IMF Tallies Up Economic Wreckage in Middle East, Warns Over Debt

(Bloomberg) --

A debt pile-up across the Middle East and Central Asia will tie down resources available to fight the global coronavirus pandemic and pose an added challenge as an estimated $35 billion in the region’s external sovereign liabilities mature this year, according to the International Monetary Fund.

Blindsided by the crash in oil prices and the worsening health emergency, economies across a region that stretches from Morocco in the west to Pakistan in the east will contract by an average of 3.1% this year, the IMF said in its updated outlook released on Wednesday.

Given the downward revisions by most countries, it estimates that the crisis is erasing $425 billion from the region’s total output, roughly equivalent to the size of Norway’s entire gross domestic product.

“Large forthcoming maturing debt presents financing risks in current market conditions,” the IMF said. “High public debt levels may limit fiscal space available to undertake additional measures.”

• Public debt in the region may go up to almost 95% of GDP as fiscal deficits deteriorate because of spending increases and lower growth in tax revenue
• Egypt, Uzbekistan, Djibouti are among a handful of economies expected to avoid a contraction
• Oil exports projected to decline by more than $250 billion, pushing the budgets across the region into deficits that will exceed 10% of GDP in most countries
• Fiscal packages rolled out in many nations to contain the outbreak and support businesses amount to an average size of 3.8% of GDP
• Liquidity support measures, with an average of 3.4% of GDP, have been announced by central banks in seven countries

“One needs to recognize that governments have acted quickly in order to provide assistance to counter the effect of the crisis,” Jihad Azour, the IMF’s director for the Middle East and Central Asia, said in an interview.

The severe downturn in the region is part of the “Great Lockdown” recession that the IMF predicts would be the steepest for the world economy in almost a century. Already under strain from the pandemic, the Middle East and Central Asia are also hunkering down for a period of much lower oil prices, a blow for energy producers but also a threat to crude importers reliant on remittances.

Read more: IMF Sees Great Lockdown Recession as Worst Since Depression

This weekend’s OPEC+ deal to slash supply -- the largest coordinated cut in history -- may not bring much relief any time soon. While the world’s largest producers agreed to lower output by 9.7 million barrels a day, the decision doesn’t go into effect until May and is still dwarfed by the decline in oil consumption as the coronavirus pandemic keeps multiple countries in lockdown.

The OPEC+ deal “will provide some stabilization to the price,” Azour said. “But I think it is very important to be aware that demand is currently playing an important role in the market, and demand -- and the recovery in demand -- will be very much dependent on the speed at which the global economy will recover.”

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