Speech

IMF Managing Director Kristalina Georgieva Remarks at the Seventh Arab Fiscal Forum

February 12, 2023

Assalamu alaikum , your excellencies.

I am delighted to be with you at our seventh Arab Fiscal Forum! Thank you to [ H.E. Mohamed bin Hadi Al Hussaini, (Minister of State for Financial Affairs) ] and to you, Dr. Al-Hamidy, and your team at the Arab Monetary Fund for hosting us.

We appreciate the excellent collaboration over the years. Together, we have come a long way and our partnership with the region has grown stronger. 2023 marks an important milestone: 20 years after Dubai hosted the IMF-World Bank Annual Meetings, we are bringing them to Marrakech in October.

Throughout these years, the Arab world has made impressive advances and demonstrated true global leadership. Think about the annual World Government Summit starting tomorrow. Or hosting the Conference of the Parties for a second successive year in the region.

Notwithstanding the successes, the region—like so much of the world—faces significant challenges as we confront multiple crises.

Today, I would like to focus on one of the most pressing regional issues: how to strengthen the resilience of public finances to protect our people, our economies, and our climate.

1. Economic outlook

Let’s start with the economic outlook, globally and for the region. And as you’ve already discussed macroeconomic developments in the region, I will make just a few points. ]

Global growth remains weak, but it may be at a turning point . After expanding by 3.4 percent last year, we see growth slowing to 2.9 percent in 2023 and rebounding slightly to 3.1 percent in 2024. We released our latest forecast two weeks ago. While less gloomy than in October, we still project slower growth, and the fight against inflation remains a priority for 2023.

On the positive, we see inflation declining from 8.8 percent in 2022 to 6.6 percent this year and 4.3 percent in 2024—although for most countries, it will still be above pre-pandemic levels. China’s reopening is helping, as well as resilient labor markets and consumer spending in the US and the EU.

While this is encouraging, the balance of risks remains tilted to the downside. China’s recovery could stall. Inflation could remain higher than expected, requiring even more monetary tightening—which could cause a sudden repricing in financial markets. And Russia’s war in Ukraine could escalate, causing further fragmentation of the global economy.

As the global economy slows, growth is also expected to drop in the Middle East and North Africa—from 5.4 percent in 2022 to 3.2 percent this year before ticking up to 3.5 percent in 2024. The OPEC+ production cuts would reduce overall revenue for the oil exporters. For oil importers, the challenges would continue. Public debt is a particular concern, with several economies in the region facing elevated debt-to-GDP ratios—some close to 90 percent.

And for the fourth consecutive year, we expectinflation in the region to surpass 10 percent—above the global average. For the region’s emerging market and low-income economies, this reflects the lingering effects of higher food prices and, in some cases, exchange rate depreciations. We expect inflation to gradually decline as commodity prices settle and tighter monetary and fiscal policies have their intended effect. For the Gulf Cooperation Council countries, we expect inflation to remain contained.

But for the region too, we worry about risks. Russia’s war in Ukraine and climate disasters could worsen food shortages for the most vulnerable. Add to this persistently high unemployment, especially among young people, and you have a significant risk to social stability.

Tighter global or domestic financial conditions could lead to high borrowing costs and, in some cases, a financing crunch. Domestically, delays in much-needed reforms could weigh on regional prospects and government finances.

As you see, we face another tough year. But there are reasons for optimism. We are not without solutions to make it better!

And here, in the region, we all can take inspiration from thedetermination and teamwork of the Moroccan Atlas Lions at the Qatar World Cup.

So, let me highlight three guiding principles for countries to use fiscal policies to build resilience and then focus on how we can team up to score points on issues that we can only address together.

2. Building resilience through fiscal policies

On fiscal policy, let me offer three guiding principles.

The first is having a robust framework to conduct fiscal policy and manage fiscal risks.

With today’s shock-prone and uncertain world the conduct of fiscal policy takes on added significance but also added complexity.

Just look at the volatility of energy and food prices in the region—requiring governments to step in to protect the vulnerable, while still maintaining development plans and investment. This requires resources and careful planning. Morocco is doing it by phasing out expensive, untargeted subsidies in favor of targeted social support. Mauritania has instituted a fiscal anchor to cope with volatile mineral export revenues, and increased fuel prices 30 percent by reducing subsidies. And some energy exporters are building buffers when prices are high, to prepare for oil price volatility.

Governments must also manage many fiscal risks, including from public guarantees and losses by state-owned enterprises, which could destabilize debt and require drastic cuts to vital spending. Egypt is helping manage these risks by improving its monitoring of them.

In addition, several Arab countries are adopting credible medium-term fiscal frameworks. These are key to mitigating risks when they materialize , while enabling governments to maintain essential spending, stabilize debt, and build investor trust . The IMF is helping members institute such frameworks. And our fiscal risk toolkit helps to identify risks, quantify their potential costs, and prioritize actions to address them.

The second principle is long-term planning and investment to address climate challenges.

From North Africa to Central Asia, the region is warming at twice the speed of the rest of the world.

Beyond urgently reducing greenhouse gas emissions everywhere, we need efforts across multiple fronts. For instance, investment in climate-resilient infrastructure and early warning systems are critical for increasing regional resilience. So is investing in renewable energy and making regional economies less carbon intensive.

Governments in the region have identified multi-year financing needs of over $750 billion for these actions. Enabling the environment for private climate finance through the right policies and financial solutions is key to meeting these needs.

Here, too, the IMF is doing its part. We have put climate at the heart of our work, and are working with partners to make progress on the climate finance agenda. And this includes our new Resilience and Sustainability Trust, which aims at improving policies and providing affordable long-term financing to address climate challenges. We are already in discussions with Egypt and other countries for RST funding.

The third principle is to boost tax revenues.

If we are to invest in a more resilient future, we will need to further strengthen tax policy and administration. Many countries in the region have made good progress in expanding their tax capacity. And yet, the average tax-to-GDP ratio, excluding hydrocarbon-related revenue, remains at about 11 percent— less than half of what could potentially be collected.

This can be increased by improving tax policy design and phasing out inefficient tax exemptions. For example, Algeria is broadening the tax base and making the tax burden more equitable . Bahrain and Saudi Arabia have raised substantial revenue by introducing value-added taxes. And the UAE is set to phase in a corporate income tax.

The other key to boosting revenue is modernizing tax administration, and using digital tools can help. Jordan has done this, and thePalestinian Ministry of Finance is doing similar work. Somalia is also deploying policy and administrative reforms to rebuild its tax capacity. Actions like these should raise revenue by increasing compliance— and IMF capacity development can help you design and implement them.

3. Deepening international cooperation

But today, for some countries, domestic policies are simply not enough to resolve another pressing challenge: unsustainable debt.

Crushing debt burdens weigh on spending on health, education, and infrastructure. This hits the vulnerable hardest, but it is also a shared problem for the region and the world.

And this is where teamwork comes in. With so many public and private creditors, unsustainable debt can only be addressed through multilateral cooperation.

In response to the Covid crisis, the G20 launched the Debt Service Suspension Initiative during the Saudi presidency in 2020. The Common Framework for debt resolution followed. But three years later, the job still needs to be completed. Much work remains to make debt treatment faster and more predictable and to ensure it reaches all countries that need it.

Now is the time to move the ball forward , not just on sovereign debt.

You have a strong record of collaboration within the Arab world. For example: over the past five years, GCC countries have provided $54 billion in financing for budget and balance-of-payments needs. They have also supported low-income countries, and fragile and conflict-affected states in the region, through debt reduction and food security support. This includes $10 billion in support announced by the Arab Coordination Group last year. Donor countries can further support regional economic stability and growth through multilateral initiatives.

The IMF has provided members in the region nearly $20 billion in financial support since the start of the pandemic. And more than $37 billion came to the Arab world from our record $650 billion allocation of Special Drawing Rights in 2021.

We are now working with countries with stronger reserves to channel these assets to countries with greater needs. This also means channeling SDRs to our Poverty Reduction and Growth Trust to continue providing zero-interest loans to low-income countries.

We at the IMF are proud to partner with our members in the region. Our new office in Riyadh—another demonstration of regional leadership and teamwork—will further strengthen our engagement for the benefit of all people in the Arab world.

Shukran.