The region, which includes Arab countries and Iran, saw real GDP growth shrink by 3.2 percent in 2020 due to low oil prices and sweeping lockdowns to prevent the spread of the Corona virus.
TOP
But in light of rapid vaccination campaigns, especially in the Gulf countries, the fund expects GDP growth to rise to 4.1 percent this year, an increase from the 4 percent level that it previously expected.
"The region is witnessing a recovery in 2021, since the beginning of the year, we are witnessing progress in economic performance," Jihad Azour, director of the International Monetary Fund's Middle East and Central Asia Department, told AFP.
Azour added, "This recovery is not the same in all countries. It is uncertain and uneven due to the difference in vaccination (..) and geopolitical developments."
The report also expected that this recovery would double and strengthen in 2022, with the continuation of vaccination campaigns against Corona. The report emphasized that the disparity in the vaccination process and the amount of support provided by the government are among the main factors behind the divergence of recovery paths between countries.
GDP growth forecast
After real GDP contracted by 3.2 percent in 2020 in the Middle East and North Africa, the report expects it to rise by 4.1 percent in 2021 and 2022, revising forecasts for increases of 0.1 percentage point and 0.4 percentage point since April, respectively.
Since last April, some countries have made remarkable progress in vaccination rates, such as Jordan, Morocco and Tunisia, while others are lagging behind. With current vaccination rates, the average vaccination rate is expected to reach about 40 percent of the population by mid-2022 and 60 percent by the end of the same year.
The report emphasized that countries that are more dependent on the travel and tourism sectors will benefit less from the current global recovery. The report also expected that the emerging market and middle-income countries in the region, such as Egypt, Lebanon, Morocco, Syria, Tunisia and Gaza, will witness an increase in real GDP by 3.6 percent in 2021, and an additional increase by 4.2 percent in 2022, to remain below the expected growth rates for market countries. emerging and middle-income countries around the world in 2021 and 2022 (6.7 percent and 5.1 percent), respectively.
In the medium term, real GDP is expected to remain below the pre-crisis forecast by about 6.6 percent, which is broadly consistent with expectations of peer countries around the world.
high inflation
At the same time, the report expects inflation in the region to rise to 12.9 percent in 2021 as a result of increased food and energy prices and monetary easing in some countries, before declining to 8.8 percent in 2022. The rise in total government debt in oil-importing countries in the Middle East and North Africa has led With more than 100 percent of GDP in 2021, according to expectations, the total financing needs will increase by nearly 50 percent during 2021-2022 (to $390 billion) compared to 2018-2019.
According to the report, inflation rates are expected to rise in all emerging market and middle-income countries. In general, expectations indicate that inflation in this group will continue to rise, exceeding 7.5 percent during the period 2021-2022, before declining gradually to 6 percent in the medium term.
In addition to international food prices, exchange rate developments and oil prices will be important factors behind the inflation dynamics in countries with flexible exchange rates, accounting for about a quarter of the volume of fluctuations in inflation rates on average during previous periods.
As the recovery continues, fiscal balances are expected to gradually improve due to the recovery of revenues at the level of economic cycles, the expiration of pandemic-related measures, and the expected fiscal adjustment in the medium term in countries with increased debt burdens such as Egypt, for example.
High public debt
The COVID-19 shock has led to an increase in the fiscal deficit and an increase in the public debt-to-GDP ratio in the Middle East and Central Asia, which has contributed to declining prospects for debt stability in several countries. The report indicated an increased likelihood of debt instability over a three-year time horizon in most countries in the Middle East and Central Asia compared to before COVID-19.
Expectations indicate that total debt will rise from 86.8 percent of GDP in 2020 to 91.7 percent of GDP in 2021, to gradually decline later during the period 2022-2026, so that it returns to pre-crisis levels in 2023.
Debt accumulation during the year 2020 also led to a sharp rise in the total public financing needs, as it is expected to reach $564 billion as a whole during the period 2021-2022, which represents an increase of approximately 20 percent compared to the period 2018-2019.
Moreover, rising debt and contingent liabilities as a result of extrabudgetary measures, such as providing loans or guarantees, and many other quasi-financial operations, including through state-owned enterprises, have weakened government balance sheets, threatening the prospects for debt stability.
After the total current account deficit contracted as a result of the collapse in domestic demand and oil prices in 2020, it is expected to rise from its level in 2020 of 3.4 percent of GDP to 3.9 percent of GDP in 2022. This reflects the balance between the positive impact of the global recovery on the export of goods, The impact of higher oil prices and a recovery in domestic demand on imports, and a slowdown in the recovery of the travel and tourism sectors in Lebanon and Morocco.
These forecasts underscore the need for rational and urgent fiscal measures. Even before the COVID-19 pandemic, the probability of debt instability was already high, on average, 44 percent across countries in the Middle East and Central Asia.
An analysis of projected debt flows over the medium term indicates that reducing debt to pre-Covid-19 levels requires more robust fiscal adjustments than before the pandemic.
Tangible debt reductions targeted by emerging economies are contingent on relatively strong fiscal adjustments over the medium term. However, the socio-political feasibility of these efforts may be at stake in the context of fragile recovery paths affected by high unemployment rates.
Unemployment high
The COVID-19 shock has exacerbated the already formidable labor market challenges in the Middle East and Central Asia. In 2020, job losses in most countries were unprecedented in scale, scope, and speed. The most vulnerable groups have borne the bulk of the burden of the pandemic, with limited skills, youth, women, migrant workers and informal employment among the most affected groups.
The region had entered the fray of the pandemic and was suffering from poor labor market outcomes. In the years 2018 and 2019, the average unemployment rate in the Middle East and Central Asia was 9.4 percent, the highest in the world, while the labor force participation rate was the lowest, 55 percent.
The pandemic has taken a heavy toll on labor markets globally and in the Middle East and Central Asia. The average unemployment rate in the region rose from 9.4 percent before the crisis to 10.7 percent in 2020, the second largest increase in regions after the Americas.
As workers became unemployed or dropped out of the workforce, the region's employed population declined by an estimated 8 million people, or 2.2 percentage points from the working-age population.
Women in general were also more affected by the crisis than men due to the sectoral distribution of women's employment and their overrepresentation in unpaid care work. Compared to the average in 2018 and 2019, the female unemployment rate in 2020 increased faster than the male unemployment rate.
Their employment levels decreased by 6.1 percent, compared to 3.9 percent for men. However, corresponding declines in the employment-to-working age population ratio were greater among men, likely due to the under-representation of women in the region's labor force, exacerbating the gender gap in terms of labor market outcomes.
According to the report, young people were the most affected by the pandemic, as its negative effects on the results of their labor market were greater compared to adults. And low-skilled employment has not escaped the effects of the pandemic, either. Its employment has fallen almost twice as much as that of high-skilled workers, which may reflect the increased ability of high-skilled workers to work from home and their increased penetration in areas that provide wider access to Internet services.
The report indicated that the pandemic had a profound impact on employment in the private sector, which decreased by 2.5 percent, while employment in the public sector decreased by 1.1 percent. The pandemic has also had a negative impact on wages. With few exceptions, countries experienced a slowdown in real wage growth in 2020 compared to 2018 and 2019.
long term risks
The Fund also warned of the long-term risks of an "unequal" recovery among the countries of the region, which could lead to "widening wealth and income gaps ... weaker growth and more isolated societies".
The Fund estimates that about 7 million people have entered extreme poverty during 2020 and 2021.
According to the fund, the corporate sector has returned to pre-pandemic levels, but smaller companies are still suffering, and it is expected that about 15 to 25 percent of these companies will need "restructuring or liquidation."
In Lebanon, the ongoing collapse in the value of the currency has dashed hopes that the government formed last month could end an economic crisis that the World Bank has described as one of the worst since the mid-19th century. Almost 80 percent of the population of the country, with its fragile political structure, lives below the poverty line.
Azour said that the fund "has already started technical discussions with the (Lebanese) authorities to develop what could in fact be the framework through which the fund can help Lebanon."
The report warned of an "escalating social unrest" in 2021 that "could rise further due to repeated waves of spread (coronavirus), deteriorating economic conditions, high unemployment and food prices."
In the recent period, many countries in the region, including Iraq, Lebanon, Sudan and Algeria, witnessed demonstrations and movements against the authorities in protest against the high prices and the lack of services.
No comments:
Post a Comment