* The region, IMF managing director said received $37.1bn of its $650bn allocation of Special Drawing Rights; IMF projects 4.4% growth rate for Arab region in 2021 and 4.5% in 2022
The International Monetary Fund has provided $16.6bn in assistance to nine Arab countries, and debt relief to three countries, IMF managing director Kristalina Georgieva told a recent Arab Fiscal Forum Virtual Ministerial Meeting.
The region received $37.1bn of its $650bn allocation of Special Drawing Rights, she said and noted the International Monetary Fund is “now working to amplify the impact of this allocation through channelling some SDRs from strong countries to those who need support the most.”
In terms of the growth prospects for the Arab economy, Georgieva said the IMF projects 4.4% growth rate for 2021 and 4.5% for 2022.
On why the IMF finds the foundations of the recovery to be sound, she cited two major reasons.
First, because of the remarkable success of science delivering vaccines, and vaccination rates going up and up in many countries.
Second, because of the ample policy support that has been provided, that allowed businesses and households to move through a very unusual and severe recession, and then come forward with the capacity to revitalise the world economy.
She said, “We have to objectively recognise that risks tilt to the downside, and uncertainties about the cost of the pandemic and the recovery are high. And new and very serious issues have arisen in recent months.
“In the middle of last year, we identified the problem of divergence, at that time driven primarily by availability of fiscal space. Unfortunately, divergence has become more entrenched, reflecting access to vaccines and speed of vaccinations, and the ability to still utilise policy space for support.”
“In the Arab world, we have seen many of you doing really well, especially the Gulf Co-operation Council countries and Morocco, in terms of vaccinating people and opening up their economies. And we have seen remarkable policy action to make the best use of fiscal space. But we also see countries in the Arab world falling behind, and that is particularly troubling for fragile and conflict-affected states.”
This divergence is fuelling a growing disconnect between demand shooting up in countries and sectors where the recovery is moving faster, whereas supply is not yet catching up.
Unfortunately, divergence also means interruptions of supply chains. Even in highly vaccinated countries, Georgieva noted the impact of a pandemic roaring around the world is seen, causing temporary restriction measures.
“Most recently, we have seen this in Europe,” she said.
With interruptions of supply chains, inflation has become a more troubling phenomenon. Yet, at this stage, this disconnect between demand and supply is seen as the key reason for inflation, which gives hope that inflation will likely recede next year.
But if supply disruptions continue or inflation expectations become de-anchored, inflation may become stickier. And there are other factors pushing prices up, including weather phenomena that have impacted agricultural productivity and added to pressures on food prices.
Across the Arab region, she said, young people, women, migrants, low-skilled workers have been severely impacted, following the pandemic. And very troubling for many countries, small businesses especially in tourism, and other contact intensive sectors have been severely impacted.
“Unemployment has not been fast to come down from the peak of 11.6%. We see many people dropping out of the labour market or leaving school. That is a pressing issue region wide.”
The IMF chief stressed the need to build a new kind of “economic landscape” that is inclusive and positively affects the lives of people.
“Medium-term fiscal frameworks are at the heart of this new landscape. They serve to sustainably balance our immediate needs — health and targeted lifeline spending — with our longer term goals, namely transformative investments and debt reduction. This is an essential balance to reduce the need for adjustments, to ease policy trade-offs, to build trust — with both markets and citizens,” Georgieva said.