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Debt accumulation of the Middle East countries since 2020 has led to a significant increase in future financing needs that are expected to reach $1.075 trillion in 2022, compared to $784 billion in 2018/19.
A small number of countries in the region account for the bulk of government financing needs, according to Dr. Jihad Azour, director, IMF Middle East and Central Asia Department.
The World Bank expects the region’s public debt to rise from 46 per cent of its GDP in 2019 to 54 per cent by the end of 2021.
Azour said the short-term support provided through fiscal and monetary policies will also have to be aligned with efforts to maintain macroeconomic stability. “Strengthening policy frameworks is of paramount importance to maintain debt levels within sustainable limits and to enhance the credibility of the ability of states to effectively meet the requirements of stability and prosperity.”
For the GCC, the IMF has estimated that the region suffered $270 billion oil revenue depletion in 2020 due to demand loss from the pandemic outbreak. As a result, debt burdens of the GCC governments were estimated to have risen on average by around 21 percentage points of GDP over 2019-21 compared with 14 per cent for advanced economies in general. However, according to Moody’s Investors Service, the region’s sovereign wealth fund buffers will mitigate the impact of the debt pile-up.
Fitch Ratings see aggregate GCC non-bank GRE debt hitting 37 per cent of GDP in 2020 (an increase of 7pp over 2019), driven in part by declines in nominal GDP on lower oil prices and Covid-19-induced recessions. The ratio is 32 per cent in relation to forecast 2021 GDP.
The IMF estimate also shows that GCC fiscal deficits would see a steep decline in 2021. Fiscal deficits of GCC governments are expected to significantly decline in 2022 from the record high level of around $125 billion seen in 2020 as higher oil prices and economic recovery bring in higher revenue.
The IMF’s January World Economic Outlook (WEO) Update showed 4.1 per cent growth in the Middle East region in 2021. Nonetheless, the recovery is uneven, as some countries—particularly those facing instability, conflicts, and political volatility—continue to grapple with the economic and social consequences of the slow rollout of vaccines.
However, the IMF official sees a silver lining. The pandemic has accelerated the economic transformation of several countries in areas such as technology investments, digitalisation, adaptation of production patterns to global changes and supply chain developments, and the development of social programs.
“Still, the global economy is traversing a new phase of uncertainty, which will affect our region. The WEO Update underscores several factors that will shape the global outlook in 2022: the spread of the Omicron variant, triggering new mobility restrictions; rising energy prices and ongoing supply chain disruptions, leading to more persistent elevated inflation; ongoing retrenchment of China’s real estate sector, which could have spillover effects on the broader economy and on the region; and upcoming interest rate increases by the Federal Reserve.”
Therefore, Azour argues that given this backdrop, pursuing a transformational policy agenda will be critical for the Mena region in 2022.
Global growth is expected to moderate from 5.9 in 2021 to 4.4 per cent in 2022—half a percentage point lower for 2022 than in the October WEO, largely reflecting forecast markdowns in the two largest economies
In 2023, global growth is expected to slow to 3.8 percent. Although this is 0.2 percentage point higher than in the previous forecast, the upgrade largely reflects a mechanical pickup after current drags on growth dissipate in the second half of 2022, said the IMF official.
— issacjohn@khaleejtimes.com
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