Transcript

Transcript of Middle East and Central Asia Press Briefing

April 21, 2017

Speakers:

Jihad Azour, Director, Middle East and Central Asia Department

Wafa Amr, Senior Communications Officer, Communications Department

MS. AMR:  Good morning everyone, good afternoon to colleagues joining us from the rest of the world.  This is the press briefing for the Middle East and Central Asia. I'd like to introduce Mr. Jihad Azour, Director of the Middle East and Central Asia Department.  Mr. Azour is going to give a few opening remarks and then we'll open the floor for questions.

MR. AZOUR:  Thank you, Wafa.  Good morning to all the participants here as well as through the internet.  Let me first welcome you all here for the Spring meetings and for my first press conference as the new Director for the Middle East and Central Asia Department.  I look forward to continuous discussions and fruitful cooperation. 

The forecast for our region has been released as part of the world economic outlook and we will have more detailed discussions of those forecasts when we launch the update of our regional economic outlook in Dubai on May 2 and in Almaty on May 4. 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.

A more favorable global environment—including higher expected growth and some firming of commodity prices—is providing some breathing space for the MENAP region after what has been a difficult period. Non-oil growth for the MENAP oil exporters is expected to accelerate from 0.4 percent in 2016 to 2.9 percent in 2017, although the production cuts following the OPEC agreement are reducing headline growth. For the MENAP oil importers, headline growth is projected to increase from 3.7 percent in 2016 to 4 percent in 2017.

While this represents an improvement, our medium-term growth projections are too low to create enough jobs or improve living standards. Many countries—especially oil importers—are also carrying high levels of debt. Therefore, both oil exporters and importers are facing two critical policy imperatives: fiscal consolidation and structural reforms.

On the fiscal consolidation side, we are encouraged by the strong policy measures many countries have adopted, such as plans for a value-added tax in the GCC countries, streamlining current spending in Algeria and Oman, and energy subsidy reform. The fiscal deficits for oil exporters were 10 percent of GDP last year, but are expected to fall below 5 percent this year, in part due to higher oil prices. Oil importers are also making progress—with deficits expected to drop from 7.2 percent in 2016 to 6.6 percent in 2017. However, these countries still face average debt levels of about 80 percent of GDP.

Therefore, fiscal consolidation and fiscal reforms will remain an ongoing priority across the region. Each country should consolidate their positions at a pace appropriate to their circumstances, and in a manner that is as growth friendly as possible. For instance, we encourage countries to give priority to productive spending—in areas such as education, technology and innovation, and health care—while protecting the poor and vulnerable. Reducing exemptions and expanding the tax base can also help make reforms more fair and more inclusive.

On the structural side, the region recognizes the need for reforms that diversify economies, spur private sector-led growth, and boost competitiveness and productivity. For countries that have already developed plans, such as Saudi Arabia, the focus needs to be on implementing them. These reforms will be necessary to generate the jobs needed by the millions of new jobseekers expected to enter the labor force over the next five years.

Let me now turn to the Caucasus and Central Asia.

Growth for the CCA is also forecast to increase—from 2.4 percent in 2016 to 3.1 percent in 2017. However, recent shocks have left the region with higher debt and weaker financial sectors, and the medium-term growth outlook remains subdued. Over the next 12 months and beyond, to ensure fiscal vulnerabilities are effectively managed, CCA countries need to carefully consolidate their fiscal positions—too much could hurt growth; too little could undermine fiscal sustainability.

The CCA should also continue to pursue structural reforms. We are encouraged by the plans developed by countries such as Georgia and Kazakhstan, and look forward to seeing those plans become a reality. In particular, improving the business environment and strengthening legal frameworks will help the CCA diversify away from commodities and remittances.

Finally, a key priority for the CCA is the need to strengthen its financial sector, which has become increasingly vulnerable. With few exceptions, restructured and overdue loans have increased further, and banks remain undercapitalized. These weaknesses represent a drag on future economic growth and pose a risk to public finances. Therefore, financial repair is urgently needed. Some countries have started to take action, but more remains to be done.

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 in our region and I am looking forward to strengthening those ties over the course of this year and beyond. We are providing financial support to 10 countries in our region, including new arrangements for Egypt and Georgia—which was approved by the Board last week. And we are continuing to provide advice and analytical work to help countries address policy challenges—including in areas such as energy price reform in the Arab countries and structural reform priorities in the GCC. We are helping countries with capacity building, including anti-money laundering efforts in Afghanistan, the introduction of a new currency in Somalia, and the development of the value-added tax in the GCC. We are also developing plans for a conference in early 2018 aimed at identifying ways to boost inclusive growth in the MENA region.

For the wider MENAP region, the humanitarian and economic cost of conflict is an ever-present concern and we are committed to helping countries cope with—and then recover from—those effects. With an estimated 10 million refugees and twice as many displaced people, our lending arrangements have been tailored to help countries cope with these difficult circumstances. The IMF is also working with our partners to mobilize broader international support.

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

Again, thank you very much for taking the time today to join us at the IMF Spring meetings and I will be very happy to answer any questions.

MS. AMR:  Thank you very much.  Please identify yourself and your media organizations.  

QUESTIONER:  This is going to be the only opportunity for me to ask about the country Egypt and my concerns, so I've got three questions, but I assure you they're going to be quick.  Although they started to implement most of major things, economic reforms to revive the national economy, and for that, the Board of the IMF agreed to grant us a $12 billion loan, and we got the first tranche, but now, after like two years of implementation, I could literally say that our people are still suffering a lot, maybe more than ever before.  You once said, not you, I mean, the IMF once said that the value of our national currency has been depreciated more than you have expected.  I don't know how that happened and I don't know why it happened.  Well, could you please tell me what do you suggest for our government to quickly retrieve the value of the currency?

The second thing is about our public debt, which reached a very high level, and what to do to contain it or to control it.  So again, what is your plan for our government to quickly control effectively the public debt?

The last thing is about the tranche.  The IMF give us the first tranche of the loan, and we're waiting for the second tranche, and I'm not going to ask you when we're going to get it, because I'm quite sure that you're not going to tell me, but my question regarding that point is, what might hold the IMF back to give us the second tranche in the coming two weeks?  Thank you.

MR. AZOUR:  Well, thank you for your question.  Let me first tell you that the program has been approved in 2016 and not two years ago, and therefore, the program is running for six months now.  A certain number of reforms were implemented, and then we had very constructive dialogue with the authorities a few weeks ago when a delegation came here with the President, as well as also yesterday we had a very good meeting with their excellencies, the Minister of Finance and Central Bank Governor.

One of the main issues that we are focusing on after the first wave of reforms that were introduced under the program that brought, as you know, very strong confidence back into the Egyptian economy, and that was translated into strong capital inflows and have stabilized the economic situation.

Now, the main focus is on how to bring inflation down.  Bringing inflation down is a priority, not only for monetary policy management, but also for economic and social issues.  Those are the things that we are currently discussing with the authorities, and the priority is to bring inflation from 30 percent further down.

On the second -- I will go back to this -- on the second issue the debt sustainability is one of the main priorities of the program.  Therefore, this is part of the design of the program is progressively to bring down the level of debt.  Part of the measures that were introduced, in fact, were introduced to bring the level of debt down.  Also, to allow the Egyptian economy, which is something that is very important to look forward to now that you have the new economic cycle i.e., the global economy is growing back, to see how Egypt can benefit further from this recovery.

Some of the reforms that we have introduced, in fact, address this issue, improves the competitiveness of Egypt, as well as also increased productivity.  By doing so, we would allow the Egyptian economy to benefit further from the global recovery.  Yet, we made sure, in the design of the program, to alleviate the pressure on the low-income people, and this is why we have, designed some of the measures, through takaful and Karama and other initiatives to make sure that, while we're removing some of the subsidies, we are protecting those who are in need for the support.  Therefore, the design of the program was, in fact, trying to achieve the objectives that you actually have raised.  We have been doing this for six months now; it's progressing.  I think we need to give it some more time.

To answer your last question, the second tranche will be disbursed when the review is performed.  I think it's too early and it wouldn't be wise for me sitting here today to say when the tranche will be disbursed when the review is not completed yet.  Therefore, as you know, a mission will go, I think, in a few weeks' time, probably by end of April or so, to Egypt to finalize the review, and by that time, I will be very happy to answer your question.  Therefore, I think we have to be a bit patient.  Egypt did a great level of effort over the last six months.  Things are improving, markets are reacting positively, we're trying to make sure that the burden of effort is shared in a way that will, in fact, will have the majority of people contributing, but I think we need to give it some more time.

QUESTIONER:  I want to follow up on Egypt, and I want to ask about another country.  On Egypt, so you're in talks now to curb inflation, and he asked how were you going to curb inflation, because you see two main channels tied to monetary policy and, for example, if you're looking to delay some of the measures like the second round in subsidy cuts, it would, when implemented, add to the inflationary pressures, at least one of.  That's on Egypt, so what are the challenges that you see to curb inflation?

And the question I have is on Bahrain.  FX reserve levels are down below $2 billion, per the latest central bank data.  That covers, I think, less than two months (inaudible) source.  It's within the critical levels.  How concerned are you about Bahrain?  Do you see strong decision?  Do you anticipate GCC support or see a need for Bahrain to have global bond markets again to raise that question.  Thank you very much.

MR. AZOUR:  Thank you very much.  On that, you rightly, for on Eqypt said it.  The level of inflation months and months is above 30 percent.  This is not only hurting the overall financial stability, it's also hurting social need, those who have low income, and the poor sector of the population.  In this case, the instruments that are the best to be used are monetary instruments, especially the interest rates,  And we understand that Egypt has been, for a long period, working on an exchange rate regime that is fixed and therefore the utilization of these instruments were not in the toolbox of the central bank.  Therefore, today, objective number one is to bring inflation down, because by bringing inflation down, we will ease the additional of fiscal adjustments required, one.

Second, socially, it will alleviate some of the social pressure that has been created by moving from fixed exchange rate regime to flexible exchange rate regime, and also for the stability in terms of providing FDIs and providing the right framework for investors.  I think this is the right priority to tackle.  We believe that the utilization of the interest rate instrument is the right instrument to be used in order to manage inflation down, and this is something that we are discussing with the authorities.

On sequencing, also, I think the right sequence is to address inflation and then pursue on some of the additional fiscal measures that were part of the program.  Nothing of what we are discussing today was not part of the agreed program of last year.  As I said, this program has proved to be useful for Egypt.  It has provided confidence back.  It allowed them to manage a situation that was difficult before.  We need to give it some time.  This is a three years' program, it's not six months' program.  Therefore, we need to work with them on the right sequence, and have a very good relationship with them on that.

Bahrain, like other GCC countries, was hit hard by the drop in oil price.  As you know, in the GCC countries, you have countries where the level of buffers is higher, but Bahrain did the needed fiscal consideration, like others.  They still need to do more.  They have still the right exchange rate regime is the exchange rate regime they have.  They need to pursue fiscal consolidation.  They were able to tap the market successfully, as you know.  Last year they did successful bond, and this year they did another one.  We are keeping the dialogue open with the authorities.

MS. AMR:  We'll take a question here in the second row, and then we'll take your question.

QUESTIONER:  Question about Iran, so what sort of forecast do you have for Iranian economy, given the fact that one year of the thing of interest sanctions have gone, and so for the coming years, what kind of forecast do you have, which is specifically focus it on the non-oil sector?  Thank you.

MR. AZOUR:  Okay.  Thank you very much for your question.  As you know, the Iranian economy recovered in 2016, mainly from the oil sector.  The ability of Iran to bring up the level of oil production to those of the level of oil export helped the Iranian economy grow in 2016, based mainly on the oil sector side.  2017, the growth will come from the non-oil sector, and this will depend on the speed at which the various reforms, mainly the structure reforms, are conducted to provide addition and access for foreign investors through improving the business environment, reforming their financial sector, as well as also improving the way their fiscal management, and the way they manage their budget.  Going forward, we expect the level of growth to go up, and as I said, mainly from the non-oil sector.

QUESTIONER:  Let me ask about two fundamentals, which on their place and in the world economy, dropping the latest on the world economy conflict.  One is the possible tax reform in the U.S. and the appreciation of dollar.  This can pose additional risks to particularly to CCA the oil importers, because a large part of their debt is dollar denominated and their negative (inaudible) is also denominated in dollars.

And the next is the ongoing rebalancing of the economy in China, and this result in a lesser demand for raw materials are in the Chinese industry, and as to direct down the global prices for metals primarily.  Thank you, which could also weigh on the exports of CCA importers.  Thank you.

MR. AZOUR:  Thank you.  Of course, as I said in my introduction, global economy is improving and the region is benefiting from that.  The level of growth that we are witnessing in the region, large part of it is coming from the increase in oil price and price of commodities, as well as also the improvement in the trade partners of both CCA and MENA countries.  But also, risks are still there, and part of the risks is coming from the fact that interest rates in the U.S. could go up as well as also the appreciation of the dollar.  This applies for countries that have part of the debt in dollars and also they have a dollarized economy, and case in point, in the CCA countries.  And therefore part of our recommendations is to use this moment where the situation in 2017 has improved compared to last year to accelerate some of the reforms.

In the case of CCA, the effort to go into reforming and restructuring the financial sector, this is, on one hand, that will allow the financial sector to be less dependent or at risk when interest rates internationally goes up, and then the path through will be affecting negatively their financial stability, but also, I think reforms to diversify their economies, and therefore, structure reforms are very important on that front for countries to have the level of growth they used to enjoy 5 or 10 years ago.  Therefore, we believe that opening up their economies through structure reforms, stabilizing their financial system and complementing this with some of the fiscal reforms that are needed will help CCA countries to, in fact, on one hand, benefit from the recovery, and on the other hand, to protect themselves.

On the rebalancing in China, the Chinese economy is showing stronger recovery than six months ago.  Therefore, I think what is useful today is to see how we can benefit more from the recovery of the Chinese economy and the One Belt One Road initiative as well as also other initiatives need to be put at the service of benefitting those countries more and to grow faster.  As I said, we need to go back to the level of growth that those countries used to enjoy because in 2016, we had the most level of growth, in fact, in the last 20 years and this is where the efforts should go. 

QUESTIONER:  Good morning, I am from Radio Tunisia.  My first question is about the reforms in Tunisia.  How do you assess the progress and the reforms in the country? And the second one is about the currency, the national currency, the Dinar up to the recent IMF review mission in Tunisia and especially after the declaration of the finance minister on Tuesday to the Tunisian press about the Dinar, the national currency has devalued-- it has lost about 8 to 10 percent in two days versus the international currencies. 

My question is did you advise Tunisian authorities to have the Dinar float freely? And the second part of the question, did you consult with Tunisian authorities about the manner to communicate about that to the business and the public opinion? Thank you.

MR. AZOUR:  Thank you.  As you know, we had the mission that finished this week in Tunisia and we are satisfied with the outcome of this mission.  Together with Tunisian authorities, we emphasize on the key reforms in order, on one hand, to address their public finance situation, because an important element of the program is to standardize the situation, especially with a country where the level of deficit is high.  

And, on the other hand, to allow the Tunisian economy to address the issue that you’ve mentioned which is the growing trade deficit and the way they can address it is by having additional flexibility over time.  It doesn’t need to be in the way you mentioned it.  We are not recommending the floating of the Dinar.  We are recommending the management of the currency in a way to allow Tunisia to address the deficit, the budget deficit and the trade deficit and to preserve the stability of the Tunisian economy.

This is an instrument like other instruments. The same way we have recommended some measures on the fiscal side, we are recommending certain measures on the monetary side.  As I said, in Tunisia, our targets are two: stabilization in order to have the economy, as well as also the public finance stabilized in order for Tunisian authorities to focus on prosperity, how we can bring growth to be able to find the right level of jobs that the Tunisian young as well as also the unemployed to find jobs.

The program that we have designed with them and the effort that we are conducting with them is stabilization and recovery.  Recovery is by doing business, by improving some of the business environment, reforming the financial sector that plays a great role in improving the access to finance and allows the private sector to invest and grow, especially in the medium and small size companies.

On the second point, on communication, in fact, this is not our role.  The authorities, they manage their communication the way they (inaudible).

.

QUESTIONER:  Thank you so much.  I am going to ask my question in Arabic please.  Thank you, Mr. President.  I used to call you Mr. Minister in Lebanon.  The first point today is that you were a minister in Lebanon and you know that there is very high deficit in all budgets and also the increase of public debt and the issue of refugees today, the parliament, even in discussing the issue of the budget and the financial reforms and different forms that have to go along with this. 

As you are the ex-Minister in Lebanon and now you are in the IMF, how do you advise the economy or the authorities in Lebanon to go ahead with these reforms? Now with the bank in Lebanon, you, here at the International Monetary Fund, you are supervising the monetary policies and the general policies in the different countries, what is your opinion regarding this issue in Lebanon and will it have spillovers on the economy as it was mentioned by some people?

MR. AZOUR:  As you are aware, the mission of the IMF was in Beirut some time ago and it has reviewed from one part, all the issues that have to do with reducing deficit and in this field, there were many studies that were conducted by the mission in Beirut about the issues that are related to reducing deficit as well as other issues related to regaining growth and also the refugees and its impact on the Lebanese economy because we expect -- we know that the issue of refugees had a negative impact on economy and also on the fiscal side.

As IMF, we encourage the resolutions taken regarding the budget and also a certain number of procedures and actions with regard to expenditures and revenue.  Our main recommendation is that Lebanon, as any other country in the region that has high debts, it is to look with an accelerated manner to reduce deficits, especially in order to improve, to get surplus and to realize surplus in a level that would allow the government of Lebanon to maintain and reduce the level of debt as compared to GDP, therefore, any procedures taken by the government or the state of Lebanon are procedures and measures that are taken and encouraged by the International Monetary Fund.  In this field, we have a number of suggestions that were made by the mission in this report and the other reports.  The other issue, which has to do with fiscal affairs, it has to do with the monetary policy and also the mission by the Fund has reviewed this issue and has given its recommendations that we need to use other tools such as gradual increase if it is necessary of the level of interest rate and I would say again that we need to emphasize through the mission, that Lebanon has to tackle the issue of deficit to increase the level of primary surplus due to two factors. 

The first factor is the issue of refugees and its impact and you know, in the last conference that was held in Brussels, it was mentioned and the other reason is that today with the increase of interest rates at the level of the world, especially the interest rate on the dollar, Lebanon has to be more prudential and has to have more protection for financial stability. 

MR. AMR:  Yes, go ahead.

QUESTIONER:  I have two questions.  How does the IMF assess the economic status of Jordan nowadays? There are many comments by the experts that we are facing a very difficult situation if we don’t take procedures, we will be like Greece.  I am talking about the economic situation about in Jordan.  There is a program within the International Monetary Fund and now we are going -- there are negotiations with the IMF and they will be finalized very soon. 

In the last visits you made, you recommended that we increase revenue and we start making some reforms at the value of 450 million Dinar.  That situation is very difficult in Jordan, how can we balance between these reforms and the situation that we face and the increasing number of refugees and also the income of the Jordanian national is very very low so how can we face all these challenges?

MR. AZOUR:  No doubt that the refugees’ problem is very difficult.  We were discussing the case of Lebanon and it’s also the case of Jordan and the issue of refugees has overburdened not only the human part but also the economic aspect and we are facing challenges because of that because we -- managing the economy is very difficult. 

No doubt, Jordan is also suffering due to the inability to benefit from the trade with neighboring countries such as Iraq and other countries. 

The program that was put in cooperation with the government of Jordan is to support the program of the government. 

There are reforms that have to do with the budget and the first factor was expanding the base of revenue because the main problem suffered by Jordan and other countries in the region is that there is focus, there is vulnerabilities in the revenues. 

We need to expand the base of revenues and the best way is through two factors: the first one is gradually eliminating all exemptions in the taxing system to ease the burden on the vulnerable, and the Fund did not make recommendation to lift the price of basic food products or remove subsidy on food such as bread and others.

You may notice in the program supported by the Fund, there are some issues that have to do with social aspect, whether participation of women is more in the labor market, we have a number of social programs and also among the conditions of the program, they have to do with the vulnerable, whether in Egypt or in Jordan, we attach a great deal of attention that these points would be taken into consideration.

As I mentioned in the beginning, the growth or inclusive growth is one of priorities that we work on.  This does not prevent countries that suffer from high debt to tackle these issues. 

The objective, how to treat, how to tackle these issues with less cost and with high effectiveness, we want to enable the economy to start to grow. 

The objective is not only to improve the indicators of the budget but we also want to give more space so that the government would benefit from it to support social programs.

For example, in Jordan, through supporting small and medium enterprises that would enable the Jordanian economy to grow again. 

The situation in the region today does not give enough impetus through benefits  from the remittances that would come from the Gulf region or openness of the market, therefore we want to increase productivity and we need to use other tools in order to allow small and medium enterprises to be again the main foundation for growth.

Therefore, the situation in Egypt and in Jordan, the main objective of the program is to give confidence through tackling the issue of deficit in order to realize stability and to enable Jordan to start again to make growth through structural reforms that would allow through these reforms to be able to make growth of one or two or three or more percent of growth, therefore, I would say that this kind of growth at this level would have its impact on unemployment, especially youth employment.

We in the region are suffering from very high levels of unemployment and we have people who will join the labor market.

They are in large numbers, they need to enter the market through structure and reforms the way the economy realizes growth is through small and medium enterprises, thank you.

MS. AMR:  This is the end of the press briefing on the Middle East and Central Asia.&nbs