Medium-term priorities:
- Rebuild fiscal buffers and boost reserves.
- Anchor fiscal management in medium-term frameworks and improve debt management.
- Reallocate public spending toward more productive and efficient social spending; improve revenue progressivity and tax administration.
- Continue diversification away from commodity dependence, accelerate reforms (e.g., energy sector, subsidy reform), and enhance access to finance for SMEs.
- Leverage technology and youth talent to create high value-add activities and job-rich sectors.
- Strengthen regional cooperation and ties (trade, remittances, investment) to support recovery.
- Role of multilateral and regional partners:
- Multilateral support and international institutions (IMF, Arab Monetary Fund, Arab Fund for Economic and Social Development, Islamic Development Bank) are important and active in policy advice, financing, technical assistance, and coordination.
- IMF engagement includes policy advice, technical assistance, and financial support: nearly $17 billion in financing provided to 15 countries in the region (regional financing figure cited by the IMF).
- Fund also participating in G20/Saudi initiatives to develop global facilities for debt reprofiling and relief.
IMF financial support and tools used
- Rapid financing and emergency responses:
- IMF allocated $100 billion as rapid support globally at the start of the crisis; 70 countries requested help.
- Rapid financing facilities provide immediate liquidity and balance of payments support with monitoring and transparency measures for health-related spending.
- Regional financing figures and examples:
- IMF provided nearly $17 billion in financing to 15 countries in the region (regional total cited).
- Country examples:
- Egypt: around $11 billion assistance.
- Morocco: $3 billion credit line.
- Tunisia: support equal to 100 percent of its quota share.
- Jordan: emergency facilities including RCF/RFI support (500? numbers not specified beyond narrative).
- Sudan, Somalia, Yemen, Mauritania, Djibouti are among other countries assisted or engaged.
- Conditionality and program differences:
- Rapid emergency facilities focus on urgent financing with fewer conventional conditions but require transparency and monitoring.
- Regular IMF programs support reform agendas with specific program durations and conditionality; examples cited include four-year Jordan program and one-year program in Egypt.
Transcript of the Press Conference on the Regional Economic Outlook Update for the Middle East and Central Asia — July 13, 2020; IMF Communications Department