IMF Turns More Downbeat on Mideast as Coronavirus Hit Persists
Economies in the Middle East and North Africa are expected to contract further this year than initially estimated, according to the International Monetary Fund.
In its updated economic outlook, the fund forecast a contraction of 5.7% in the region this year, more than two percentage points lower than its estimate of 3.3% in April. The dual shock of a sharp decline in crude prices and persisting uncertainty regarding the length of the coronavirus pandemic have clouded prospects for an economic rebound.
“Countries should facilitate recovery by easing the reallocation of workers and resources, as needed, while resuming gradual fiscal adjustment and rebuilding policy buffers,” according to the regional economic outlook update for the Middle East and central Asia released on Monday.
Growth in the region’s oil exporters is now seen shrinking 7.3% in 2020, versus a 1.1% contraction for importers, as fluctuations in oil prices and pandemic-linked lockdowns have a more dire impact on their balance sheets. For oil importers, benefits of a lower crude environment are offset by hampered trade, tourism, remittances and tighter global financial conditions.
Nations around the world have halted their economies to contain the spread of the pandemic, while injecting stimulus directly and indirectly. In the Persian Gulf, countries cut expenditures, reduced government workers’ salaries and facilitated lending.
Still, these do not qualify as austerity measures, said Jihad Azour, the IMF’s director for the Middle East and central Asia. “Some countries which have less buffers need to reallocate resources within the same envelope, but I wouldn’t say yet that we are in an austerity mode,” Azour said in an interview.
More from the report:
- Banking systems remain resilient and well capitalized, but pockets of existing vulnerabilities may yield rising nonperforming loans if the dual crises drag on. Declines in oil prices and production could further erode oil exporters’ policy space and therefore affect their banking systems.
- Current-account balances are projected to deteriorate further in 2020, especially for oil exporters.
- Tightening of financial conditions could complicate debt rollovers for firms and countries in the region. Sovereigns would face about $21 billion in maturing external debt in the second half this year.
Since the end of March, countries in the Middle East and central Asia made up more than 60% of emerging-market sovereign issuances, with Qatar, the United Arab Emirates, Saudi Arabia and Bahrain tapping bond markets.
This, however, didn’t stop sudden portfolio outflows in March estimated at $6 billion to $8 billion. Their actual scope may have been larger, the IMF said, as official data aren’t available yet.
“Policy now has to be proactive, has to move on a multilateral approach and keep adapting to a fast-moving, challenging environment,” Azour said.
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