|08 May, 2020

Coronavirus impact: IMF sees multilevel shock for Arab economies due to Covid-19

IMF warns that Gulf countries face a budget reckoning and risk depleting their $2trn in financial wealth within 15 years: Dr Azour

The International Monetary Fund (IMF) headquarters in Washington, U.S., is seen on April 8, 2019.

The International Monetary Fund (IMF) headquarters in Washington, U.S., is seen on April 8, 2019.

REUTERS/Yuri Gripas

Arab economies are facing a multilevel shock from Covid-19 and will have major challenges in addressing the direct impact of the ongoing slowdown, starting with long-term structural problems, the regional head of the International Monetary Fund said.

Dr. Jihad Azour, director of the IMF Middle East and Central Asia Department, said despite the prompt responses by many governments in the region low oil prices have impact on both oil- and non-oil-producing countries.

Azour's cautioning is subsequent to a recent IMF warning that the Arabian Gulf countries face a budget reckoning and risk depleting their $2 trillion in financial wealth within 15 years as oil demand nears peak levels.

In a report, the Washington-based fund has said that global oil demand may start falling sooner than expected, putting a strain on the finances of the six-member bloc, which accounts for a fifth of the world's crude production. "Countries in the region need to think long-term and strategically because the oil market is changing structurally both from the demand and the supply side," Azour said in a previous statement.

"Starting with long-term structural problems, Arab countries will have difficulties addressing the direct impact of the ongoing slowdown. One thing that helps in the recovery in Arab countries is that they have young populations," Azour said

Two-thirds of the Arab population in the region is less than 30 years old, and this human capital advantage would play a key role in speeding up the regional economic recovery, he said.

"What are needed are dedicated efforts to implement what Arab governments and international organisations know are essential reforms to the structure and emphasis of Arab economies," the IMF official said while answering questions in a webinar hosted by the executive director of Arab Center Washington DC.

He said that the current economic crisis is not like that of 2008-2009 since it has precipitated a deeper and wider shock to the economies of individual countries as well as to the international economy at large.

"What also specifically differentiates the current economic crisis is the degree and level of uncertainty associated with it. He said that the international community and organizations knew what instigated the 2008 financial crisis; however, the severity and impact of the current one remains unknown, thus addressing its effects is still indeterminable.

Dr Azour expects Arab countries to continue their technology adoption programs as the economic recovery would depend on the efficiency of such initiatives.

He predicted that there will be a new globalization effort that may try to address the deficiencies of the former international economy. The international economy, he argued, will have to determine how to address challenges to growth and to make sure that this growth is equitable between low income and developed countries. He stated that "what is important at this stage is not to lose the opportunity of having a crisis in order to address some of the challenges that we had in the past."

On the issue of countries approaching the Fund for loans, Azour stated that the IMF has already helped some 30 low income countries by providing liquidity so they can meet their financial obligations. This is a lending operation, he said, in which "we need to make sure that the countries have the capacity to repay."

He said that the Fund is also advising on dealing with structural conditions in low income countries such as unemployment, health care, institutional development, technology deficits, high debt ratios, inequality and poverty, corruption, poor governance, and marginalized communities of refugees.

"All these are problems in the Arab world as well."

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