Middle East Needs to Move to ‘A New Economic Model,’ According to IMF Official
An official from the International Monetary Fund argued this week that the Middle East and Central Asia regions should shift towards a new and inclusive economic model as they emerge from the pandemic, echoing IMF claims that this is the time for a world economic shift.
“There’s no doubt that 2020 was the year we started confronting this pandemic, and 2021 is the year of transformation to move into a new economic model,” said IMF Director of the Middle East and Central Asia Department Jihad Azour in an event sponsored by Brookings Institution.
“We hope [this year] is going to be based on recovery and we hope it is going to be based on building a new economic model,” he said.
The regional economic outlook for the Middle East and Central Asia published by the IMF this year suggests that the path to recovery will be “long and divergent” for the area, varying significantly by country.
Azour has written that “economic scarring,” or long-term losses in the economy, are a serious concern of the coronavirus, which also threatens to drive up social unrest in fragile states. The crisis has also increased finance risk in the region, which will account for more losses in the long run, he has said.
While the challenges are immense, Azour has argued that there is a path forward for these economies.
The main objective, he said, is not to have a larger gap among the different components of these communities.
To that end, Azour said that the speed of vaccinations within countries in the MENA region is itself staggered and it must be ramped up to put countries on the path of recovery.
Some countries in the region, under the current trajectory, won’t be able to vaccinate their populations until 2023, he said. Further, countries that previously relied on large tourism industries, for example, are going to have a more sluggish recovery.
IMF Managing Director Kristalina Georgieva had argued back in March that the world would see a “multi-speed recovery” where rich countries are recovering at a quicker pace than poor countries, creating a “dangerous convergence” of factors that threatens to push the world economy to new levels of inequality.
The new economic model, Azour said, ought to secure for the region what it has lacked in the recent years by building out a fair distribution of growth and by offering solutions to some of the problems that existed prior to the outbreak.
They should focus on limiting the pandemic and mitigating losses in the “immediate future” but then they should increase stimulus spending, in countries that can afford it, or reorganize expenditures to protect the social safety nets, he wrote in an overview of the Middle East and Central Asia region from last October.
Recently, the IMF has argued that these countries will have to implement policies to protect public health and foster a green and inclusive recovery, while also promoting debt sustainability and financial resilience. The pandemic, according to them, represents a “turning point” and vanishing opportunity to restructure the world economy in a way that is sustainable and fair.
Other observers appear to think that there’s an opportunity to solve the underlying issues of the region as well.
An editorial published by Brookings Institution, which sponsored the event with Azour, recently argued that public sector reform in the region from the past two decades provides a clear indication that transformative change is possible for Arab nations looking to modernize state institutions.
However, it argues, this will require recognizing that the “traditional social contract” of the region, which swaps “political acquiescence for public sector jobs,” actually harms the ability of the government to deliver on systems with more diverse revenue sources, especially given the volatility of the oil markets, and to provide responsive governance.
During the coronavirus, these countries have rediscovered the importance of government institutions, the Brookings paper said.
“The revolutionary impulse unleashed by the Arab Spring a decade ago and its more recent echoes in 2019 may again sweep through the region once the lockdowns are lifted, economies attempt to restart and the full scale of damage to jobs and livelihoods caused by COVID-19 becomes clear,” it said. “And even if such pressures do not materialize, governments would be wise to not let the opportunity for disruptive change presented by the pandemic slip by untapped.”