Transcript

Transcript of April 2021 Middle East and Central Asia Department Press Briefing

April 11, 2021

SPEAKERS:

JIHAD AZOUR
Director, Middle East and Central Asia Department

TALINE KORANCHELIAN
Deputy Director in the Middle East and Central Asia Department

WAFA AMR
Senior Communications Officer, Communications Department

MS. AMR: Welcome, everyone, for joining the press briefing on the Middle East and Central Asia Regional Economic Outlook. I am Wafa Amr, from the IMF's Communications Department. We have with us today Jihad Azour, Director of the Middle East and Central Asia Department, who is joining remotely. With me in the studio is Taline Koranchelian, Deputy Director in the Middle East and Central Asia Department. Interpretation is available in Arabic and French for those who need it. Jihad, we will turn to you first, to give some opening remarks, and then we will take questions.

MR. AZOUR: Thank you, Wafa, and I would like to welcome everyone to the launch of our update to the Regional Economic Outlook for the Middle East and Central Asia. A year ago, when we convened our Spring Meetings for the first time virtually, the world was grappling with the outbreak of one of the most severe humanitarian and economic crisis. Our region reacted swiftly and with resolve, implementing measures that helped contain the pandemic spread and cushion the economic blow.

Now, a year later, the COVID-19 vaccine and favorable external environment offer hope that the end of the crisis is within sight. While growth is expected to pick up in the region, the path to recovery is still long and divergent, both across and within countries, with many countries falling behind. What are the reasons behind that?

First, progress of the vaccine rollout varies widely across the region, with some countries, like the GCC, in advanced stages, while others are lagging behind, as widespread inoculation is not expected until '22 or '23. Second, fragile and conflict affected states, especially those with low incomes, face a particularly difficult path ahead, given their limited vaccine access and ongoing instability. Third, economies that are heavily reliant on contact intensive sectors, especially tourism, will recover more slowly. Last, countries that did not implement strong policy support in the wake of the pandemic are now further behind on the road to recovery.

Meanwhile, the rise of oil price is helping the fiscal and external balances of oil exporters and supporting the recovery of the non-oil sector, although OPEC plus cuts are limiting their impact on growth. Let me now turn to the Regional Outlook.

Overall, real GDP growth for the Middle East North Africa Region is expected to pick up to four percent in 2021. In the caucuses and Central Asia, output is projected to rise by 3.7 percent in 2021, returning to its precrisis level. Yet, the outlook remains highly uncertain, with the path of the pandemic, and the vaccination, and available policy space all having a significant impact on individual country forecasts.

The pandemic has exacerbated many economic challenges in the region and further exposed how much work remains to be done to protect most vulnerable, create jobs, provide equal opportunities for women and young people, and also reduce poverty. One particular concern, going forward, is rising government debt and growing financing pressures that have worsened in the last year. And this will constraint further policy actions. This is particularly important, considering the risk of a rapid rise in U.S. bond yields, which could lead to tighter financial conditions, renewed capital outflow, and higher sovereign spreads. Addressing these and other challenges will help shape the region's future, which is why countries must consider 2021 the year of policymaking to help exit the crisis, accelerate the recovery while preserving debt sustainability, and build forward better toward more inclusive, resilient, and green economies.

Now, what are the needed policies to emerge from the crisis toward better future? First, to exit the crisis, securing access to vaccine and supporting health system remain the most urgent tasks. Accelerating vaccinations could boost GDP growth by one percent, by 2022. Regional and international cooperation will be critical to ensuring that low-income countries are not left behind. Second, to help accelerate the recovery, it will be important to take policy support flexibly, where targeted, and in place until recovery is well-entrenched.

For the many countries without policy space, further support should be calibrated to safeguard debt sustainability. Developing medium-term fiscal frameworks and debt management strategy will help to reduce elevated debt burdens, while providing maximum support to growth. Support should target viable firms, especially small ones. Preparing workers for the post-pandemic world will also be vital, especially for the region's large youth population.

Finally, to build forward better, countries will need to start addressing deep-seated transformation challenges, such as persistent unemployment, inequality, and climate change. Capitalizing on lessons learned during the pandemic and leveraging digitalization will help prepare the economies for the future and improve the efficiency of social safety nets, health, and education, which are so critical to reducing poverty and inequality. Improving governance and reforming the large public sector enterprises should also be prioritized, as well as policies that adapt and invest in climate resilient infrastructure.

Last year, the IMF supported the region with $17 billion of financing. As countries move into the recovery phase, we remain committed. We are the partner to the region, to support the region, emerge from this crisis, and build a better future. I look forward to discussing our analysis of the outlook for the Middle East and Central Asia Region, in a webinar tomorrow, with a distinguished panel of experts, which will be followed later this week with another event focused on the caucuses and Central Asia. With that, I would like to welcome you again, and I will be happy to answer your questions. Wafa, back to you.

MS. AMR: Thank you, Jihad. We will take questions now. If you are on Webex, please send your questions on chat-- you can ask your question directly. If you are on social media, please send your name and your media organization, as well. Do please send us your questions. We do have some questions online. We have several questions on Jordan. We will start with Mohammad Ghazal from the Jordan Times. How do you expect the current conditions to affect Jordan's reform program, and do you believe, in light of the current conditions, objectives set under the program for this year are achievable? The other question on Jordan --

MR. AZOUR: Thank you, Wafa. Well, Jordan has faced the impact of the coronavirus that has affected its economy, and the government has responded quickly with a certain number of reforms and measures, that were targeted to protect lives by increasing the medical capacity, and recently by accelerating the vaccination, and also by introducing certain number of fiscal measures to alleviate the pressure on the livelihood of people.

In addition to that, the Central Bank has introduced a certain number of complimentary measures, in terms of liquidity, support to the financial sector, adjustment in the interest rates, as well as also other measures to support the corporate sector. The IMF, as you know, supporting Jordan’s Reform Agenda, that was initiated last year, with an objective of maintaining macroeconomic stability and also reforming their economy to accelerate the level of growth. The Fund has provided an EFF and recently, on March 30, our team has reached the staff level agreement with the authorities for the second review.

This program aims at providing additional support to Jordan and additional flexibility, especially since the eruption of the coronavirus shock, and also support the structure reform agenda of Jordan. Jordan has achieved all the targets that were set in this review and maintained the path of reforms. Those reforms are targeted to reduce the cost of labor, to reduce the cost of financing, and allow the economy -- and the cost of energy, to allow the economy to grow at faster pace.

MS. AMR: Thank you, Jihad. We have another question, two more questions on Jordan. The IMF team reached staff level agreement with Jordan on the second review of the reform program. Did the IMF recommend a tax increase? The other question is about debt, and is debt a big challenge for Jordan?

MR. AZOUR: Well, on the first question, yes, the staff has reached staff level agreement based on the economic reform program that Jordan has put in place. The objective of the second review was to support both -- two actions. One, is protecting lives and livelihoods, and second, preparing for the recovery.

What is in this program is to support, as I said earlier, the reform of Jordan in improving business environment, increasing access to labor, access to finance, by reducing the labor cost, reducing energy cost, and as well as also improving governance and reduce the cost of doing business.

The program has supported Jordan in modernizing their tax system in order to widen the coverage, reduce the various loopholes, but doesn't have any action in terms of increasing tax rate.

MS. AMR: Thank you. We have a question on Morocco.

QUESTIONER: I will ask a question in French, if you don't mind. Yes, thank you so much. Thank you for this briefing. I have a question to ask about the projections for the growth in Morocco. You have talked about a growth prospect of 4.7 percent for this year and 4.9 for next year. Did you take into account the prospects of a good agricultural year, and, for example, of an increase of prices in Morocco this year? Also, of progresses made on the front of vaccination.

My second question has to do with the prospects of the partnership with Morocco. How do you see this partnership in Morocco in the medium-term? Thank you very much.

MR. AZOUR: Thank you for your question. As you know, Morocco is one of the countries that was the most affected last year. It had to face two shocks. Not one shock, but two shocks. COVID crisis, as well as a draught in the country, which affected the Moroccan economy and produced a contraction of the economy, which was quite strong in relation to the previous shocks.

This year, thanks to the measures taken by the government last year, but which are health measures plus also fiscal and monetary measures, Morocco was able to find the recovery path again. We also should underline that Moroccan economy was one of the most dynamic and was able to adapt and to adjust facing constraints and opportunities. And we saw that whether it had to do outputs, but social issues and banking issues, a number of innovations took place, which made it possible to improve the social protection through the transfer to 5 million families in the country through banking applications to transferring of the budget support to the population.

Here, we also have to underline that Morocco is one of the most advanced countries for vaccination. It is the African country which is the most advanced. And I think in the MENA region, if you exclude oil producing countries from the Gulf, Morocco is one of the most advanced countries when it comes to vaccination.

Most of these measures, of these actions, made it possible to Morocco to strengthen its growth for this year, but also to put itself on a better path to -- for the future in order to find recovery and to improve growth and construct an economy which would be more integrated and more just.

Parallelly, Morocco also took into account two lessons from this crisis. The first lesson is the significance of the social aspect of the crisis. And this is a reason why a significant program has been launched by the government in order to increase social protection and developed as well, a number of mechanisms to protect the most vulnerable.

At the same time, the management of monetary policy and change policy by the central bank, made it possible, as well, to strengthen the stability. It was thus possible for Morocco after it drew on its PLL line, to go on the market with an issuing which was extremely positive and there is also investment support, which was quite significant, and Morocco was able to reinforce its reserves.

Morocco and the IMF are in -- has a historic partnership. We approved all the reforms that were implemented by Morocco in the last 10 years. We continue to work hand-in-hand with Morocco. At the same time, on the issues having to do with reforms under the framework of programs, for example, but also with technical assistance.

And the last point that I would like to underline. Next year, as you know, the Annual Meetings of the World Bank of the IMF will take place in Morocco. And I think this will be an opportunity for [American] economy and for Moroccan society to show how resilient it is, as well as its growth potential.

MS. AMR: We're going to move to Egypt, Taline. We have several questions on Egypt. We will start with the Daily News. What are the reasons behind the slight decline in the IMF's forecast for Egypt's economy in 2020, '21, and what are the factors that will help it to rebound to 5.7 percent in '22?

MS. KORANCHELIAN: Thank you. Egypt has done well in terms of containing the economic and the fallout of the COVID-19. And it's one of the countries, one of the few countries which has not seen a negative contraction in its GDP last year.

This year, I mean, our projection is that for growth is 2-1/2 percent. Yes, we have done some revisions, which reflect downside risks to domestic demand because we have seen some softness more recently. And also, tourism has been recovering. But the receipts are still lower than before, and this will have -- it is also an important factor in growth. Now, this said, we see that the economy will rebound next year. And this will be supported by the vaccination rollout, but also with the public investment of the government.

Now, in terms of policies, one, it's very important that the immediate priority is to maintain and to support the recovery. And this should be balanced in the context of Egypt, particularly given the high debt -- of high public debt. And the authorities are cognizant of this and they are providing support at the -- targeted support to the economy.

And more importantly, now that the big part of the crisis is over, I think it is very important that the structural reform agenda is accelerated. And there, I think, it is very important to improve governance and the business environment and remove trade barriers and continue to enhance the transparency of state-owned enterprises, but also reduce gradually the state footprint and provide equal opportunities to all agents.

As you know, I mean, Egypt has to -- I mean, has a large youth population and it needs to provide opportunities and to create jobs for its youth and also for its female population. Thank you.

MR. AMR: Thank you, Taline. We'll stay on Egypt. We have a question from Hapi News. What are the chances that Egypt will enter into a financing agreement with the IMF after the end of the existing program? And what are the conditions that the IMF will set in terms of value, timeframe, and aspects of spending?

MS. KORANCHELIAN: Well, thank you, Wafa. we are still in the SBA program with Egypt. And the second review of the program for May, June. And we will also have an Article IV consultation at that time.

Now, this mission will provide us with the opportunity to take stock, particularly the Article IV consultation, to take stock of the situation and also to discuss the reform program going forward. So, I would say we will need to focus at this period on the Article IV consultation.

MS. AMR: Thank you. One last question on Egypt. What are the measures that Egypt must take during the coming period to increase the role of the private sector in the economy?

MS. KORANCHELIAN: I think there is room for -- there, to raise the role of the private sector in the economy, and it is very important for Egypt to help the private sector become the lead to growth and job creation. To lead the job creation and growth in Egypt.

And therefore, as I mentioned, providing a level playing field for all stakeholders will be very important. Together with gradually reducing the State footprint, but at the same time, there is a need to further improve the governance and business environment. Thank you.

MS. AMR: Thank you. We move to the UAE, we have several questions in the UAE in both Arabic, and English. So, the first question is from Mostafa Abdel-Azim, from Al Ittihad Newspaper. The IMF has revised the UAE's GDP growth projection for 2021 from 1.3 percent as in October 2020 to [3.1 percent]. What are the main reasons behind this big shift?

MR. AZOUR: Thank you, Wafa. Yes, thank you. The main reason for that is the improvement in the oil sector. In addition to that, as you know UAE was one of the most advanced in the region, and I would say part of the league of early inoculators worldwide, that allowed the UAE economy to adjust to the second wave and be able to reach one of the highest level of herd immunity worldwide. This will of course help the economy in its recovery. That is expected to be progressive, and we expect with the [export] 2022 -- or, 2021, this will provide an additional boost to the non-oil sector. And then on all economy in UAE.

MS. AMR: Thank you. I am going to ask a question in Arabic -- what are the main reasons for this division by the Fund, and how are the economic prospects in the UAE? And are the inoculation campaigns having effects, and the rates of distribution on [running] on vaccination is important? And does it allow it to recover from the economic impacts of the pandemic?

MR. AZOUR: The improvement in the prospects of 2021 are based on the improvement in the oil sector. As regards to the question, the second question about the pandemic, no doubt that the United Arab Emirates has succeeded as compared to other countries in the world. It has faced the pandemic and has dealt with the first and second waves efficiently. And also, the inoculation, vaccination has been done very fast so that it has become one of the leading countries over -- all over the world. And, as a matter of fact, as an economy relying on oil, and relying on services, and to resume, this as a matter of fact, it contributes to the gradual improvement of the economic prospects of the United Arab Emirates.

Last, but not the least, the tendency today to develop sectors that rely on technology and benefiting from experience in this field, would contribute on the medium term. First of all, in diversifying the economy, and secondly, by accelerating gradually the pace of recovery and growth in the United Arab Emirates. Thank you.

MS. AMR: Thank you. We have another question on the UAE from Abeer Abu Shammaleh, of Al Kahleej newspaper. What in your opinion is the impact of the UAE's Central Bank decision to extend the support scheme until end of the year on economy and banking sector?

MR. AZOUR: Thank you, as you know, the first priority is to protect lives and vaccination play in an important role here. The second priority for countries that have the capacity to maintain their policy support, to keep it. And there are two forms of policy support that have been introduced in the region, especially for countries with a fixed exchange rate. One is the fiscal by providing support to low-income people as well as also, to SMEs. And the second one is by providing liquidity support, adjustment in interest rate, as well as also, other complementary measures.

Therefore, as the recovery is progressing with risk of maybe successive waves, waves of the pandemic, it's very important when it is possible, to maintain it. And UAE is a country who enjoys ample level of buffers, and therefore, this is the right step for UAE, as well as also, for other countries who can still afford to extend and maintain the policy support to their economies.

MS. AMR: Thank you. We have two questions on Qatar. What is your take on the Qatari economy prospects, the short- and medium-term? Especially then on energy sector.

MR. AZOUR: Qatar, like other GCC countries was affected last year by the pandemic and the sudden drop in oil prices, as well as also, on demand. Qatari Government, and Qatari Authorities also here took certain number of important measures to extend additional social support, increase the fiscal stimulus, as well as also, an important package of support to the private sector through the banks. Additional liquidity, additional financial schemes that helped cushion the impact of the shock on the economy.

Going forward, what would help the Qatar economy recover, is of course, the development on two fronts; with acceleration of vaccination, improvement of I would say, sanitary situation. This will help or will give better conditions to the World Cup 2022. They are [all] -- are going -- that has improved the relationship between GCC countries will also help by increasing the level of the exchange of goods, services, and also people. And this will provide an additional source of visitors, both for tourism as well as also, for the Cup 2022 from the region.

In addition to the recovery in the non-oil sector, the oil sector with the development of two new oil and gas fields will also contribute to the improvement in the economic outcome for 2021, and also for the medium-term.

MS. AMR: Thank you, Jihad. We have two questions on Georgia. The first question is according to the IMF, Georgia's government debt is in 2021 will be 63.9 percent of GDP. In your opinion, what kind of risks does this pose? And what should the government do in order to decrease he debt? The other question is the IMF has revised down Georgia's economic growth for 2021. What are the main reasons for that?

MR. AZOUR: Several questions here. The first one is on the debt. Yes, the debt has increased because the COVID-19 shock was severe on Georgia. Georgia is an open economy; tourism play an important sector. Georgia has invested in being part of the East-West Corridor global value chains. Therefore, it was normal that this crisis will affect the economic situation because of the impact on several sectors.

However, Georgian authorities took an important set of steps back in 2020. Of course, on the health care side, but also economically, they have introduced a certain number of fiscal measures, also financial measures. The Central Bank has used wisely the exchange rate flexibility to reduce the impact of the shock on Georgia's economy.

Of course, this has led to an increase in debt. However, despite this increase in debt, the debt of Georgia remains sustainable. And as you know, Georgia has concluded the last review of the current program which has been augmented to allow Georgia during the crisis, to respond to the additional humanitarian and health care needs.

Going forward, what are the priorities, and maybe this is the second question. The priorities for Georgia is to maintain working on two, I would say two important fronts. Maintain the macroeconomic stability, and this would require to pursue what Georgia has already started on the fiscal side in widening the sources of revenues. As well as also, reprioritize expenditures to give additional space for capital spending and improving infrastructure which will help reignite growth.

On the other hand, the measures that the Central Bank has introduced, both in terms of managing the exchange rate, dealing with the interest rate, have reduced the impact of the external shock on the economy. It is important to maintain the level of inflation low, and under control. Going forward, this is one of the important elements of the stability of Georgia.

Last, but not the least, I think where Georgia has a role to play is that the recovery will be based on addressing two priorities. One, addressing the scarring of the economy, and here it is important to provide. They needed support tot sectors like tourism and other related activities, but also, to invest in the future sectors; technology, recovery that is based on greening the economy, are opportunities for Georgia going forward.

Last element that also would help Georgia recovery, is to strengthen the linkages with the EU, as well as also with the other neighboring countries and benefit from the wider market that Georgia could serve.

MS. AMR: Thank you, very much, Jihad. With this, we end today's Press Briefing on the Regional Outlook of the Middle East and Central Asia. Thank you, all, for joining us. Please, join us tomorrow. We have a panel, a high-level panel that will discuss more details on the Regional Economic Outlook.

Thank you Jihad, and Taline.