Transcript

Transcript of October 2019 Middle East and Central Asia Department Press Briefing

October 18, 2019

SPEAKERS:

JIHAD AZOUR, Director, Middle East and Central Asia Department, IMF

WAFA AMR, Senior Communications Officer, Communications Department, IMF

MS. AMR: Good morning, everyone. Thank you for joining us today. My name is Wafa Amr, Senior Communications Officer for the IMF. Today we have the press briefing on the Middle East and Central Asia.

I would like to introduce Jihad Azour, Director of the Middle East and Central Asia Department. He will start by giving some opening remarks and then we will open the floor for questions.

If you are joining us from outside the IMF, please send us your questions online. Thank you.

MR. AZOUR: Thank you Wafa. Good morning and welcome to the IMF’s 2019 Annual Meetings. Today, I’d like to make a few remarks about the economic outlook for the Middle East, North Africa, Central Asia, and Caucasus before turning to your questions.

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

We project the MENAP region to grow at 0.5 percent this year. This compares to growth of 1.6 percent in 2018. However, much of this decline reflects country-specific developments like the sharp projected contraction in Iran. Indeed, this region has mostly withstood the most serious potential impacts of rising global headwinds. Still, risks to the outlook have increased and countries have much work to do to secure inclusive growth.

Overall growth is projected at 1.3 percent this year for oil exporters when countries in conflict and Iran are excluded. While oil growth has softened for this group, due to agreed production cuts, non-oil growth in 2019 has ticked up to 2.7 percent. The region’s oil exporters are facing continued oil price volatility, geopolitical tensions, and, in some countries, rising fiscal vulnerabilities. Medium-term growth prospects are also hindered by declining productivity.

For the region’s oil importers, growth in 2019 stands at 3.6 percent, down from 4.3 percent in 2018. This decline is mainly driven by the weak outlooks for Pakistan and Sudan. Easier global financial conditions have provided temporary relief, though high public debt, rising interest burdens and social tensions remain concerns.

Going forward, oil exporters should reduce fiscal vulnerabilities, including by resuming gradual consolidation. To address the challenge of declining productivity, countries should also implement structural reforms that boost private-sector activity and attract investment.

Meanwhile, MENAP oil importers confront a difficult trade-off between reducing fiscal deficits and raising growth. That is why growth-friendly fiscal consolidation and structural reforms are needed to boost growth and spur job creation.

Let me turn to the outlook for the Caucasus and Central Asia.

In the CCA region, we expect growth to remain stable at 4.4 percent over 2019-20. This comes as fiscal spending is helping offset the impact of slowing trade.

Still, creating enough jobs for the nearly 4 million new workers over the next decade remains a central challenge. Sharp slowdowns among key regional trading partners due to elevated global trade tensions could further constrain export growth for the region. Therefore, strengthening competitiveness and diversifying growth sources will remain critical economic priorities going forward.

I’d like to say a few words about the risks surrounding our outlook.

As I have mentioned, and as you will hear throughout these Annual Meetings, global growth has slowed, and risks are on the rise. Let me highlight some of the main issues we are monitoring:

· Trade tensions remain a top concern. While regional trade links to China are more pervasive in Central Asia and with MENAP’s oil exporters, the spillover effects of a significant slowdown in China would be felt throughout the region.

· Oil price volatility continues against the backdrop of ongoing trade and geopolitical tensions, including recent attacks on Saudi Arabia’s oil facilities.

· The uncertainty regarding Brexit could also have significant economic implications for the region. A sharp contraction in the UK’s economy would have severe ramifications for the entire Middle East and Central Asia region, given the country’s status as its largest banking counterparty

· Finally, social tensions continue to flare up. The long-standing prevalence of social discontent among the region’s citizens illustrates the urgency and importance of continued reform implementation.

We’ll explore in greater depth the outlook for our region when we launch our Regional Economic Outlook in Dubai later this month and following that in Central Asia. At those events, we’ll also discuss in detail the REO’s two analytical chapters, which focus on the role of capital flows in the region’s economy and how fiscal institutions affect fiscal outcomes. The region has seen a surge in portfolio inflows in recent years, which, while helping countries meet financing needs, are more susceptible to global market shifts. Revitalizing foreign direct investment, which has declined sharply since the 2008 global financial crisis, could prove vital to economies throughout the region. We’ll discuss these findings more at a panel discussion tomorrow.

Our analysis of the region’s fiscal institutions shows that they are associated with poor fiscal outcomes. That’s why measures that improve the effectiveness of institutions, such as by boosting budget transparency and strengthening procurement processes, will be critical to our region’s fiscal health.

Before fielding your questions, I’d like to underscore the IMF’s continued commitment to supporting countries throughout the region as they pursue their reform agendas and work toward achieving inclusive growth. That commitment includes providing policy advice, technical assistance, and in many cases, financial support. Currently, we have programs with Afghanistan, Armenia, Georgia, Jordan, Mauritania, Morocco, Pakistan, and Tunisia, with our program in Egypt concluding earlier this year. Additionally, the IMF has a staff-monitored program in Somalia, which will further assist the country on its path toward debt relief under the Heavily Indebted Poor Countries Initiative.

Thank you again for joining us in Washington, and now I am happy to take your questions.

MS. AMR: Thank you very much, Jihad. We will now open the door for questions. Please identify yourself and the media organization. And please use the microphones on both sides of the room.

QUESTIONER: Hi. I wanted to ask you about Somalia, can you give us an update on what's happening there with the debt relief efforts and if you're making any progress, do you think that could be moving forward?

And then I also wanted to a separate question, which is that the IMF has pointed out that the global trade tensions are having a sort of, you know, spillover effect for emerging markets. To what extent is that -- are you feeling that in the MENA Region? Or to what extent could the trade conflicts actually be opening opportunities perhaps for new investments for supply chain suppliers? Thanks.

MR. AZOUR: Thank you. On your first question we held yesterday an important roundtable discussion with donors to discuss their preparation for what we call the decision point, which is the time where we will reach an agreement about the debt relief for Somalia. Somalia has done an impressive set of reforms that has led to the latest program which is what we call upper-credit tranche program, which allows Somalia to be ready for debt forgiveness.

The Fund has been helping Somalia throughout the four- year Staff-Monitored Program that we had with them, and we are working closely with our partners the IFIs and with The World Bank, with the African Development Bank in order to help Somalia reach this important step, and also, we are assisting the authorities in their reform agenda.

The last review was positively concluded, and we looking forward to continuing working with them, as well as also with the international community to provide the financial support needed to achieve the debt relief.

On your second question the --

QUESTIONER: Is there a timeframe?

MR. AZOUR: As you know the process for Somalia is benchmark, not a time band, therefore we have been progressing along the various set of reforms, to reach that point. In parallel, we need to provide certain number of additional grants from the international community to be able to address the debt arrears that Somalia has.

Of course, this process is progressing very well, and we hope to reach a positive end soon, but I cannot give specific dates or deadlines for that.

For the second question, of course, the various fractures, as the IMF Managing Director called them last week at her Speech are getting through various geographies. For our region the impact of trade tension affects certain number of countries, oil exporters because of the destination of the trade, as well as also some countries who have -- or are more integrated than others.

Central Asia Caucasus countries are among those as well as also other countries who could be affected or are currently affected through the impact of trade tensions on their trade partners.

This is an opportunity of course for all countries to address some of their structural weaknesses that will help them improve productivity. Productivity appears to be an important issue that countries of the region should address. And therefore, this is a call for all of them, and this where the Fund is trying to help them.

On one hand, build the framework to attract FDIs, and also help them address some of their structural weaknesses through building strong macroeconomic frameworks and move on to some of the structural reforms.

MS. AMR: Thank you. Please use the microphones if you have any questions. Thank you.

QUESTIONER: Hi. Jordan's Government says revenue has declined in spite of introducing a new income tax law, public debt still remains high. So I would like to hear from you what's your take on the progress in the reforms in Jordan? And what's your advice, and what do you believe are the top priorities in light of the ongoing conditions? Thank you.

MR. AZOUR: Thank you for your question. As you know, our relationship with Jordan is very deep. We have been supporting Jordan with two consecutive programs, to help Jordan implement its reform agenda.

In addition to our support, we were able to mobilize the international assistance that Jordan needs, and the role of the Fund was instrumental in the last conference that took place in London, to mobilize the support that helps Jordan address macroeconomic stability issues, as well as also attract investments to promote growth.

In Jordan, the reform agenda of Jordan’s Government is progressing, what you are referring to in terms of revenue shortfall is more on the tax on consumption, and rather than tax on revenues.

But broadly speaking, I think it's important for Jordan to pursue two tracks in its economic reform program. One is to strengthen macroeconomic stability which will allow Jordan to reduce any pressure on the public finance, allow the economy to attract investors, and on the other hand address some of the structural issues.

One of them is the reform of the energy sector, in particular, the reform for the electricity company, NEPCO. Improve the business environment, reduce the cost of labor, as well as also the cost of energy; this will help Jordan benefit from its full potential in serving various markets in the region.

QUESTIONER: It has been over one year since the new Armenian Government came into power after -- the (inaudible) revolution. How would you evaluate ongoing and maybe already implemented reforms by this government? And what are the key factors you are going to pay attention to in your corporation, maybe support to Armenia? Thank you.

MR. AZOUR: Thank you very much. We have a program with Armenia that focuses on helping the Armenian authorities to move into broad-based structural reform agenda. I was in Yerevan a couple of months ago, and it was a great pleasure to meet the authorities and see how they are progressing on various fronts.

Some of the reforms will address issues of governance, how to fight corruption and improve the way public institutions are working. Other set of reforms within the fiscal framework they have, is to keep budget deficit within control as well as also gradually reduce the debt, and fully implement the various reforms that they have introduced like they have introduced like the tax reform that was introduced a few months ago.

Progress in Armenia is on the right track, and we encourage the authorities to move forward with their set of reforms that will allow the economy to be more productive and to attract additional investment. Armenia is a country that has a lot of potential, and can play a greater role regionally, and internationally.

MS. AMR: May I remind you to, please, if you have questions use the microphones on both sides of the room. We have a question here. Thank you.

QUESTIONER: Hi. Could you, please share details of the current program in place in Afghanistan, and what the timeline is for that?

MR. AZOUR: Thank you very much. We have fruitful discussions with the authorities a few weeks ago, when the mission went there to do the final review of the current program. And hopefully in the near future we will announce the (inaudible) agreement of the review that will conclude the current program that we have with the authorities.

Our relationship and support to the reform agenda of Afghanistan, that works towards stabilizing the economy address some of the poverty and vulnerability issues that the country is facing due to the various adverse situation and issues that they face, and also help them put the economy on sustainable track of growing the size of the economy, have the private sector play a greater role, and maintain fiscal stability all the time.

Of course, the support of the international institutions is important in helping them mobilize the mission support next year for the three years to come.

QUESTIONER: I would like to ask my question in Arabic. The first question, three years after the launch of Egypt's economic reform program, how would you assess the procedures and the reforms in terms of macroeconomic indicators.

And the second question is will there be a revision of the IMF program as a whole in the future? When, if so and what indicators would you be looking for. And my last question is what does Egypt need in the next phase of the economic reform program. Will there be another structural reform program later on and will the IMF follow up with Egypt on this issue and are there talks underway to discuss the government structure reform program.

MS. AMR: We have several questions on Egypt that are very similar from MENA News Agency and the Daily News on the program.

MR. AZOUR: I will answer you in Arabic. The IMF supported Egypt's economic reform program in the past three years which aimed to achieve macroeconomic stability in light of the conditions that Egypt went through before the program. The second goal was to undertake structural reforms that would contribute to improving the Egyptian economy and creating jobs and providing social safety nets for the marginalized sectors.

In the past segment which concluded in June this year, Egypt managed to achieve tangible progress along a number of macroeconomic indicators, including significant improvement in the fiscal situation. A sharp rise in foreign reserves, a decline in inflation which is expected to be below expectations, between 4 to 5 percent by the end of the year. This allowed the central bank of Egypt in the past to reduce the interest rates.

The program also aimed to provide a social safety net that could be relied upon to reduce the fiscal reform burden. The Egyptian government through a number of programs managed to provide safety coverage, social safety coverage for a larger set of segments that are poor or marginalized.

By the end of the program, we achieved tangible improvement in the field of economic stability. A number of structural reforms were launched with a view to boosting growth and giving a leading role to the private sector. In addition, there was a reconsideration of a number of issues that in the next stage will accelerate growth and make it more comprehensive, more inclusive through a number of reforms introduced in this regard.

The IMF supports Egypt in these reforms. The consultations are ongoing between the Egyptian government and the IMF to enhance this partnership which, in the future, should be designed to continue the structural reforms that contribute to enhancing the social safety net. On one hand, creating jobs for the Egyptian youth that are coming into the job market and giving a greater role to the private sector. Also, boosting governance and transparency in public institutions and allow Egypt the maximum benefit of the world economic situation.

MS. AMR: Online we will take from Daily News. And it says that the WEO had forecast Egypt at 7 percent GDP growth in 2024 which is below the authority's expectations. So, isn't the IMF confident about the outlook of Egypt's GDP growth after the $12 billion program.

MR. AZOUR: Growth has been improving steadily in Egypt. And the reform program was able to provide confidence and also the right impulse for the economy to grow. And we have witnessed over the last two years, a growth level that exceeded five to five and a half percent and we expect it to remain in the same vein.

However, theh global economy is clearly telling us that one has to be very cautious for the medium term. The way to protect those projections is to deepen and accelerate the structure reforms. That only those reforms will help the Egyptian economy to get its full potential. And allow the very capable workforce to benefit from investment opportunities. Therefore, I think this is a call to accelerate the structural reforms that will help the economy to be more competitive and to grow faster.

QUESTIONER: My question is on Lebanon. What needs to be done to avert default there and there is a chance of an IMF program any time soon?

MR. AZOUR: The situation in Lebanon calls for a strong signal that will bring confidence back. And the strong signal requires to bring back confidence through a comprehensive reform agenda that addresses fiscal imbalances by working on reducing the level of budget deficit. And this needs to be tackled by lowering the level of expenditures and addressing some of the structural weaknesses in some of the public entities and improve the revenues of Lebanon.

This has to be complimented with certain number of other structured programs that will allow the Lebanese economy to grow. Over the last few years, Lebanon's economy was not growing at the right rate and this low rate of growth has declined recently. Therefore, the decisive reform agenda that brings confidence back, tackling the issue of corruption and the reform of some of the SOE's, State Owned Enterprises, will be a strong step in the right direction.

QUESTIONER: What about the potential of an IMF program?

MR. AZOUR: The IMF and the Lebanese authorities have a very active dialogue. A mission visited Lebanon a few weeks ago. The Lebanese authorities are getting our technical assistance and policy support. But the Lebanese authorities did not approach the Fund for programs so far.

MS. AMR: We will take a question and then a question on Tunisia.

QUESTIONER: The first question is do you think the current zero interest rate environment in the capital markets provide an opportunity to Pakistan to go for $3 to 4 billion-dollar bonds both Islamic and Eurobond. And since I understand you must have had meetings with authorities here in recent days. Can you confirm now whether the dates for your visit have been finalized?

MR. AZOUR: Thank you very much for your question. On the first one, the reform agenda that is currently in place in Pakistan supported by the program with the Fund is the right recipe for Pakistan to improve macroeconomic stability, address some of the imbalances that we saw in the last few years, allow the economy to be more competitive, and the creditworthiness of Pakistan to improve.

I had the opportunity to visit Pakistan a couple of weeks ago and see firsthand the progress on the reform side. A mission will go to Islamabad at the end of the month for the first review. So far, the progress that has been achieved goes in the right direction. It's too early to give, I would say, a full assessment. We need to wait for the mission to go there and to do the due diligence work on the ground.

We have now a couple of months -- three months almost since the beginning of the program. It looks like things are moving in the right direction. The reform journey under this program is of two important tracks. And, I think it is important to remind you and others of that.

One is Macro Stabilization and for that there are a number of steps currently taken by the Central Bank on financial and monetary sideand also by the Ministry of Finance on the fiscal side. But, there is also an equally important track which is the structural reforms that will allow Pakistan economy to be more competitive by addressing some of the longstanding issues related to the weaknesses of some of their (inaudible)… address of some of the legacy of the past like for example in the Energy sector and also strengths and institutions providing the right legal framework for the Central Bank, for the (inaudible), as well as other entities. Strengthen the cooperation between the federal, state, and the provinces.

This reform agenda is important because this one will help accelerate growth, provide the right framework for the private sector to operate, and allow the Pakistani economy that has a lot of potential insight as also internationally with her ability to export to benefit fully from the micro stability and from the structural reforms.

QUESTIONER: I will speak in Arabic. A question on Tunis. I’d like to get the IMF’s opinion on what the Tunisian government -- the previous government has done, particularly, since this week, there was a reduction in the growth projection in Tunisia in line with the IMF projections, and what are the IMF projections for Tunisia and the challenges facing the country in light of the recent elections -- presidential election and government election?

We know that the IMF program is about to conclude. What will the coming days tell us about the IMF relationship with Tunisia?

MR. AZOUR: Let me first stress the deep-rooted relations between Tunisia and IMF. The IMF stands ready to provide support and to continue the cooperation with the Tunisian authorities. We have maintained constant consultations with the Tunisian authorities in the past few weeks, an IMF mission during even the election season visited Tunisia to consult with the Ministry of Finance about the 2020 budget.

The relationship between the IMF and Tunisia is deep, will continue to be deep in the future. There is currently an IMF program for Tunisia after the government is formed. When a government is formed, we will discuss what the government’s priorities are for the next phase and based on this, we will continue to see how to maintain the current cooperation.

QUESTIONER: A question on the fifth review of the IMF program in Egypt which said that there should be freedom for the Egyptian pound to appreciate as we allowed the pound to depreciate before. Also, the foreign DI is expected to decline from $11 billion to $8 billion in 2019 and 2020. Will this impact the exchange rate the Central Bank report shows that there is a decline in foreign direct investment?

MR. AZOUR: As far as the monetary policy is concerned, what the program aims to achieve is to improve a monetary policy to achieve a flexible exchange rate. The IMF has no opinion -- specific opinion on the details of how the exchange rate is determined. This is up to the Central Bank, and to the Monetary Policy Committee.

As far as the second part of your question about the foreign direct investments as you know, a rise in FDI, coincided with structure reforms in the private sector as the FDIs come to a conclusion, we reassess our forecast for foreign direct investment. The recent developments in Egypt show that the Egyptian economy stands ready to attract investments at higher rates. There is no doubt that the investments have entered Egypt. The portfolio investments accelerated. Part of the program’s goals through structure reforms and microeconomic stability was to give an impotence to direct investments. And that’s why there is a need to concentrate on the role of the private sector which is more efficient at attracting foreign direct investments.

QUESTIONER: You mentioned social tensions as one of the risk factors. I was wondering if you could expand on that and perhaps also give some examples of trends that are affecting the whole region and contrast that with some trends (inaudible).

MR. AZOUR: We have developed this year, and we have published for the first time in April at our outlook. A new indicator that follows the trend in terms of social tensions, and this indicator has been updated and will be published in our regional economic outlook for the second time.

What we are perceiving that we perceive an increase in social tension over the last two years as it is reflected in this index. In many countries and in the cross geographies. The reasons behind that are multiple. Some of them are country specific whereby social tensions could be a reflection of broader, discontent. But, some of them are related to the high level of unemployment at the youth level, and in some countries the low level of growth, and the weak productivity that exists in several economies in the region.

An additional element that plays is related to governance. It’s important to see that also governance fighting corruption, and other issues -- other reforms that will help institutions to be stronger also play in diffusing social tensions. For us, it’s a priority and we are working on comprehensive inclusive growth agenda that will help hopefully countries address these issues.

QUESTIONER: As you know, we’ve seen a change in regime in Sudan as a result of the economic situation and the structure reform policy led to change. Now, for the new government the economy is a top priority, however, it is still suffering from economic siege, debts -- there is lack of clarity on how the IMF can help Sudan get out of this crisis. In order for Sudan to obtain funding, particularly, since Sudan’s debts are part of the debt problem in Sudan.

MR. AZOUR: The IMF is in touch with the Sudanese authorities and the Sudanese delegation visiting Washington now to see how we can activate support for Sudan. As you know, the IMF for a long time cooperated with Sudan through a set of programs. We are in consultation with Sudan to learn about the new governments priorities and how we can secure the maximum possible support for Sudan for the time being.

Unfortunately, because of the debt issue, the IMF cannot or at the present time, the IMF is focusing on providing technical assistance and on the other hand, enabling Sudan to obtain as much assistance as possible and getting Sudan ready for, as is the case with Somalia, to prepare Sudan to reach a point, a decision point where Sudan could return to the global financial system.

As far as we are concerned, we are in consultation directly with Sudan. We have a representative in Sudan and we are working with the Sudanese government to see how we can provide technical support and policy support for the Sudanese government.

QUESTIONER: I'm from Pakistan Business Recorder. So my question is that as you mentioned, that the stabilization in Pakistan is going in a way which is better than the expectations you have.

So now that there is a monetary easing globally happening across the major central banks but Pakistan central bank has gone for some tightening in the past few quarters. So do you think with the kind of a stabilization policies implementing in Pakistan along with the global movement, are you expect any kind of a monetary easing in the next quarter or so in Pakistan? Number one.

And then there is this talk about here in Washington that the capital flows to come in Pakistan for the government investment and that’s something which started back in 2000, early 2000 and stopped back in 2007 have started again. So that’s a very positive vibe we get from here.

So can you put some number to it? How much money that is going to be flowing to that and how could this have an impact on Pakistan economic stabilization process? How quickly can move from stabilization to growth part which is the second part of the program? Thank you.

MR. AZOUR: Let me start with your last question. Moving from stabilization to growth path hinges on the depth and the decisiveness on moving to the structural reforms. This will allow the business environment to improve and will allow the economy to benefit from the improvement in the competiveness that has been achieved with the change in the monetary policy.

In fact, in Pakistan we hope that we are in paradigm shift that will allow the economy not only to achieve stabilization and address some of the imbalances that led to a deep, sharp deterioration of the situation but also to lay out the ground for I would say broader or change in the way the Pakistani economy is currently working by promoting productive industries, by benefiting from the growth potential through export and by attracting foreign direct investment.

And the best way to do this is to have a stable macroeconomic environment with low inflation, with credible and coherent monetary and fiscal policy on one hand and on the other hand address some of the structural weaknesses that the economy in Pakistan was suffering from.

MS. AMR: Thank you. We have one last question here please.

QUESTIONER: As you know, our country is an oil country and currently our government is taking steps to diversify its economy, just not to depend only on oil and that it develops in different spheres of economy.

I want to ask how do you assess these countries, these steps, and which sectors in your opinion are the most perspective and what are your mid-term predictions precisely on Azerbaijan's oil and non-oil sectors. Thank you.

MS. AMR: Thank you.

MR. AZOUR: All countries who are like Azerbaijan need to diversity their economy outside oil especially given the high volatility that oil prices and the risk of declining oil price going forward.

Therefore, what are the right steps? The right steps is on one hand allow the financial sector to be more efficient, increase the productivity in the economy and improve the business environment that allows the private sector to create the new businesses that will help the economy diversify.

Therefore, I think what is needed is, to have the right fiscal and monetary policy and Azerbaijan has a fiscal rule that could be the right framework for that. Modernize the business environment and the, improve the ranking of Azerbaijan under doing business.

Strengthen the resilience and the competiveness of the banking sector and provide the right playing field for the private sector to grow and diversify the economy.

MS. AMR: Thank you very much, Jihad. Thank you all for joining us. I would like to remind you that the text, the transcript and the video will be on IMF.org later today. Thank you again.