COVID-19 Will Have Specific Impacts on Middle East

The fund’s director for the Middle East and Central Asia points to specific issues that require careful consideration.

  • By externalwire | March 25, 2020,7:18 pm
The fund’s director for the Middle East and Central Asia points to specific issues that require careful consideration.

With millions trapped in self-isolation, enforced quarantines, and a growing number of infections, the Middle East is bracing itself for the economic impact of the novel coronavirus. An analysis by International Monetary Fund (IMF) Director for the Middle East and Central Asia Jihad Azour provides some insights into the regional issues that will emerge as a result of the COVID-19 pandemic.

Several sectors of the region’s economies face significant difficulties. The service sector is a major employer in most Middle Eastern and North African countries, and current reductions in the tourism, hospitality, and retail sectors are hitting hard.

Production and manufacturing faces an extreme slump as global supply and demand have collapsed and supply lines are disrupted. Manufacturers in the region are canceling and postponing investments in the current atmosphere of uncertainty. The pandemic’s spread has weakened consumer and business confidence.

Two scenarios face MENA countries, based on whether the state imports or exports oil. Oil exporting countries will see reduced revenue from business taxes, which results in government budget gaps. Countries that import oil will suffer from the reduced demand for goods and services and could feel the reduction in remittance transfers from citizens abroad.

Capital flight is a risk for both oil importers and exporters. Current global market volatility drives investment away from the region and into investments that international investors consider safer. The timing of the current crisis is unfortunate for the region: Payment on a combined $35 billion in maturing debt is due in 2020.

IMF provides recommendations for hard-hit countries.

The IMF recommends prioritizing policies that mitigate the pandemic’s public health threat, first and foremost. The IMF supports protecting the public through strong mitigation and containment efforts, and highlights the need to strengthen national health systems and social safety nets.

Primarily, countries should avoid economic policies that could turn the pandemic into a longer recession. Through a mix of “timely and targeted” policies on hard-hit sectors and people, the IMF recommends cash transfers and tax relief to alleviate current financial difficulties.

On a smaller scale, the IMF recommends that governments provide temporary fiscal support for households and businesses affected by the crisis. Central banks should provide liquidity to banks, especially those that loan to small and medium businesses.

After the pandemic and its resulting economic slump pass, oil importing countries will have large deficits. The IMF recommends striking a balance between easing credit conditions and avoiding vulnerability to capital outflows, possibly through creative use of exchange rates.

Where countries are unable to independently recover, the IMF offers support. The monetary fund is already advising and assisting regional authorities, and has tools available to assist countries in dire need. 

Countries can apply for emergency financing, change the terms of existing lending programs, or receive grants for debt relief. The IMF is also offering new financing arrangements, and is processing new requests from 12 countries in the region. 

Above all, Jihad Azour stresses the importance of solidarity: “Now, more than ever, international cooperation is vital if we hope to prevent lasting economic scars.”

 

Read also: Europe Urges IMF to Support Iran and Venezuela

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