IMF more upbeat on MENA growth

Starts discussions with Lebanon

The Middle East and North Africa “is on track to economic recovery, but rising social unrest and unemployment are threatening to hinder progress”, the International Monetary Fund said yesterday.

The MENA region, which includes the Arab countries and Iran, saw its real GDP growth shrink by 3.1% in 2020 due to lower oil prices and sweeping lockdowns to prevent the spread of the coronavirus.

But with rapid vaccination campaigns, particularly in the Gulf nations, the IMF predicted that GDP growth would rise to 4.1% this year, a slight upgrade of 0.1% from the last projection in April.

“The region is going through recovery in 2021. Since the beginning of the year, we see progress in the economic performance,” Jihad Azour, director of the Middle East and Central Asia Department at the IMF, told AFP in an interview. “But this recovery is not the same in all countries. It is uncertain and uneven because of the divergence in vaccination ... and geopolitical developments.”

The IMF said this month that while prospects for oil-exporting economies improved with higher oil prices, lowincome and crisis-hit countries are witnessing “fragile” recoveries.

It warned of “a rise in social unrest” in 2021 that “could pick up further due to repeated infection waves, dire economic conditions, high unemployment and food prices”.

Unemployment rates increased in MENA last year by 1.4% to reach 11.6%.

This rise exceeds that seen during the global financial crisis and the 2014-15 oil price shock, the IMF said.

The fund also warned of the longer-term risk of the uneven recovery, which could lead to a “permanent widening of existing wealth, income, and social gaps and, ultimately, weaker growth and less inclusive societies”.

About seven million more people in the region are estimated to have entered extreme poverty during 2020-21 compared to pre-crisis projections, according to the IMF.

In Lebanon, the continuing drop in the value of the currency has dashed hopes that the government formed last month can stem an economic crisis, branded by the World Bank as one of the worst since the mid-19th century.

Nearly 80% of the Lebanese population lives below the poverty line.

“The fund has already started technical discussions with the authorities ... to develop what would be in fact that the framework within which the fund can help Lebanon,” said Azour, a former Lebanese finance minister.

“Last time we had a full update of the situation goes back to August 2020, before the resignation of the previous government, and therefore many things have happened and we need to update the numbers, have a new baseline,” he said.

Lebanon defaulted on its international debt in March last year, after years of political upheaval and economic mismanagement left it unable to service a debt burden that Goldman Sachs last month estimated at over 300% of GDP at current market exchange rates.

The IMF estimates the Lebanese economy shrank by 25% last year, with inflation hitting a rate of nearly 85%.

Talks between Lebanon and the IMF broke down last year largely because Lebanon’s central bank, banks and politicians could not agree with the previous government on the scale of the losses in the financial system.

“It’s very important to address the issues that the financial sector has faced, mainly the financial losses,” Azour said.