Qatar is among Mena (Middle East and North Africa) countries, where policy space is available to continue pursuing a mix of timely and targeted policies and liquidity support to hard-hit sectors and groups in view of Covid-19, the International Monetary Fund has said in a report.
These could include direct cash transfers; strengthening of existing social safety nets; targeted reductions in tariffs and excises on healthcare goods and services; temporary direct subsidies or deferred tax payments to vulnerable businesses to avoid sectoral dislocations (for example, SMEs or hospitality sectors); and expenditure-based incentives to firms (such as accelerated depreciations for investment) to support production of undersupplied goods and services.
These and other measures, however, should be temporary to avoid creating lasting burdens on budgets, the IMF noted in a regional economic outlook update.
For countries with more limited fiscal space, especially those with high debt or large financing needs, the scope to respond to the broader economic slowdown may be limited.
However, where possible, room could be created within existing envelopes through reprioritising and postponing non-essential spending; and rationalising capital expenditure. Such policies should be part of a broader package of gradual medium-term fiscal consolidation with plans to rebuild buffers and ensure fiscal sustainability.
The IMF suggested central banks should stand ready to provide further liquidity to banks, particularly those lending to SMEs, while closely monitoring financial stability. This includes direct liquidity provision, maintaining or increasing credit lines, and providing guarantees to SMEs and state-owned enterprises.
In addition, consideration could be given to temporary easing of prudential and regulatory measures, such as adjusting loan-to-deposit ratios, deferred loan payments, and allowing banks to use capital conservation buffers. International support may be needed for those with limited policy space, including from ongoing conflict.
The IMF is already supporting countries through emergency lending facilities and debt relief (for example, Yemen) and stands ready to serve its membership, including by continuing to coordinate and mobilise international support. Beyond immediate crisis-related measures, economic policy responses should seek to prevent a protracted economic recession with lasting welfare losses to society and ensure that enough stimulus is provided to help revive economic activity after the crisis.
Governments with fiscal space could consider delivering temporary stimulus measures, including increased infrastructure spending, to boost aggregate demand where possible, although such measures would be more effective when economic activity resumes, the report noted.
“The current crisis has brought the region’s vulnerability to oil price volatility into sharp focus and underscored the need for fiscal adjustment over the medium term. Once the virus pandemic abates and after all efforts are deployed to revive economic activity, country authorities should unwind temporary policy measures and resume gradual fiscal consolidation, anchored within revised medium term fiscal frameworks, to meet pressing challenges from the expected peak in global oil demand and demographic trends, including the ongoing rise in working age population,” the IMF noted.
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