Middle East economies will reach 2019 GDP level in 2022: IMF

Jihad Azour, director of the Middle East and Central Asia Department at the IMF, said the road to recovery for the Middle East and Central Asia region will hinge on containment measures, access to and distribution of vaccines, the scope of policies to support growth, and measures to mitigate economic scarring from the pandemic.

“Countries that put in place stronger fiscal and monetary support in response to Covid-19 are also expected to have a stronger recovery, aided by a shallower trough in 2020. In particular, while Caucasus and Central Asia countries as a group are projected to reach 2019 GDP levels in 2021 — due to their stronger Covid-19 response — those heavily impacted by the second wave will lag behind and not regain pre-pandemic GDP levels until 2022,” he said.

“Fragile and conflict-affected states will be especially battered, with 2021 GDP levels projected at six per cent lower than in 2019,” he said.

The IMF noted that GCC countries have the widest coverage of the vaccination as well as the most advanced plans, targeting agreements that in some cases include doses in excess of those needed to inoculate the entire population.

In October 2020 forecast, IMF had revised up forecast for the Middle East and North Region by 1.2 percentage points, to an overall contraction of 3.8 per cent. It projects 3.1 per cent in 2021 and 4.2 in 2022.

IMF last year provided $17.3 billion financing to the region to tackle the health and economic crises.

Uncertainty remains

IMF’s Azour said risks remain high as renewed infections could delay recovery in the absence of vaccines and policy space. Recent mutations of the virus could pose additional challenges.

‘Further spending needs could exacerbate debt sustainability concerns in several countries, especially if a sharp rise in global risk premia or higher-than-expected increase in global interest rates tighten financing conditions and raise rollover risks,” he said.

“While much work remains to tackle the immediate crisis, the region must also move swiftly and in parallel on building a resilient, stable, and more inclusive post-pandemic recovery. This requires addressing the uneven labour market impact of the crisis and curbing rising inequality, strengthening social protection, tackling crisis legacies, in particular debt overhang, reforming state-owned enterprises and reducing state footprint in the economy, and fighting corruption,” it said.

The Fund advised that the region should start now on high-quality investment in green infrastructure and digitalization to accelerate the recovery and avoid a lost decade.