Speech

Managing Director’s Remarks at the Arab Fiscal Forum Virtual Ministerial Meeting

November 16, 2021

Assalamu alaikum, your excellencies.

I'm so delighted for the opportunity to join you today. I’m particularly grateful to Dr. Al-Hamidy for our excellent cooperation over the difficult year that we are all experiencing. I’m committed to deepen this collaboration, so we can collectively find the right answers to the questions we face.

Let me start with where the world economy is today, and how we see prospects for growth, as well as how these prospects present themselves in the Arab world.

The good news is that the recovery continues, and the foundation for recovery remains strong. We project, as you know, global growth at 5.9 percent this year. For the Arab world, we project 4.4 percent for 2021 and 4.5 percent for 2022.

Why do we find the foundations of the recovery to be sound?

First, because of the remarkable success of science delivering vaccines, and vaccination rates going up and up in many countries.

Second, because of the ample policy support that has been provided, that allowed businesses and households to move through a very unusual and severe recession, and then come forward with the capacity to revitalize the world economy.

But this is not the whole story.

We have to objectively recognize that risks tilt to the downside, and uncertainties about the cost of the pandemic and the recovery are high. And new and very serious issues have arisen in recent months.

In the middle of last year, we identified the problem of divergence, at that time driven primarily by availability of fiscal space. Unfortunately, divergence has become more entrenched, reflecting access to vaccines and speed of vaccinations, and the ability to still utilize policy space for support.

In the Arab world, we have seen many of you doing really well, especially the Gulf Cooperation Council countries and Morocco, in terms of vaccinating people and opening up their economies. And we have seen remarkable policy action to make the best use of fiscal space. But we also see countries in the Arab world falling behind, and that is particularly troubling for fragile and conflict-affected states.

This divergence is fueling a growing disconnect between demand shooting up in countries and sectors where the recovery is moving faster, whereas supply is not yet catching up.

Unfortunately, divergence also means interruptions of supply chains. Even in highly vaccinated countries, we have seen the impact of a pandemic roaring around the world, causing temporary restriction measures. Most recently, we have seen this in Europe.

With interruptions of supply chains, inflation has become a more troubling phenomenon. Yet, at this stage, we still see this disconnect between demand and supply as the key reason for inflation, which gives us hope that inflation will likely recede next year.

But if supply disruptions continue or inflation expectations become de-anchored, inflation may become more sticky. And there are other factors pushing prices up, including weather phenomena that have impacted agricultural productivity and added to pressures on food prices.

So, faced with these three problems—divergence, supply chain interruptions, inflation—what should we do?

Let me state clearly: our number one priority for the health of the world economy remains vaccinating the world. It is paramount that we achieve the targets we have set to vaccinate 40 percent of people in all countries at least by the end of this year and 70 percent by mid-next year, so we can step more forcefully on the brakes of the pandemic.

Our next priority for dealing with these interconnected problems is to recognize that today is more difficult for policymakers than last year was, because economies are not in the same place. It is even more important now to clearly identify the right actions for each particular country’s circumstances.

When we talk about inflation—the third problem I mentioned—central banks should stay vigilant to inflationary pressures. As we have seen in some economies around the world, clear signaling and a pre-emptive stance may be needed where upside risks to inflation materialize.

We have yet to see how inflation will be handled in advanced economies and how major central banks are going to pursue a course of calming inflation down.

I can tell you at the IMF, we are paying close attention, thinking through scenarios of monetary and fiscal policy in advanced economies, and possible spillover impacts on emerging and developing economies.

Why is this so important? Because what we recognize is that even with growth coming back at a fairly reasonable level, it is not yet translating into a powerful impulse for employment.

Let's look at the Arab countries. We know that across the region, young people, women, migrants, low-skilled workers have been severely impacted. And very troubling for many countries, small businesses especially in tourism, and other contact intensive sectors have been severely impacted.

Unemployment has not been fast to come down from the peak of 11.6 percent. We see many people dropping out of the labor market or leaving school. That is a pressing issue region wide.

Let me give you some thoughts as to how these problems might best be addressed.

The Iraqi architect, Zaha Hadid, said that her work evolved into a desire to create buildings, “to connect, to form a new kind of landscape, to flow together with the… lives of their peoples.”

And this is what we are faced with—we need to build a new kind of “economic landscape” that is inclusive and positively affects the lives of people.

Medium-term fiscal frameworks are at the heart of this new landscape. They serve to sustainably balance our immediate needs—health and targeted lifeline spending—with our longer‑term goals, namely transformative investments and debt reduction. This is an essential balance to reduce the need for adjustments, to ease policy trade-offs, to build trust—with both markets and citizens.

That brings me to the second critical feature of this new landscape: embrace fully transparency and accountability, so spending is efficient, misspending is eradicated, the evil of corruption is rooted out, and government programs deliver for the people. In this regard, timely, accurate, and accessible reporting and monitoring can help enormously to show how resources are collected and to ensure spending is visible to the citizens. Of course, technology can help.

Let me give you three examples. In 2018, Saudi Arabia launched the Etimad public financial management platform to consolidate bidding and procurement processes, and allow contractors and suppliers to manage claims online.

Jordan regularly publishes online procurement data for COVID spending, and publishes contracts and information on beneficial ownership.

Morocco's Chikaya portal has handled, amazingly, 700,000 public complaints. A majority of users are satisfied, strengthening the foundation for transparent and accountable public policy.

At this time, when every penny counts, this also builds support from the public for well‑designed public investment and social spending, and the reforms needed to grow the private sector.

When we are looking into the future, it is paramount to not only calibrate policies for today, but also to think of how we can accelerate transformation for tomorrow, how we can build resilient people for future shocks to come—like Egypt has done with the Knowledge Bank, one of the world's largest digital libraries.

Or how can we make our economies more sustainable, especially in the face of climate shocks? Bahrain, the United Arab Emirates, and Saudi Arabia have committed to doing exactly that—Bahrain and UAE with net-zero carbon emissions commitments, and Saudi Arabia by launching their ambitious green initiatives. I was delighted to be included in the launch event.

When we look at our ambition, it can only be achieved if public money opens up the door for massive private investment. We have seen in Glasgow key commitments, including on finance, to support the transition to the new climate economy, one that is low‑carbon but also shock resilient—very important for many Arab countries.

And let me finish with what people care most about: What does that all mean for me? How can we have a society that is more inclusive? How can support for vulnerable people be done in a way that brings them into the labor force, rather than keeping them on support programs from the government?

You have done a lot of innovation in this regard. The middle class, especially, is best off when the economy is growing and when the benefits of growth are fairly shared across society. And the middle class can be sustained when the skills for tomorrow are built today; when we are able to imagine the future of the world economy and make sure that young people, and those of us who are more mature, can all contribute to society.

Let me finish with a word on the IMF’s role in all this.

First and foremost, we stepped up our analytical work so we could analyze the crisis at every stage and provide you the best possible advice.

We are now calibrating this advice to country-specific circumstances. And our special series of COVID-19 notes are doing exactly that on fiscal governance, digitalization, and public investment. Our surveillance is oriented towards economic governance reforms to support inclusive growth.

And our capacity development, through the Middle East Center for Economics and Finance in Kuwait and the Middle East Regional Technical Assistance Center in Beirut, is there for you.

In terms of lending, as you know, we have provided $16.6 billion in assistance for nine Arab countries, and debt relief to three. Importantly, the Arab world received $37.1 billion of our historic $650 billion allocation of Special Drawing Rights. We are now working to amplify the impact of this allocation through channeling some SDRs from strong countries to those who need support the most.

I take pride that, in our work, we work with you. I want to praise Jihad Azour for making it so that the IMF and the Arab Monetary Fund work in symbiosis on many of the topics in front of us. And I want to thank you for your pressure on us to do more, especially on the issues of tomorrow, like digital money, sustainable and inclusive growth, and the crucial topic of labor market mobilization and jobs for young people.

We are in this together, and we can only succeed together.

Shukran.