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The International Monetary Fund has urged the countries of the Middle East and North Africa (MENA) to speed up reforms and diversify the economy, at a time when the energy-rich region faces unprecedented challenges due to the emerging Corona virus and the decline in oil prices.
And in its latest update to its regional economic forecast this month, the IMF said that the region’s GDP will shrink by 5% this year, compared with its previous forecast in July of a 5.7% contraction.
Despite the slight improvement, the region, which includes all Arab countries and Iran, will suffer from its worst economic performance, surpassing the record contraction of 4.7% in 1978 when it was witnessing major turmoil.
“We should view what is happening today as a call to action, and also as an opportunity to stimulate economic transformation and create more opportunities, especially for youth,” said Jihad Azour, director of the Middle East and Central Asia Department at the IMF.
He added in an interview with Agence France-Presse via video, “We expect growth and unemployment to be affected this year, and this crisis in general could lead to a 5% decrease in growth and a similar increase in the unemployment rate.”
In recent years, the region has witnessed a series of conflicts in a number of its countries, including Syria, Yemen, Iraq and Libya, which destroyed their economies and increased their poverty rates on a large scale. These conflicts have caused a high rate of unemployment, which currently stands at 26.6% among young people, according to World Bank data.
A double blow
Since last March, countries in the region, many of which depend on oil revenues, have resorted to closures and curfews to prevent the spread of the Corona virus, which has led to disruption of local economies.
The IMF says that the average oil price will be $ 41.69 a barrel in 2020, and $ 46.70 in 2021, far from the $ 57 to $ 64 average it was in 2019.
In light of the double whammy (the Corona outbreak and the decline in oil prices), the growth of oil-exporting countries in the Middle East and North Africa is expected to contract by 6.6%, and the economies of crude importers are expected to contract by 1%, as the epidemic continues to hit tourism and trade.
Azour returned to say, “We are at a pivotal moment where there are hopes that the vaccine can speed up the (economic) recovery, but there are also challenges with the risk of a second wave of the virus.”
Lebanon: reforming the subsidy system.
Lebanon is the most affected country in the region, as it faces the worst economic crisis since the civil war (1975-1990), causing the local currency to decline against the dollar, doubling the poverty rate to more than half of the population, and mass exodus.
According to the International Monetary Fund, the economy of this country is contracting by 25%. Azour returned again, warning that “Lebanon needs a comprehensive reform program that addresses deep-rooted issues.”
“Of course, this requires the next government to accelerate the pace of reform, which must be comprehensive and widely supported in order to get Lebanon’s economy out of the crisis,” he added.
In turn, the International Monetary Fund said on Monday that Lebanon should reform its subsidy system to reach the people most in need and make better use of its rapidly declining foreign currency reserves.
He added that he estimated consumer price inflation this year at 85.5% this year, up from the estimate last April of 17%. His estimate of the central government’s fiscal deficit widened to 16.5% of GDP, up from 15.3% in April.
Saudi Arabia … accelerate investment
As for the Saudi economy – the largest in the Arab world – it will shrink by 5.4% this year. This forecast represents a slight improvement from the 6.8% that was announced by the Fund in July, as the Kingdom suffers from the impact of low oil prices and the consequences of Corona, especially after it suspended the performance of Umrah and reduced the number of pilgrims.
According to the official in the International Fund, and in order to reduce the negative impact of this “double shock”, the Saudi economy “accelerates the diversification process” that has been continuing since 2016, and investing more in “technology that has proven to be very important in managing this crisis.”
The world’s largest crude exporter says it plans to cut government spending by more than 7% next year, as the budget deficit is expected to widen to 12% of GDP in 2020.
Azour believes that Saudi Arabia needs to “accelerate investment in new sectors and provide support to small and medium-sized companies that can lead the next wave of diversification.”
Tunisia … the need for financing
The IMF confirmed that Tunisia will hold discussions with the IMF in the next few weeks and may request more funding. “They may ask for other financing facilities,” Azour said. “They haven’t done that yet.”
Tunisia and the IMF agreed in April to borrow $ 743 million to help counter the economic damage caused by the Corona pandemic, after a previous program of a long-term loan from the Fund was also postponed.
Tunisia expects its economy to shrink 7% this year and increase its fiscal deficit to 14% of GDP. The country received financial support from the European Union and the World Bank.
Even before the current global pandemic, Tunisia was struggling with slow growth, high unemployment, and a decline in public services since the 2011 revolution.
With regard to the Middle East and Central Asia region as a whole, the International Monetary Fund said that its return to the levels of economic growth it was witnessing before the Corona crisis may take 10 years, as long-standing weaknesses in the region put pressure on its recovery.
Today, the Fund confirmed in its forecasts for this region – which includes about 30 countries extending from Mauritania to Kazakhstan – that growth is likely to be affected by the lack of diversification of sources in oil-exporting countries and the dependence of crude importing countries on sectors such as tourism, as well as their dependence on remittances from abroad.
The IMF added, “The Covid-19 crisis is the fastest-impacting economic shock in modern history.”
The economic “wound”, which includes long-term losses to growth, income and employment, will likely be deeper and longer-term than the one that followed the global financial crisis of 2008 and 2009, he said.
The International Monetary Fund expects the economies of the Middle East and Central Asia to shrink 4.1% this year, a contraction of 1.3 percentage points greater than it forecast in April.
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