According to International Monetary Fund (IMF), the COVID-19 crisis is a defining moment for the Middle East and North Africa (MENA), underpinning the need for economic diversification and structural reforms to lay the foundations for a post-pandemic recovery.
“I think we are in a defining moment and changing the way how a state is used to function especially in the GCC, is a critical piece in any problem solving going forward. You need to anchor your policies in the medium term framework. This is how you manage the short-term response to the crisis but also maintain its sustainability in the medium and long term. We will see a gradual wave of diversification of revenue outside oil. We will also see a gradual change in the role of sovereign wealth funds and how they contribute in generating income but also how they contribute in the economic recovery.”
Gita Gopinath, IMF Chief Economist, Reza Moghadam, Morgan Stanley’s vice chairman of Global Capital Markets, and Nasser Saidi, Lebanon’s former Minister of Economy, also participated in the virtual panel discussion on the COVID-19 challenges and policy goals for the MENA region.
Countries in the region, Mr Azour said, will gradually move to a “balance sheet approach” looking at their assets and liabilities at the same time, a structural change needed to prepare for a post-COVID-19 recovery.
After the 1930s, the coronavirus pandemic has tipped the world economy into its worst recession. With only a modest rebound next year, the IMF expects global production to shrink 4.4 percent this year. MENA economies are predicted to contract by an average of 5 percent this year and expand by 3.2 percent next year.
More important than ever
Before the virus outbreak, governments in the region, especially those in the hydrocarbon-rich six-member GCC economic bloc, had been diversifying their economies. A global shift to focus on greener economies and a decrease in oil demand in the face of lower consumption and worries about climate change, however, underscores the need to speed up the reform process.
“This is a moment of opportunity of a lifetime that we got hit by COVID-19. We should go back to the drawing board and ask ourselves not only how we should diversify, but also what sort of fiscal policy rules we should be imposing, how we develop monetary policy how we develop counter-cyclical policies,” Mr Saidi said.
“Most importantly, structural change, what do we do about labor markets,” he said, adding that these issues have come to the fore and will become increasingly important for the region’s economies.
In order for policy responses to be more successful, especially in terms of job creation, regional governments will have to encourage private sector growth to give it a greater share of the economy.
“There should be much better employment opportunities for young people and women, which is an important concern in the Middle East,” Ms. Gopinath said. “These kinds of reforms have to be done.”
She said the IMF has made a case in some countries for big, high-quality public infrastructure investments to boost jobs.
“In some cases green projects and in some cases digital infrastructure. All of that has a potential to create jobs and hasten the recovery from this COVID-19 crisis,” she said. “This is a transformation period structural reforms will be needed.”
Comparing COVID-19 with previous crises, Mr. Azour said that the biggest mistakes made previously involved a slow response.
“Today, I believe one message is that the response has to be very swift. The answer is not just about resolving the immediate issues, but also about working on parallels,” he said.
“Address the short-term goals of saving lives, restoring the economy, but also preparing and offering a medium- to long-term horizon, which will provide an anchor for investors, the business community and citizens,” he concluded.
Recently, IMF Managing Director Kristalina Georgieva had applauded the efforts of GCC governments who provided a strong public health system and timely fiscal and monetary intervention to tackle the COVID-19 induced economic crisis.