Middle East and North Africa policy makers need to remain accommodative with fiscal and monetary measures, while countries can accelerate their economic recovery from the Covid-19 pandemic by investing in green infrastructure, technology and digitalisation, a senior International Monetary Fund official said.
The recovery across countries is uneven and hinges on the vaccination roll out, containment measures and the ability of countries to limit the scarring from the pandemic, Jihad Azour, the director of the Middle East and Central Asia department at the IMF said in an interview with The National.
"We see certain improvements in some of the fundamentals like oil price, the level of low interest rates, some countries bouncing back, but the fog of uncertainties of the second and third wave of the pandemic … are casting a shadow on this year," Mr Azour said.
"We need to accelerate the recovery … because to regain the levels of pre-Covid we need still more effort. We will not regain this before 2022 and we don’t want to have a lost decade whereby we will be slower with reforms and slower in recovery."
Mr Azour said 2021 is a year where the region finds itself in a "race between the virus and the vaccine, and a recovery … will hinge on three important factors; access to vaccines in terms of inoculation, the strength of the policy response; fiscal monetary all that has been deployed over the last few months and the impact of the global economy on the region, on the oil price, and the global outlook on interest rates".
The economies of the Mena region are projected to grow 3.1 per cent this year after contracting 3.8 per cent in 2020. Countries that have accelerated the vaccination could benefit from an additional 0.3 or 0.4 per cent growth this year. Those lagging could lose 0.3 per cent or 0.5 per cent.
For instance, Mr Azour said despite the challenges Palestinians faced in the first wave of the pandemic and the second, their economy, which relies largely on donor aid, managed the first wave "in a relatively good way".
But he added, "it’s important for Palestine to get access to the vaccine because we see the positive impact of vaccination in reducing the spreading of the virus and allowing the economy to recover".
Lebanon whose economy contracted 25 per cent in 2020, may see an additional contraction of 9 per cent this year depending on the capacity of forming a cabinet and implementing needed reforms, as it battles the pandemic, Mr Azour said.
Iran, which has the highest number of Covid-19 infections in the region at over 1.4 million, may see an economic recovery of between 3 to 3.3 per cent growth in 2021, after contracting 5.7 per cent last year.
While vaccinations are key to kickstarting growth and revitalising economies, continued fiscal and monetary support is critical to preventing socio-economic disparities from widening, protecting businesses and mitigating rising unemployment. Arab countries are projected to have the equivalent of one million fewer full-time jobs this year, compared to pre-crisis levels, according to the International Labour Organisation.
"Countries that still have fiscal space need to target further and focus on where the issues are in 2021. The capacity of countries to provide additional support explains the disparities that we see in terms of recovery," Mr Azour said.
"Countries who have lower level of debt are in better shape. Those who have limited or no fiscal space need to re-allocate their resources and redirect spending on the priorities and need to be much more proactive in their policy making."
Central banks across the Arab world rolled out a slew of monetary measures to provide liquidity, support banks and ease debt concerns for borrowers, by reducing interest rates and capital reserves requirements of lenders, as governments provided fiscal stimulus to cushion the impact of the pandemic on economies.
The Covid-19 pandemic which tipped the world economy last year into the worst recession since the 1930s saw governments and central banks globally pour more than $12 trillion in fiscal and monetary stimulus to stabilise financial markets, support their economies and protect jobs.
While banks in the Mena region are well capitalised with a good level of profitability and central banks have taken the necessary measures, the expanding health crisis means "there will be a risk of increase in non-performing loans," Mr Azour said. "This is why in terms of policy recommendations, countries that have the capacity, [should] extend the measures."
Mr Azour said policies that were put in place to combat Covid-19 and the treatment have helped countries battle the second wave, but there are areas and trends that countries need to seize upon moving forward.
The pandemic "showed that investment in good quality infrastructure paid off. Technology is not only to provide a platform for business, but also a platform for enablers; education, access to good quality remote education, access to healthcare, all these elements proved to be very important", he said.
"Those trends are going to accelerate and are going to divide communities and countries. This is why we are calling for a focus on accelerating these trends in order to close the gap between those who recover fast and those lagging."
He said technology was instrumental in providing access for those in the informal sector in countries like Morocco or Egypt. In Morocco, mobile technology was used to provide access for direct support for more than 5 million families. The harnessing of technology in GCC countries was notable and facilitated good remote education and telemedicine.
"Those are important elements and will play a big role in the future. The fact that countries of the GCC have invested in 5G, this is a very good step forward," Mr Azour said. "Technology will help accelerate the recovery but also reduce the gaps between social groups and help in the inclusion [of women and the youth]. Technology is also going to be very important for countries in terms of being able to participate in the value chain."