Middle East’s chronic woes exacerbate COVID impact, IMF says

Oct 16, 2020

Middle East lags global economic recovery

There is (finally and sort of) some positive news on the global economic front this year: The negative impact of the COVID-19 pandemic may be slightly less horrible than what was expected in June, according to the International Monetary Fund (IMF). That’s in large measure due to what one IMF official referred to as a “significant upgrade“ for the US economy.

The Middle East and North Africa (MENA) region, however, doesn’t have it so good. Indeed, the IMF warns that the region’s economic performance is likely to be worse off than originally anticipated, lagging even further behind already-negative forecasts. The MENA economy is complicated by a host of legacy issues that predate the pandemic and have only gotten worse because of it. 

By the numbers

Global economic growth is expected to decline by 4.4% this year, the IMF says. This is an improvement over the IMF’s last projection in June of a 4.9% decline.

Part of the reason for the uptick are signs of economic turnaround in the United States. US gross domestic product is still expected to contract by 4.3% this year. Dismal, yes — but in June the estimate was for minus 8%. IMF officials say the US “recovery came about sooner” and the “indicators have been stronger” as the US economy began to open up. 

The projections for global economic growth in 2021, when the coronavirus pandemic is expected to recede (one of the many caveated assumptions in the report), is 5.2% (down from 5.4% in June), with US growth expected to be 3.1% (that was 4.8% in June).

The Middle East lags behind. The region’s growth forecasts for 2020 have fallen from minus 3.3% in the April IMF report to minus 5% in October. And the projection for growth next year dropped over the same period from 4.8% to 3.2%. MENA had a 0.8% growth rate in 2019.

The reasons for the projected lower growth rates: deep structural problems that have gone from bad to worse as a result of the pandemic. Among them are the wars in Syria, Libya and Yemen; civil unrest in Iraq, Lebanon and Algeria; low oil prices; and economic crises that predate the pandemic, including heavy indebtedness, high unemployment among young people and legacies of corruption, inefficiencies and poor governance.

Low oil prices are not expected to recover to 2019 levels. The price per barrel is projected to end up at $41 this year and $46 in 2021, according to the IMF, the latter a drop of almost 25% from $61 per barrel in 2019. 

Three fragile economies to watch …

• Lebanon: Lebanon’s forecast for 2020 tumbled from minus 12% GDP growth in April to minus 25% in the October report. This is an economy on the brink of collapse, compounded by the damage from the ammonium nitrate explosion on Aug. 4, will be the third straight year of negative growth for Lebanon (minus 1.9% in 2018, minus 6.5% in 2019). The IMF is not even offering a prediction for Lebanon’s economy in 2021.
• Iraq: Iraq’s economic forecast got dramatically worse between April and October, with projected negative growth increasing from minus 4.7% to minus 12.1% for 2020, and projected growth for next year dropping from 7.2% to 2.5%. This is despite the appointment of Mustafa al-Kadhimi as prime minister, and the introduction of a far-reaching economic reform proposal this week by Finance Minister Ali Allawi.
•  Oman: The sultanate received a downgrade in its growth projection for 2020 from minus 2.8% in April to minus 10% this month. The forecast for next year fell from 3% to minus 0.5%. If these negative projections hold up, Oman will be facing three straight years of economic contraction, beginning in 2019 with minus 0.8% growth. Sebastian Castelier has the take here on Oman’s urgent and ambitious reform program under Sultan Haitham bin Tariq Al Said.

… and two that are weathering the storm

• Egypt: Egypt remains the only country in the region with projected positive growth for this year at 3.5%, an increase from the April projection of 2%. Perhaps part of the reason has been Egypt’s record of success to date in implementing IMF-mandated economic reforms, many of them painful austerity measures, under President Abdel Fattah al-Sisi, as we explained here. Growth is projected at 2.8% in 2021.
• Iran: The IMF expects Iran’s economy to contract by 5% this year, which is the regional average, and an improvement over the forecast of minus 6% in April. Supreme Leader Ayatollah Ali Khamenei this week called for continued emphasis on domestic reforms in the face of devastating US economic sanctions, and spiraling COVID-19 numbers. This year will be the third straight of negative economic growth in Iran: The economy contracted by 5.4% in 2018 and 6.5% in 2019 as a result of US sanctions. The IMF projects 3.2% growth next year. Bijan Khajehpour explains here how Iran’s economic reforms, if coupled with genuine anti-corruption efforts, could spark economic growth, even during sanctions.

A word on China

China also appears to be managing the coronavirus pandemic better than most. Its expected GDP growth this year is 1.9% and projected to be 8.2% in 2021.

Sebastian Castelier explains how the Gulf seeks to continue to balance its ties with both the United States and China, and stay out of their US-China global rivalry. And China is cultivating closer ties with both the GCC states and Iran, as Sabena Siddiqui reports. Last week we noted here that China is perceived by Arab youth as an ally of the region, more than the United States, and that its global leadership in the COVID-19 epidemic far surpasses that of the United States.

Israelis rally for Trump; Palestinians (not so much) for Biden

Mazal Mualem reports on a recent poll that almost two-thirds of Israelis would prefer that Donald Trump be reelected US president, adding that Trump may be one of the most popular American presidents ever. 

“Given that so many polls predict that [former US Vice President Joe] Biden will win the election,” Mualem writes, “some commentators are now saying that this will be a devastating blow to [Israeli Prime Minister Benjamin] Netanyahu. After all, many of Netanyahu’s successes can be attributed to his excellent relationship with Trump. Netanyahu makes sure to use every available platform to talk about Trump’s contributions to Israel,” including relocating the US Embassy to Jerusalem, recognizing Israeli sovereignty over the Golan and brokering Israel’s normalization agreements with the Palestinians.

Meanwhile, a poll last month by the Palestinian Center for Policy and Survey Research showed that while 61% of Palestinians expect Trump to lose the elections, only 21% of the Palestinians expect better ties with Washington if Biden wins. Meanwhile, 34% believe the current US policy will not change, and 35% believe that conditions may change for the worse, if Biden wins, as Ahmed Melhem reports.