Transcript

Transcript of the Press Conference on Middle East and Central Asia

October 14, 2017

SPEAKERS:
Jihad Azour, Director, Middle East and Central Asia Department
Wafa Amr, Senior Communications Officer, Communications Department

MS. AMR: Good morning everyone. And good afternoon to those joining us from the rest of the world. This is Wafa Amr, Senior Communications Officer.

I’d like to introduce today, Jihad Azour, Director of the Middle East and Central Asia Department. He will be giving brief opening remarks on the economic outlook for the Middle East and Central Asia. And then we’ll take questions from you and online. Thank you.

MR. AZOUR: Good morning, I would like to welcome you all to the 2017 Annual Meetings. As you know, macroeconomic forecasts for our region have been released as part of the World Economic Outlook. We will have a more detailed discussion of those forecasts when we launch our Regional Economic Outlook in Dubai on October 31st and in Almaty on November 1st. I would like to now make a few remarks about the prospects for our countries, before taking your questions.

Let me first begin with the outlook for the Middle, East, North Africa, Afghanistan, and Pakistan region.

Although the global economy is strengthening, the growth outlook for MENAP countries remains subdued owing to the continuing adjustment to low oil prices in oil exporting countries and regional conflicts. However, this overall assessment masks important differences across oil exporting and importing countries.

Growth in MENAP oil exporters is expected to bottom out at 1.7 percent in 2017, held back by the agreed cut in oil production under the OPEC-led agreement. On the positive side, non-oil growth is expected to increase to about 2.6 percent in 2017 from 1.1 percent in 2016 as fiscal consolidation generally slows.

In contrast, growth in oil importers is expected to accelerate to 4.3 percent this year, well above 3.6 percent outturn in 2016, supported by stronger domestic demand, structural reforms, and the current upswing in the global economy.

The outlook for countries in conflict (Iraq, Libya, Syria, Yemen) remains predicated on security conditions.

Over the medium term, growth is anticipated to accelerate gradually in most MENAP economies, but it will generally remain below what is needed to effectively tackle the high level of unemployment in the region and raise standards of living.

Against this back drop the policy priorities for MENAP countries are as follows:

Growth needs to be made stronger, more inclusive, and job-rich to improve living standards and ease social tensions.

• A critical mass of structural reforms, including improving the investment climate, is needed to take advantage of the current window of opportunity provided by the stronger global economy.

• MENAP oil exporters need to accelerate efforts to diversify their economies away from oil and translate their ambitious visions into specific well-sequenced measures that can be implemented.

High fiscal deficits and/or public debt require a continued focus on consolidation. The projected fiscal deficit is 5.2 percent of GDP in MENAP oil exporters and 6.6 percent of GDP in MENAP oil importers, and average public debt remains above 80 percent of GDP in oil importers. The pace and composition of adjustment should be tailored to country circumstances, but needs to protect priority social and growth-enhancing spending. Energy price reforms should be completed to free up for resources for productive spending.

Improved monetary frameworks are needed in many countries, including clear monetary objectives supported by greater central bank independence.

Let me now turn to the Caucasus and Central Asia.

Growth in the CCA started to pick up during the second half of 2016 and is projected to reach 3.6 percent in 2017, up from 2.5 percent last year. Improving economic conditions in the region’s main trading partners, firming of some commodity prices, and the continued implementation of structural reforms, should support the recovery.

However, medium-term growth is forecast to remain well below historical norms so there is no room for complacency.

Against this back drop the policy priorities for CCA countries are as follows:

Reforms to diversify economies away from remittances and commodities and to foster private sector development need to be accelerated to secure strong, sustainable, and inclusive growth. This would also help harness the benefits of the Belt and Road Initiative, including from greater trade and financial integration with the global economy.

With an average fiscal deficit at 3.4 percent of GDP in 2017, fiscal consolidation should continue, including to rebuild buffers. Countries need to channel public expenditure efficiently and improve tax collection, while protecting social safety nets.

Monetary policy frameworks should be strengthened further. Ensuring financial sector resilience is a continuing priority and deep-rooted weaknesses in highly dollarized banking sectors should be addressed promptly.
 
Important downside risks remain for both the MENAP and CCA regions, especially over the medium term.

Geopolitical risks and spillovers from conflicts remain a deep concern in MENAP. While the diplomatic rift between Qatar and several other countries has so far had a limited impact on growth in the region, a protracted rift could weaken medium-term growth prospects. Social pressures and reform fatigue also weigh on prospects.

Downside global risks include lower-than-expected oil prices, tightening global liquidity, and inward-looking policies by advanced economies.

On the upside, all countries, especially oil importers, should benefit if global growth strengthens further. The impact of various integration initiatives—Compact with Africa, Belt and Road Initiative, and reforms in Uzbekistan—could be stronger than expected.

Before I take your questions, I’d like to highlight some of the support and advice we’ve been providing to the MENAP and CCA region.

The IMF continues to be deeply engaged and has set the goal of strong, sustainable, and inclusive growth as its top priority for policy advice and technical assistance for the region.

In January, we will be heading to Marrakech for the “Opportunity for All” Conference that we are co-hosting with the Government of Morocco, the Arab Monetary Fund and the Arab Fund for Economic and Social Development. Participants from across the region's public and private sectors will exchange their experiences, lessons, and ideas on how to create more jobs by developing new sources of growth.

We continue to broaden our analytical work so that it remains relevant for countries and their policy challenges. Our forthcoming Regional Outlook will include thematic chapters on the opportunities and challenges from international trade and financial technology, while papers on wage bill management and financial sector resilience in CCA are also forthcoming.

And of course, we continue to underpin our engagement with extensive financial support—now covering 9 countries across the MENAP and CCA regions, for a total amount of about USD 25 billion.

I again thank you for your time and for joining us for the IMF’s Annual Meetings. Let me now turn to your questions.

And please identify yourself and the organization you work for, please.

QUESTIONER: You mentioned Caucasus and Central Asia there. Based on the reforms you’re seeing in countries; Kazakhstan, Uzbekistan, for example, but elsewhere, which countries beyond the dates were you most excited about and most concerned about going forward in a more sort of reform-based way? That’s it. Thanks.

MR. AZOUR: Thank you. Central Asian countries have been adjusting to the shock of the climb in oil price and price of commodities over the last few years. They have introduced certain number of reforms to ease the tension on the financial sector, as well as to strengthen their fiscal positions.

Uzbekistan which has been for a certain of number of years managing its economy and running, in fact, its economy with certain differences, has started recently strong reform that was initiated by opening up their economy to further trade integration and trade cooperation, has moved into more open-exchange rate regime, and has announced a certain number of reforms that, if well implemented will allow them to regain additional growth as well as also, to provide to the region additional integration and growth potential.

QUESTIONER: I’ll ask my question in Arabic. How do you assess the current situation in Lebanon from the economic and financial situation, particularly since for long years there was no budget, the reforms were almost nonexistent, growing deficit and growing debt? In addition, the issue of Syrian displaced persons made the situation worse. There are 500,000 displaced Syrians in Lebanon. How do you see this situation?

MR. AZOUR: The recent developments in Lebanon after the election of the president and the formation of the government and activation of the parliament work and the adoption of some financial reforms through the recent parliamentary sessions, it is expected to have a budget approved. This is a positive factor that will improve the financial and economic situation in Lebanon.

The displaced person remains a great burden on the economy and the social stability in Lebanon.

In the future, it is important to continue to follow up on the reform process, to gradually reduce the budget deficit, and face the public debt problem, in addition to taking a number of structural reforms in the Lebanese economy.

There’s no doubt that the horizons towards approving some laws, particularly the public-private partnership, will help the economic situation while making sure that the spillover effects by expenditure will be addressed. Thank you.

QUESTIONER: I’d like to ask two questions for Morocco in French.

The first question, the macroeconomic balances in Morocco since 2010. The impressive increase in the public debt in Morocco has gone up by 22 points between 2010 and 2016. Will this trend continue? Do you think there are increasing risks?

Second question, the reform process that you mentioned. Given the economic recovery, do you think that this reform should continue, and what will the benefits be if it is actually implemented? And what are the risks as well?

MR. AZOUR: Well, as you know, Morocco has undertaken a reform program over the past few years to reduce the fiscal imbalance and to improve economic competitiveness. The economic situation in Morocco has got better over the past few years, as you know. And this has allowed Morocco to stabilize its debt level, its debt load.

At the same time, Morocco has undertaken steps to address and to improve the social situation as well. So, the implementation of the reform program that Morocco had undertaken is satisfactory. It's going in the right direction. It's allowed the economic situation to be stabilized and to create the conditions as well which are conducive for growth, as we've seen in the forecast for 2017 -- 2018, rather. Morocco is now thinking about making the exchange rate more flexible and to do this in a gradual fashion.

This is a good step forward because it will allow Morocco to improve its competitiveness, but at the same time it's something which remains to be seen, which remains to be determined based on the strategy and the plan that will be implemented by the Moroccan Central Bank.

QUESTIONER: Mr. Azour, I have two questions. One is about the Saudi finance minister yesterday who talked about their decision to possibly slow down some of the reforms, including removal of subsidies on certain energy commodities as well as their, sort of, reconsideration about the self-imposed target of 2019 for a balanced budget.

I'm assuming that you're familiar with his comments or with the consideration. I was wondering what is your feeling about this decision given your own report just a week before sort of advised a bit of a slowdown. So what Saudi Arabia seems to be doing right now, is it all positive or is it more than, sort of, you're advising? That's my first question.

Second is if the U.S. were to walk away or refuse to recertify the Iran deal what would be the fall out for the Iranian economy given the fact that already European countries seem to be afraid of further U.S. sanctions and are sort of avoiding investments in Iran. Do you think anything from Asia or the rest of the world will be enough for the Iranian economy? Thank you.

MR. AZOUR: Thank you for your question. On this Saudi Arabia side, as you know, Saudi Arabia has started to adjust the new norm in oil prices a few years ago by reducing their expenditures and introducing a certain number of tax and fiscal measures. Recently they have introduced a certain number of excises and they have been preparing for a certain number of fiscal reforms to introduce the value added tax and other reforms in order to balance their budget. In parallel, the Saudi 2030 vision aims at diversifying the economy, growing the economy outside the oil sector and create additional jobs.

The pace of reform that goes in the right direction is to be determined based on the conditions and the buffers that countries have. And in the case of Saudi Arabia the adjustment on the fiscal can be faced in a way that would allow them some more flexibility. They are in the right direction and the set of reforms that they are implementing and planning in terms of fiscal consolidations will help them progressively to reduce the level of their budget deficit and reach the situation of balancing their budget in the years to come.

On the second question, in fact, we are following up on this situation and we are waiting to see if there are any measures that will be taken further in order for us to assess. I think it's too early to give an opinion on how these things would fall and what would be that real impact.

QUESTIONER: If you would like to give us an idea about Tunisia and the outlook for Bahrain?

MR. AZOUR: Throughout the past period Tunisia has embarked on an economic reform with the aim of reducing the points of weaknesses in the economic situation with the aim to reduce the debt and improve the GDP, and in order to give an impulse to the economic wheel in general.

I believe that such economic reforms would contribute to increase the rate of growth and provide employment opportunities that would contribute to the economic growth. And in spite of the difficulties that have been faced by Tunisian economy the Tunisian government has embarked on a number of reforms and is going on with the reform in the future.

We believe that the reform would aim at expanding the revenue base with a number of structural reforms that would lead to the empowerment of the Tunisian private sector and the creation of job opportunities.

As for Bahrain, they stared to adjust to the low oil prices with certain number of fiscal reforms to reduce the level of deficit. Bahrain is continuing and is committed to pursue their structural reforms as well as also reduce a level of deficit by implementing the same reforms, introducing the value added tax, and progressively listing the subsidies on some of the fuel and related products. The level of buffers in Bahrain would lead for greater adjustment for them in order to reach a level of fiscal sustainability over the medium term.
 

As I said, they have already been implementing certain number of fiscal reforms where they introduce their budget deficit, reducing their budget deficit will allow them to preserve their buffers, and then to reach a level of competitive and stability that is needed at the current level of oil prices.

QUESTIONER: My question is about the evaluation by the IMF of the Egyptian economic reform in cooperation with the IMF. Another question regarding the policy led by Morocco. In the gradual floating or the depreciation of its currency and wouldn't that have been useful for Egypt as well? And the other question. Can we expect that there would be a reduction of the energy and fuel subsidies during this year? 

MR. AZOUR: As you know, Egypt has embarked on a big and large economic reform and this was supported by the IMF. Thus, such reform has contributed to the stability- monetary and financial stability, as well as the increase of the trust of investors, and there was a gradual cancellation of the black market and the exchange of the Egyptian pound in the black market.

And the recent indications have, indeed, shown that there was progress. Of course, we all know that this program is a multi-year program and reforms take time, especially structural reforms with the purpose of the improvement of a number of indicators in the business environment and the encouragement of the private sector, taking into consideration the situation of the international economy. And, indeed, such a program intends to increase Egypt's exports as well as the improvement of tourism.

As for the comparison between Egypt and Morocco, each country has its own specificities, and therefore, you cannot apply the same economic policy in two different countries. Therefore, the decision by the government to start with immediate effect monetary and financial reform, we believe that there was positive impact.

As for the liberalization of the fuel prices: The Egyptian government, as you know, the program ends by 2019 and the decision made this is something that is to be decided by the government of the given country itself. The IMF provides the guidance, provides the support, but the decisions are made by the governments of the countries.

QUESTIONER: I wanted to ask about the UAE. How do you rate the pace of economic reforms and fiscal consolidation? Are they on the right path? Is there more to be done in order to improve the finances?

And also, with regards to Oman and Bahrain they kind of don't have the fiscal buffers that the other GCC countries have. Are you worried about that? Especially Bahrain where the debt to GDP is higher than the other countries and they don't have the fiscal buffers that the others have? Thank you.

MR. AZOUR: Thank you. UAE started early on adjusting its public finance in order to align with the new oil prices. They have introduced a certain number of reforms both to reduce their expenditures, as well as also to diversify their revenues outside the oil sector by adjusting the price of gasoline and lifting the subsidies, preparing for the introduction of the value added tax. And, as you know, they are committed to implement it in 2018.

The diversity in the UAE economy allows UAE to better adjust and progressively to benefit from the global recovery which, in fact, would require to pursue on some of the reforms that they have been introducing in terms of improving their business environment, in terms of improving the competitiveness of their services.

When it comes to Oman and Bahrain, Oman and Bahrain, like the other GCC countries, are implementing fiscal adjustment in order to reduce the level of budget deficit. And as you rightly said, the level of buffers in Bahrain and Oman are less than other countries, and therefore, the fiscal adjustment for them is to be continued and in certain cases accelerated.

MS. AMR: Thank you, Jihad. We have questions online. We have a question on Jordan. They request that you respond in Arabic. How do you evaluate the tax burden in Jordan? Do you see that your advice to the Jordanian government to lift tax exemptions on services and on commodities, including on bread will help tax reform in the Kingdom?

MR. AZOUR: Jordan has embarked on economic reform to reduce the budget deficit and to reduce the debt. This reform is based on several foundations, one of which is the financial reform, as well as the structural reform that would contribute to the activation of the economy and the social production. Part of the reform that was supported by the IMF was the taxation reform. In a way that it would be a progressive taxation.

This would reduce the burden on the vulnerable strata of the society in a way that other sectors would not be affected by such financial corrections. No doubt, during my recent visit to Jordan I had a number of meetings with the senior officials on reform, including the financial reform conducted by Jordan in preparation for 2018 budget.

Part of the other question was on the subsidies on bread. I believe that the best way to improve the fiscal situation and the taxation, I believe that taxation should be progressive. We should reduce the taxation burden on the vulnerable. Although this (tax collection) is limited if compared to other countries of the region. I believe that there is a necessity to protect the vulnerable sectors of society and empower many of the Jordanians to support this reform in general.

MS. AMR: On Tunisia, the finance minister gave today an interview saying he will take serious measures within the 2018 budget to boost investment and improve the economy. How will the IMF support such measures?

MR. AZOUR: I would like to reiterate that the main purposes of the reform in Tunisia was to maintain the stability that is one of the main pillars of prosperity, and this is one of the main generators of employment opportunity and job opportunities. And, therefore, the interview given by the Tunisian minister, he referred to the fact that the Tunisian government is committed to the reform, especially that it will contribute to control the debt. That is one of the main challenges, in such a way that Tunisia would be able to inject more money and funds to help the more vulnerable, on the one side, and on the other hand to improve business environment.

QUESTIONER: I just wondered, how do you feel Lebanon can arrest its low growth and rising debt levels, given it’s continuing to face regional turmoil?

MR. AZOUR: Well, as I said in my introductory remarks, some of the oil-importing countries, including Lebanon and Jordan and Tunisia, they face the issue of slow growth and high level of deficits in that. And, this is why part of our policy recommendations is to pursue on the fiscal adjustment and the fiscal reforms to gradually reduce the level of deficit and debt and improve, in fact, their ability to redirect some of their fiscal space to help address some of the weaknesses in growth.

Countries like Lebanon and Jordan in addition to that are also facing the issue of refugees, and it’s important that the International community will pursue its assistance both to the host community as well as also the refugees in order to lift some of the burden on those countries and hopefully that any forthcoming reconstruction will allow those countries to benefit from a return in the cycle in the region.

MS. AMR: Thank you very much. This concludes the press conference on the economic outlook for the Middle East and Central Asia. I would like to also direct you to a seminar that will be taking place right now on the Middle East in this building in Hall A and B. Thank you all for joining.