The novel coronavirus (COVID-19) crisis has taught the Middle East and North Africa (MENA) region that any economic framework and structural transformation has to have an important social pillar, according to Jihad Azour, Director of the Middle East and Central Asia Department (MCD) at the International Monetary Fund (IMF).
This has to take into account not only social assistance, but also the building of a strong social framework that protects the labour force.
This would, in turn, also provide long term and sustainable social insurances, whilst addressing social protection. At the same time, it has the potential to increase or reduce the level of inequality that exists, and this is where fiscal qualities also come into play.
Azour’s remarks came during a virtual webinar entitled “Coping with COVID-19: Challenges and Policy Priorities for the Middle East and North Africa Region and the Global Economy”.
During the webinar, he reviewed the pandemic’s impact on the region’s economies, stating that a succession of shocks have hit the region.
He said that the region was among the first areas in the world to have an epicentre of the COVID-19 crisis, and was followed by one of the highest volatilities in a crisis.
“This crisis is by no means a deeper or bigger crisis, if we compare it to previous shocks like the 2008 financial crisis, for example, in terms of the depth of the shock, and also the breadth,” Azour said, “This is because it was also a healthcare issue that effected the economy, it was an oil shock that directly and indirectly affected many of the economies in the region, and also it was a shock, especially with the high level of debt for countries who are borrowing on the international capital markets.”
He added that the over the last six months, the countries that reacted fairly quickly introduced some of the most stringent measures in the world. This paid off, as it limited the spread of the virus, whilst also keeping the level of fatalities low compared to other parts of the world.
“But this, of course, came at a high cost, particularly for countries that entered the crisis with weak fundamentals, which was also an aggravation in terms of economic activities and slow down, especially in sectors that are job rich” Azour said.
He added, “We saw also government introducing measures that were fairly homogeneous, and in a synchronised way, but lower than what has been happening in other parts of the world.”
Azour said that this is mainly due to the limited fiscal space. He said that the focus was on protecting livelihoods, income support, additional spending on healthcare, and liquidity and financial support to small- and medium-sized enterprises (SMEs).
Those measures were useful and it helped cushion slightly the drop in economic activities. At the same time, there were insufficient for providing a limited impact on the economy.
“We expect growth this year to be on the negative in almost all MENA countries, except for a few such as Egypt, which is one of the exceptions,” he said, “Where we stand today is the outlook for next year, during which a stronger recovery is expected, although relatively speaking, and compared to other parts of the world, the recovery is likely to be a bit slow.”
Azour said that the region now needs to take into account several key issues in terms of the post-coronavirus era. These include uncertainties on how the region addresses a second wave of the coronavirus, and how it repairs economic engines that were affected, especially sectors that were hard hit by the pandemic.
“At the same time, we now must also asses how we can preserve financial stability while providing support to SMEs, and in terms of recovery,” Azour noted, “We also need to review the silver linings from the pandemic, and the sectors where we can pump in investments in order to accelerate recovery.”
Azour said that the region is currently in a moment where the uncertainty is high, with regional economies affected by a range of external and internal factors. He noted that these include: the upcoming US elections and its outcome; the risks of a second wave of the coronavirus; and the methods and speed with which regional economies will be able to recover, especially those sectors hardest hit by the crisis, such as tourism. These factors will also affect the reaction of international capital markets.
“Last, but not least, we have to factor in the region’s geopolitical dimension as an important issue, and therefore also, the results of the US elections will be read by the region from this lens too,” Azour said.
From the global economy perspective, the IMF’s Chief Economist and Director of the Research Department, Gita Gopinath, said that the top three sources of uncertainty remain in the health crisis.
She added that the upcoming winter season is causing uncertainty, alongside the prospects for treatments and vaccines, as well as better testing to deal with the crisis.