Transcript

Speaker:

Jihad Azour, Director of Middle East and Central Asia Department, IMF

Moderator:

Wafa Amr, Special Assistant to the Director- Strategic Communications, IMF

MS. AMR: Good morning, everyone. Thank you for joining our Press Briefing on the Economic Outlook for the Middle East and Central Asia, and many thanks to many of you who have come to Marrakech to cover our Annual Meetings. We are going to start with opening remarks from Jihad Azour, Director of the Middle East and Central Asia Department, and then we will take your questions. We do have interpretations into Arabic and French, and you can ask your questions in those languages. Thank you. Jihad, if you will.

MR. AZOUR: Thank you very much, Wafa. Good morning and welcome to the 2023 Annual Meetings here in Marrakech. I would like to extend our gratitude to the Moroccan authorities for hosting this Annual Meetings in this beautiful city of Marrakech. Despite the difficulties and the challenges dealing with this heartbreaking natural catastrophe, the earthquake that hit the city a month ago. Our thoughts are with the people of Morocco and we stand ready to help the authorities in dealing with this issue.

Let me summarize where we see the region’s economic prospects and policy priorities before taking your questions. Growth in many economies in the Middle East and Central Asia is slowing, reflecting the combined effect of tighter policies, oil production cuts, geopolitical tensions, and other domestic challenges. Starting with the Middle East and North Africa, we have lowered our real GDP growth forecast to 2 percent for 2023, a downgrade by 1.1 percentage point from our last projections in April. Growth will accelerate to 3.4 percent in 2024, as some of these factors fade. Persistent structural hurdles will constrain growth over the forecast horizon. And importantly, growth is not forecast to be strong or inclusive enough to create the needed jobs for the 100 million Arab youth who will reach working age over the next ten years.

Moving to Caucasus and Central Asia. For the Caucuses and Central Asia, GDP growth is projected to remain relatively robust 4.6 percent this year. It's 0.3 percent upgrade since last April. It is reflecting the still strong trade and financial flows from Russia. Growth will likely ease in 2024 to 4.2 percent, 0.3 percentage point downgrade compared to April, as these flows gradually normalize. Persistent structural challenges will mean that medium term growth remains lackluster. Inflation is easing, but large differences between countries persist. For example, in MENA, inflation is slowing, but it remains high in Egypt or in Sudan. Excluding these two countries, average inflation in MENA is projected to peak at 13.4 percent this year before falling to 9.7 percent in 2024. In the Caucasus and Central Asia, price pressures are expected to continue abating, easing from 11 percent in 2023 to 8.3 percent next year.

Financing conditions in the region remain generally tight. MENA central banks have continued raising rates in 2023, albeit at a slower pace than that of last year. The monetary policy tightening cycle appears to have peaked in the CCA. A higher for longer interest rate environment could strain corporate, financial institution, and public finance in the region, with implications for banking sector profitability, credit provision, economic growth, and financial stability. Sovereign bank linkages may worsen, with implications of higher for longer. The balance of risk has improved since April as adverse global challenges have preceded, but risks remain tilted to the downside as we saw last week, and climate related threats are rising.

On the upside, a faster than anticipated global decline in inflation would reduce pressure on central banks to raise interest rate further. Downside risks include reduced external demand if China were to experience a sharper than expected slowdown reignited global price pressure. For example, because of an escalation of the war in Ukraine, climate change related or natural disaster, which can have wide ranging economic and social impact. The recent earthquake in Morocco and the floods in Libya provide a stark reminder on how national disasters can have rapid and devastating consequences.

What are the main priorities? Policy space, as you know, is limited in the wake of recent shocks, and policymakers face difficult choices. Price stability should remain the focus of monetary policy. Where inflationary pressures are persistent, monetary policy should remain tight until signs of sustained disinflation are well established. Further tightening may be required in some economies, such as Egypt and Tunisia, where inflation is returning to target and underlying inflationary pressure are receding. Any policy easing should be done cautiously and with due attention to signs of renewed price pressures.

On fiscal policy, fiscal consolidation efforts should focus on building buffers and safeguarding debt sustainability, especially in emerging markets and those economies with high debt levels and financing needs. Oil exporters should focus on economic diversification and boosting fiscal buffers to strengthen resilience. All countries would benefit from domestic revenue mobilization and increase spending efficiency. Fiscal reforms that help increase budget transparency and the adoption of credible medium term fiscal frameworks will help reach domestic goals and facilitate access to international financial markets. Structural reforms can help support near term growth and longer term growth prospects at the same time.

Our outlook shows that sequencing and packaging reforms strategically can magnify growth dividend. A first-generation reform package that includes governance, external sector and regulatory framework could increase output by almost 10 percent over five years. Governance reforms can generate positive output effects, even during period of regrowth and limited policy space. Major governance reforms could increase output by about 6 percent over five years. The benefits extend beyond governance. Regulatory quality reforms have a positive impact on output, contributing to a 4 percent increase after five years. With Annual Meetings taking place in the Arab World after two decades, the time is ripe to rethink the region’s development model. Promoting inclusive growth will require substantial reforms to close the gap between the developed model of the past and what is needed going forward.

Last but not the least, what the IMF is doing to help the region. Well, as you know, the IMF continues to engage closely with Middle East as well as also Central Asian countries to provide policy advice, technical support, as well as financing. We have approved $34 billion in financing to 15 countries in both Middle East and Central Asia since the onset of the pandemic, and Fund has allocated 49.3 billion additional financing through the SDRs, the Special Drawing Rights. In the past year alone, IMF programs were approved for Armenia, Egypt, Mauritania, Morocco and Pakistan. Morocco recently became the first country in the MENA region to secure financing under the Fund's Resiliency and Sustainability Facility. The RSF provides, as you know, long term financing to strengthen economic resilience by supporting policy reforms that reduce climate related risk among other priorities.

Together with our partners the DIFC, we will formally launch their Regional Economic Outlook today at 11:30. I would like to invite you all we will have a distinguished panel of outstanding experts who will share their views about the region. With that I would like to thank you, welcome you, and turn the floor back to Wafa for the Q and A.

MS. AMR: Thank you very much, Jihad. We'll take your questions now. We'll start with the lady in the front seat. Please introduce yourself.

QUESTIONER: Good morning. Noha Yousif from Morocco. After the success in Morocco the currency level and with the current macroeconomic outlook, what would you suggest that Morocco should do at this point? And then Morocco is the first country in the region, as you said, to benefit from the support of the IMF. Could you tell us about your assessment? What the Kingdom has been doing and how it has been able to move forward, despite the earthquake that you mentioned, and its huge repercussions on the situation it was still able, I mean Morocco, to organize this meeting.

MR. AZOUR: Thank you very much. Let me first confirm one point. The economic policy needs to be integrated, we can not have one single economic policy. Policies at the financial and economic level should go hand in hand. When it comes to monetary policy, the Kingdom has been successful in managing these policies, especially at reducing inflation. And the main goal of the monetary policy is to keep prices stable. During the last few years, and despite the recurrent shocks, including the Covid-19, the war on Ukraine, the increase in oil prices, and so on, the Central Bank in Morocco and the financial authorities were still able to improve the financial and monetary situation and to keep the banking sector strong. After the Covid-19 pandemic, there was this support to the private sector and the Kingdom was able to improve the economic situation.

Moving to the next phase. Despite the fact that inflation is receding in Morocco and in the regional as a whole, Morocco still needs to improve its monetary policy to keep improving the situation of inflation, because inflation has a very negative repercussions on lower income categories of the society. As for the program with the IMF, it’s a new one, as you know. Its aim is to support countries to move towards a strategic change. Especially to take climate into consideration and Morocco was able to benefit from financing from the RST and this is a according to a space from a series of programs and reforms, adopted by the Morocco. This is not the first program in the region. This is the first program that brings a series of measures to support resiliency in Morocco. This program also is completing the financing that Morocco was able to get from the IMF. The financing to help Morocco face different risks and this is one of the very adapted lines of credit adopted by the IMF.

MS. AMR: Thank you, Jihad.

QUESTIONER: Thank you so much. Aida Khaidarova From Kazakhstan. My question will be about trade and regional cooperation in the region. It plays a pivotal role in developing landlocked countries like Kazakhstan. The country had to reorient its trade routes in light of Russia's war in Ukraine, there is middle corridor connecting China and Central Asia with South Caucasus and Turkey and Europe. Are there any initiatives that IMF supports to improve connectivity in Central Asia and its trade to promote economic growth? Thank you.

MR. AZOUR: Thank you very much for this question. Yes, indeed. This is a priority that we at the Fund we have been working on for the last few years, and we have developed several opportunities to promote regional integration. And I would encourage you to read the recent paper that we issued, on what are the growth levers and potential benefits of integration in the Caucasus and Central Asia (Paving the Way to More Resilient, Inclusive, and Greener Economies in the Caucasus and Central Asia). Of course, the recent development with the war in Ukraine have created new challenges, but also have provided some opportunities for countries to build on. And for that purpose, also, we are happy to see that there is greater cooperation between Caucasus and Central Asia, as well as also other parts. For example, with the Gulf this year, a summit took place between GCC and CCA on promoting regional cooperation. And this is something that we encourage and we work on through promoting trade integration, infrastructure integration, not only in terms of road network, rail network, but also electricity network. And there are certain number of initiatives that one could build on, in addition to growing the regional financial markets and uniform some of the regulations between countries. Of course, this is very important to build a new, I would say, growth model for the region and bring back the level of growth to what it was maybe a decade ago to allow those economies to converge faster with the emerging European countries.

MS. AMR: Thank you. We have a question from the lady in the second row, please, third row.

QUESTIONER: Nadia from Tunisia. My question is about the chances of an ongoing cooperation between the IMF and Tunisia. We know that the talks have been suspended since October 2022. Now we know that Tunisia was able to improve its financial situation.

MR. AZOUR: We are still in touch, the IMF and Tunisia and are still having talks. We expect a mission from the IMF to visit Tunisia and to assess the Article IV in the framework of the Article IV consultations. As you know, this is one of the main tasks of the IMF. There is also, the technical assistance provided by the IMF to Tunisia on a series of reforms on how the government is carrying and it’s also cooperation with the Central Bank. So, this is a situation now about cooperation between the IMF and Tunisian Government.

MS. AMR: The lady in the first row please.

QUESTIONER: Thank you for much, Dina Salem from Egypt. And my question is in regards to how do you evaluate the situation in Egypt, especially in light of the high level of debts and the economic rating of Egypt and some of the banks. And you advised to create fiscal buffers for countries in this kind of crisis. How can we implement that in light of this high level of debts?

MS. AMR: So let's take the questions on Egypt. You have a question on Egypt? Yes, please go ahead.

QUESTIONER: From Morocco. According to the IMFs projections --

MS. AMR: We’re only taking questions about Egypt right now. We will go back to Morocco. Is there any questions about Egypt right now? Questions online? So we have a question from online. What are the IMF's estimations for the financing gap Egypt suffers through the end of the EFF program? We have another question also from Fatma Ibrahim Aman Amwal al Ghad Magazine. What are the indicators did you rely on in your forecasts for the Egyptian economy? And what are your forecasts for Egyptian pound during 2024? So these are the questions that we have on Egypt.

MR. AZOUR: Okay. Let me start answering the first question in regards about the fiscal buffers. There is no doubt that the Egyptian economy faced several shocks in recent years. Especially when it comes to the war on Ukraine it had a huge impact on the economy because Egypt also importing commodities, in addition the tourism sector was effected in Egypt to develop shock. In addition to emerging market countries were affect as well due to the high interest rates which had again had an impact on the merging markets as well.

Moreover, this is why we decided, or the Egyptian Government decided to design a program that is based on three pillars. The first pillar is to first revive the economy. The previous programs was mutual by the IMF and the Egyptian Government, and here I back to 2016 and 2020 in light of the Covid-19, to secure $8.5 billion dollars and providing this amount of money in only two months to the Egyptian economy at that time. So the first pillar is to revive the economy.

The second pillar is to preserve the macro-economic stability by dealing with the high interest rate because the inflation that hit all the citizens. In addition how to preserve the capabilities of the Egyptian when it comes to the fiscal policies.

The third pillar is to give more space to the private sector to lead the economy. And that requires two factors. First, to review of the state run institutions and to have an equal opportunity through the private sector. And that we have a flexible exchange rate to protect the Egyptian economy against external shocks, especially that we are witnessing huge external shocks in light of what we are witnessing of all over. This is the major measure to protect Egyptian economy.

In addition, the Ministry of Finance in Egypt has tried it’s best to enhance its performance, in terms of the public funding that will contribute as well to lift the burden of the high prices. And this is right direction to create the right objectives. What are the right objectives? To preserve a sound budget. Secondly, to reduce the debt service cost and thirdly, to increase the flexibility in the budget. When it comes to Doaa’s have to tell you when it comes to the financing gap we have to have a comprehensive view when it comes to the measures of the program. Financial gap is here, looking into what are the measures taken to provide more partnerships with the private sector and also in terms of what is the budget and what is needed in the public finding. This will help in dealing in the funding gap.

When it comes to our indicators, when we look at our exchange rates, when we talk about the flexible change rate depending on the market mechanism, in other words demand and supply, that will decide the real rates of the exchange rates. We check this periodically, our periodic review for the program. Especially in light of this development that the decline of the incumbent economies on one hand, and secondly, the increase of the interest rates globally as well.

MS. AMR: The gentleman in the fourth row, please.

QUESTIONER: Hello. I wanted to touch on Lebanon. In the staff level agreement from last year. You drew up a long list of reform requirements to unlock the loan package and there's been very little progress on that since then. And of course, the people of Lebanon are suffering a great deal. Is there any way the IMF would consider less than that very long comprehensive list of reforms before slowly releasing some of those funds? Thank you.

MS. AMR: We don't have any further questions on Lebanon, right?

MR. AZOUR: Well, thank you very much for your question on Lebanon. As you know, the program, the staff level agreement it's not the program, but the agreement between the staff and the authorities took place April 7, 2022, almost year and a half. And what we call the prior actions, i e. the actions that are required before enacting the program. I think were three, that are needed not only for the program, but for the emergency of the situation and the stabilization of the Lebanese financial situation and the Lebanese economy. And let me remind you of those three. One is to pass a law on capital control in order to allow Lebanon to have the opportunity to do the overhauling of the financial sector. The second law was in addition to the capital control, was on -- let me go to my notes. Yes, on the bank resolution, which is also something that you need before the overall reform package. And the third one was passing the budget at the time of 2022 and 2023. Therefore, those were the minimum requirements that you need in order to start reforming the system. Especially that the gravity of the situation increased since the outbreak of the crisis in 2019, therefore; those were needed measures with or without the program in order for Lebanon to start addressing the huge imbalances that exist both financially and economically, address triple digit inflation and an economy that was shrinking in the last few years.

MS. AMR: Thank you. We have a question. The gentleman there. Then we'll turn to the left side.

QUESTIONER: Hello, Ahmed from Tunisia. I have a question, please, about Tunisia. Has Tunisia presented a new proposal for a new program? And if it does present an alternative deal, how long will it take to negotiate one and will it include subsidies cut? Thank you.

MR. AZOUR: Ahmed, the quick answer to your question is no. The authorities did not propose any alternative to the program. But you are giving me the opportunity to reiterate that the reform of the subsidy that is benefiting the rich at a time where oil price is high is not only a fiscal waste, but also socially unfair. And therefore, by reforming the subsidy, you could allow more resources to go to finance inclusion and to increase social spending.

MS. AMR: Okay, Jihad. The lady in the right on the fourth row please. Yes, thank you.

QUESTIONER: Ghada Abu Ra’ad from a French Agency. In light of this war between Palestine and Israel, what are the consequences on the economy and what are the advice we can offer to the countries that are already suffering from a dire situation in the region?

MR. AZOUR: Sorry, another question?

MS. AMR: Do we have other questions on the same topic? On the same topic it's on the same topic? Okay later then we can take your questions. Thank you.

MR. AZOUR: Thank you for your question. It is very difficult to say or to predict what’s going to happen economically. The implications could be in the short-term, medium-term and long-term. In the short term, it is also difficult to read what could happen. But based on what took place in the last few days, there was an increase in oil prices by $5 per barrel but now it went back down. But actually, if you compare the oil prices today it’s actually less compared to the oil prices two months ago. Yet, I would like to confirm, as you know, that in these kinds of circumstances it very difficult to have an accurate reading of what will be the economic consequences because there are so many developments taking place. In the medium and long term, no doubt there will be an impact of course. But the ability to determine the type of this impact, or the size or the window of time, it is necessary to watch the direction of these developments in the coming months and weeks.

To go back to the second question, talking about the financial and economic situation. When we witnessed, we need to emphasize the importance of having buffers and reserves to confront these kinds of developments that will help you swiftly to deal with this kind of consequences. Here it is important then that the good governance, economically and financially speaking, is so important in these kinds of situations.

MS. AMR: The lady in the third row please.

QUESTINER: Good morning, newspaper from Morocco. I have a question on Morocco. You talked about the country's resilience. Do you think that the Kingdom of Morocco is now ready to face future shocks? There are also sets of reforms that have been implemented. What are the urgent measures that Morocco should take to enhance its economic performance given the uncertain context at the regional level?

MS. AMR: Questions on Morocco? So we can take all the questions on Morocco. So we'll start here and then we'll take your question.

QUESTIONER: Khadijah, from Morocco. According to the IMF reports that Morocco will witness kind of a recovery this year, next year, on what foundations you build your report in light of the circumstances the whole world is facing?

QUESTIONER: Fatima from the Moroccan National Radio. What do you think are the factors that contributed to the resilience of the Moroccan economy? Thank you.

MS. AMR: Okay, we have a question the gentleman in white in the back on the left. You're next.

QUESTIONER: Good morning, Youssef Yaqoubi, a newspaper in Morocco. According to the latest projections that was issued yesterday about from IMF in regard to Morocco, it didn’t take into consideration the consequences of the earthquake and especially what is happening in the Middle East and the war that is taking place. So how you can incorporate what is happening now in your projections or in your outlook for the next year? Especially that we will host major sports tournament that could have impact so, as you mention earlier, the earthquake consequence could have mid- term and long term consequences.

MS. AMR: Gentlemen, if you can give the microphone to the gentleman in front of you. Thank you.

QUESTIONER: Thank you very much, Zacharia from Morocco. You mentioned to us that the level of the inflation reduced in Morocco is because of the monetary policy in Morocco. But let me ask you the following, when we talk about developing countries like Morocco, is there a real link between the central banks interests rates on one hand the inflation rates on the other hand? Because when we compare the situation in the United States and Europe the interest rates is high but the inflation is not reduced. So will have then a double shocks, in this case when comparing Europe and the United States to this case.

MS. AMR: The lady. Are there any other questions related to Morocco?

QUESTIONER: There are many shocks but also many conditions imposed by the IMF and International Organization. Sets of reforms and prerequisites in order to access financial aid. If I understand correctly, during these meetings, there seems to be a new direction, a new vision for financing developing countries. Could you share some more information regarding this new direction.

MS. AMR: Okay, we're going to start. We have enough questions on Morocco.

MR. AZOUR: Thank you very much. I think a couple of questions came on the issue on resilience, and I will answer them in Arabic and in French. For those who ask Arabic and French. The resilience depends on many factors on the reforms that aim on reducing vulnerability but also the reforms that aim at increasing buffers to better face shocks. We are undoubtably in a situation where shocks are multiplying and intensifying. This means that we need to continue to follow sound, economic policies that allow us to maintain an economic balance, equilibrium, to strengthen the economies capacities and to increase reserve so this all means you have to increase your immunity while not being complacent. This is the message for Morocco and for other countries that manage to weather the shocks. What we've seen in the past doesn't guarantee anything for the future. This is our recommendation.

Now, increasing resiliency also goes through structural reforms enhancing the business climate, increasing investments, allowing companies to have more capacity and to not be so prone to interest rate increases, and also technology. This also allows companies to grow and to be better shielded from the effects of climate change, including in the rural sector and the agricultural sector. So we need to speed up these structural reforms. This is actually the topic of a chapter in our report that will be published soon after this briefing. So structural reforms are important.

And then you had a question on projections. Now of course, projections were established before the earthquake and other institutions, namely the World Bank and the IMF, are now working on a report on the short, near, and long term impact of this earthquake. And so we will be communicating on this. We are working hand in hand with the Moroccan authorities to be able to give more information. So I do think that the 3 billion facility will help deal with this issue.

Question about interest rate and inflation as you may know, we need once again to state that the transmission mechanisms between the monetary policy and its impact on inflation can vary from one state to another. In some countries it could need six months between the moment the decisions are made and the results. Sometimes it can go as high as 24 months. We also try to assess and compare countries on this issue and many factors play a role, factors about the finances and about many other things that have an impact on the speed of the impact of these policies on the ground. But inflation, of course, is a very negative factor. It leads to a lack of stability. It has a negative impact at the social level. In economics, the best way to treat the inflation problem is through interest rate and flexible currency rates. Now, we have lots of repercussions as well, because we do know that interest rates have been increasing at the global level and have an impact on the local level.

Now, first we know, to answer your question, madam, that reforms are a condition. It's to enhance the resiliency of the economy, to make the economy more inclusive. If you look at the program, of course it comes with conditions. But these conditions allow a government, through reforms, to increase its resiliency and to boost its growth. And these conditions depend on a country's situation and depend on the country's needs and also the external context. Now, what can the IMF do to help? The IMF has many tools in its toolkit. First of all, it can adjust its help. As you know, during Covid we completely changed our policy. We had rapid financing that allowed countries to fund their immediate needs and to protect the most vulnerable and preserve their economic stability. In a few months, $100 million were distributed in the region. In less than two months, Tunisia was able to have $550 million. There are also $650 billion in SDRs that were distributed to increase liquidity, which was also an issue.

And then climate issues, midterm transformation. How do you help countries that do not have the financial capacity to transform their economy, especially those that do not contribute to climate change, but do feel the effects of it? And this was a very good program. Now there are also other means to help countries. There are consultations finding policies together with the authorities and also technical assistance. This is not only for developing countries, but also for developed countries. These countries also benefit from our help.

MS. AMR: In the front and then we end.

QUESTIONER: Souhail Karam from Bloomberg. Mr. Jihad, there is a talk about the independency of the Central Bank in Tunisia , and the Tunisian President said that the Central Bank changed in some of the laws that allow to buy some loans to cover the deficit in the budget, especially that now we're planning for the 2024 budget. So there is a clear vision on our side. And you mentioned earlier that you are in touch with the Tunisian authorities, including the Central Bank. So I would like to know from you what does it mean in the context of Tunisia and that would be a deal breaker or not with the talks with our Central Bank Tunisia?

MR. AZOUR: In fact, when we talk about the Central bank, it is the representative of Tunisia with us. So the communication actually is with all players, with the Ministry of Finance and also with the presidency as well. And it's ongoing communication. Let me remind you that when we designed our program for Tunisia last year, and actually this is something we're proud of, it was a program dedicated to Tunisia and a huge team planned and designed this program to support Tunisia by IMF. Not only by IMF, but also the World Bank and the European Investment Bank also played a role here. I did not visit Tunisia recently, but you asked me about the independency of the Central Bank or Central Banks. Generally speaking, the independency of Central Banks serve a certain purpose to allow them to do their jobs. It's not an absolute independency, but there's a reason for that to play its role, which is to provide the necessary space for the Central Bank or to preserve its first duty which is to create stability in prices, secondly, the stability of the financial sector. Thirdly, to support the government when it comes to their projections. So this is why it is important when we talk about it is a conditional independency. And most of the countries of the world adopted this. And when it comes to Tunisia, as I mentioned, there will be an IMF mission visiting Tunisia, looking into what are the economic developments that took place in Tunisia. Last year, for example, where several developments took place. This is why we have to look into the latest developments to conduct consultations based on Article IV consultations and to continue this collaboration and work between the IMF and the Tunisian authorities.

MS. AMR: We are ending our Press briefing on the Middle East and Central Asia Economic Outlook. Please stay for the panel discussion that will discuss the findings of the report following this press briefing. Thank you.

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