{ "title": "Four Questions About Debt and Financing Risks from COVID-19 in the Middle East and North Africa", "publication": "IMF News, April 28, 2021", "sourceUrl": "https://www.imf.org/en/news/articles/2021/04/27/na042821-4-questions-about-debt-and-financing-risks-from-covid-19-in-mena", "canonical": "https://www.imf.org/en/news/articles/2021/04/27/na042821-4-questions-about-debt-and-financing-risks-from-covid-19-in-mena", "overlayPath": "/en/news/articles/2021/04/27/na042821-4-questions-about-debt-and-financing-risks-from-covid-19-in-mena/index.md", "summary": "

Across the Middle East, North Africa, Afghanistan, and Pakistan (MENAP), countries responded to the COVID-19 pandemic with unprecedented scale and urgency. 

", "authors": [ "Jeta Menkulasi" ], "publishDate": "2021-04-28", "sections": [ { "heading": "Pre-pandemic debt vulnerabilities and primary concerns", "content": "- Many countries were already facing high debt:\n - By the end of 2019, one-half of MENAP countries had government debt ratios above 70 percent of GDP.\n - One in four countries faced public gross financing needs above 15 percent of GDP annually.\n- Limited access to external financing led governments and large state-owned enterprises to turn to domestic banks, expanding banks’ exposure to the public sector in several MENAP emerging markets:\n - Over 20 percent of total banks’ assets in Iraq, Jordan, and Qatar.\n - Above 45 percent in Algeria, Egypt, and Pakistan.\n - Up to 60 percent in Lebanon.\n - By contrast, banks in emerging markets elsewhere had a public sector exposure of 12 percent.\n- Structural impediments to domestic debt market development:\n - Banks’ excess liquidity in some countries and an underdeveloped institutional investor base in others.\n - Lack of a more vibrant private sector created incentives for banks to hold government bonds until maturity, hindering domestic debt market liquidity and development." }, { "heading": "How the pandemic affected deficits, debt, and financing strategies", "content": "- Economic collapse reduced fiscal revenues while governments increased spending to mitigate the pandemic’s impact, worsening fiscal balances across nearly all countries.\n- Compared to pre-pandemic expectations:\n - Primary deficits in MENAP expanded by an average of 7.5 percent of GDP in 2020.\n - These higher deficits, combined with the economic slowdown, resulted in a 7 percentage-point average increase in debt-to-GDP ratios.\n- Role of domestic vs. international financing:\n - Although one-third of MENAP countries tapped international financial markets—representing 25.5 percent of worldwide emerging market issuances—domestic financing played a critical role during the first phase of the crisis.\n - Governments in Egypt, Jordan, Pakistan, and Tunisia covered more than 50 percent of their public gross financing needs with domestic bank financing in 2020." }, { "heading": "Challenges ahead due to higher financing needs", "content": "- Projected financing needs:\n - Public gross financing needs are projected to rise to a total of $1,044 billion in 2021–22, from $780 billion in 2018–19.\n - Financing needs during 2021–22 are expected to remain above 15 percent of GDP, on average, in most MENAP’s emerging markets.\n - External debt amortization needs are limited at about 4 percent of GDP.\n- Implications of limited access to international markets:\n - Banks’ exposure to the state is likely set to accelerate, potentially crowding out private sector credit when private financing is needed to spur recovery.\n- Potential shock scenario and additional fiscal pressure:\n - The Regional Economic Outlook estimates budgetary needs could be further exacerbated by 3 percent of GDP under a potential shock scenario involving rapid tightening of global financial conditions along with delayed fiscal adjustment due to a protracted recovery.\n - If domestic banks fund these unexpected needs, in addition to the expected financing needed during 2021–22:\n - Egypt, Oman, Pakistan, and Tunisia would absorb an additional 10 to 23 percent of banks’ assets as government debt by the end of 2022.\n - As a result, Egypt and Pakistan’s banks could reach levels of public sector exposure similar to those currently seen in Lebanon." }, { "heading": "Policy recommendations to reduce debt vulnerabilities", "content": "- Adopt credible and clearly communicated medium-term fiscal and debt management strategies with careful coordination among monetary, fiscal, and financial sector regulatory authorities to form a common view on domestic financial markets’ overall absorption capacity.\n- For countries with limited or no fiscal space:\n - Initiate growth-friendly consolidation plans as the crisis subsides.\n- For countries with market access:\n - Proactively mitigate rollover and refinancing risks.\n - Engage in liability management operations (such as extending maturities) to improve terms on existing debt and the medium-term debt profile.\n- For countries where market access is more limited:\n - Consider reprofiling commercial and bilateral debt.\n- Develop domestic capital markets and broaden the investor base to reduce banks’ overexposure to the state:\n - Expand banks’ opportunities to diversify their assets, including through further progress on financial inclusion.\n - Over the medium term, consider changes to banking regulations to reduce the existing bias of banks’ asset portfolios toward government bonds.\n\nBy Jeta Menkulasi, Cesar Serra, and Suchanan Tambunlertchai; IMF Middle East and Central Asia Department; April 28, 2021.\n\n---\n\n\n References\n\n- https://www.imf.org/en/News/country-focus\n- PRESS CENTER\n- Read the report\n- Watch the press briefing\n- Watch the discussion\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2021/04/27/na042821-4-questions-about-debt-and-financing-risks-from-covid-19-in-mena" } ], "bullets": [ "[Markdown version](/en/news/articles/2021/04/27/na042821-4-questions-about-debt-and-financing-risks-from-covid-19-in-mena/index.md)", "[Structured JSON version](/en/news/articles/2021/04/27/na042821-4-questions-about-debt-and-financing-risks-from-covid-19-in-mena/index.json)", "[Bundle manifest](/en/news/articles/2021/04/27/na042821-4-questions-about-debt-and-financing-risks-from-covid-19-in-mena/bundle-manifest.json)", "Authors: Jeta Menkulasi", "Published: April 28, 2021", "Many countries were already facing high debt:", "Limited access to external financing led governments and large state-owned enterprises to turn to domestic banks, expanding banks’ exposure to the public sector in several MENAP emerging markets:", "Structural impediments to domestic debt market development:", "Economic collapse reduced fiscal revenues while governments increased spending to mitigate the pandemic’s impact, worsening fiscal balances across nearly all countries.", "Compared to pre-pandemic expectations:", "Role of domestic vs. international financing:", "Projected financing needs:", "Implications of limited access to international markets:", "Potential shock scenario and additional fiscal pressure:", "Adopt credible and clearly communicated medium-term fiscal and debt management strategies with careful coordination among monetary, fiscal, and financial sector regulatory authorities to form a common view on domestic financial markets’ overall absorption capacity.", "For countries with limited or no fiscal space:", "For countries with market access:", "For countries where market access is more limited:", "Develop domestic capital markets and broaden the investor base to reduce banks’ overexposure to the state:", "[https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)", "[PRESS CENTER](http://presscenter.imf.org/)", "[Read the report](https://www.imf.org/en/Publications/REO/MECA/Issues/2021/04/11/regional-economic-outlook-middle-east-central-asia)", "[Watch the press briefing](https://www.imf.org/external/mmedia/view.aspx?vid=6248357318001)", "[Watch the discussion](https://www.imf.org/external/mmedia/view.aspx?vid=6248591876001)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2021/04/27/na042821-4-questions-about-debt-and-financing-risks-from-covid-19-in-mena/index.md", "json": "/en/news/articles/2021/04/27/na042821-4-questions-about-debt-and-financing-risks-from-covid-19-in-mena/index.json", "bundleManifest": "/en/news/articles/2021/04/27/na042821-4-questions-about-debt-and-financing-risks-from-covid-19-in-mena/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T00:20:55.102Z" }