ISLAMABAD: The GPD growth in Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region in 2020 is expected to be two percentage points weaker than in April's estimates, says the International Monetary Fund (IMF).
The IMF in its latest report, "Middle East and Central Asia Economic Outlook update", stated that given domestic and external headwinds, and in spite of policy measures, the real GDP in the Middle East and Central Asia (MCD) region was projected to fall by 4.7 percent in 2020, which was two percentage points lower than in the April 2020 Regional Economic Outlook (REO), in line with revisions to global growth over this period.
These changes are mostly driven by the MENAP region, where growth in 2020 is expected to be two percentage points weaker than in April, reflecting subdued activity in oil exporters.
In contrast, growth in the Caucasus and Central Asia (CCA) region was revised down by only 0.5 percentage point, reflecting stronger policy response in some countries and lower oil production cuts than in MENAP.
Markdowns in growth during the second half of 2020 are also reflected for Egypt and Pakistan, both of which lowered their fiscal year 2020-2021 (which starts July 2020) projections by about one percentage point, driven by weaknesses in the second half of 2020.
For MENAP oil importers (MENAPOI), the benefits from lower oil prices are mostly being offset by hampered trade, tourism, and remittances and tighter global financial conditions and spillovers on domestic credit conditions, which, along with confinement measures, continue to depress growth.
While, as a group, growth in 2020 is projected to be nearly unchanged from April (-1.1 percent), there are substantial differences across countries, it added.
The fund further added that more recently, countries in the region that had imposed more stringent confinement policies earlier have also begun gradually relaxing restrictions (Algeria, Bahrain, Georgia, Iran, Jordan, Kazakhstan, Kyrgyz Republic, Lebanon, Pakistan, Saudi Arabia, Tunisia, UAE, and Uzbekistan).
The average size of the package in the MCD was actually smaller than any other region in the world, which reflects constrained policy space among oil importers and existing sizable government support in the economy among most oil exporters.
In about half of the countries, packages were financed through expenditure reallocation or revenue measures.
Since the end of April, most of the additional policy responses have focused on enlarging fiscal support packages, in particular through support to small and medium enterprises with time-bound tax deferrals, delayed tax deadlines, and utility holidays (Djibouti, Iran, Pakistan), with few changes to monetary policy.
Social protection measures in the region, which were the main instrument for increased non-health spending, comprised cash and in-kind transfer schemes (used by more than two-thirds of countries), paid leave, unemployment benefits, and wage subsidies.
Utility support, temporary tax exemptions on essential goods, and tax holidays have also been widely deployed (Azerbaijan, Bahrain, Egypt, Georgia, Iran, Morocco, Pakistan, Saudi Arabia, Tajikistan), as have credit lines to small and medium enterprises (Djibouti, Iran, Saudi Arabia, UAE, Uzbekistan).
Many of the transfers were one-offs or times bound and were put in place at the onset of the pandemic.
Given the high levels of informality in some countries, mobile technologies have been deployed for cash-support delivery and the identification of beneficiaries.
Pakistan and Jordan are both employing online beneficiary registration and eligibility verification, while facilitating e-money payments.
Policy rates were cut in 16 countries (about half of which maintain pegs) by about 150 basis points (bps) on average (in line with the Federal Reserve); Pakistan and Egypt stand out with cuts of 525 bps and 300 bps, respectively, with Pakistan reducing its rate by a further 100 bps in late June.
Nine central banks in the region (Armenia, Georgia, Jordan, Morocco, Saudi Arabia, Tajikistan, Tunisia, UAE, and Uzbekistan) have injected more than $40 billion into their financial systems to support liquidity.
Several countries have allowed the exchange rate to work as a shock absorber (Armenia, Georgia, Kyrgyz Republic, Morocco, Pakistan), in some cases combined with interventions (Georgia, Pakistan).
It further stated that Egypt, Jordan, the Kyrgyz Republic, Pakistan, and Tunisia have received emergency assistance under the Rapid Financing Instrument, while Afghanistan, Djibouti, the Kyrgyz Republic, Mauritania, Tajikistan, and Uzbekistan have accessed its concessional counterpart, the Rapid Credit Facility.
These emergency financing instruments require no ex-post conditionality, and the Rapid Credit Facility is offered at zero interest.
Morocco has opted to draw on its Precautionary Liquidity Line to boost reserve buffers and help manage needs arising from the shock.
It further stated that the Group of Twenty Debt Service Suspension Initiative could be an important resource for several of the region's financially constrained countries to preserve international liquidity and channel resources to combat the health crisis.
Thus far, six countries from the region have requested relief: Afghanistan, Djibouti, Kyrgyz Republic, Mauritania, Pakistan, and Tajikistan.
Copyright Business Recorder, 2020
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