IMF warns on rising debt in 30 countries amid COVID uncertainty

Suban Abdulla
·5 min read
An Iranian woman wears a face mask as a Covid-19 coronavirus pandemic precaution, in Iran's capital Tehran on October 19, 2020. - Iran today announced 337 deaths from the novel coronavirus, a record high for a single day in the Middle East country hardest hit by the Covid-19 pandemic. The latest deaths brought to 30,712 the total number of fatalities since Iran reported its first coronavirus cases in February, health ministry spokeswoman Sima Sadat Lari said in televised remarks. (Photo by ATTA KENARE / AFP) (Photo by ATTA KENARE/AFP via Getty Images)
While there was economic rebound in the region in the third quarter of 2020 as COVID restrictions were relaxed, it said that the outlook and recovery remain uncertain. Photo: Atta Kenare / AFP via Getty Images

The International Monetary Fund (IMF) has issued a stark warning on Sunday that COVID-19 uncertainty could hinder an economic rebound and increase debt in around 30 countries. 

It comes after the organisation marked up its economic outlook for the Middle East, North Africa, Pakistan and Afghanistan in its latest report. 

Its revised 2020 figure now shows just a 3.4% contraction last year.

Meanwhile, it projects real gross domestic product (GDP) growth in the region to pick up to 4% in 2021 — an upgrade of 0.9 percentage point relative to October 2020.

Other nations in the region will fare even worse. IMF predicts that the damage done by the coronavirus crisis will drag on and cause economic harm for many years in countries with high inflation rates and lasting wars like Yemen, Libya, Sudan and Lebanon.

"Although comfortable reserve levels provide support for the region’s emerging markets, vulnerabilities for countries with elevated external debt and limited fiscal space are higher," the IMF said.

While there was economic rebound in the region in the third quarter of 2020 as COVID restrictions were relaxed, it said that the outlook and recovery remain uncertain.

IMF pointed to vaccine inequity, reliance on heavily affected sectors like tourism as well as countries’ fiscal policy as contributing factors.

As a result it urged the countries in the region to curb their financing requirements, amid rising government debt, exacerbated by the coronavirus crisis, threatens recovery prospects.

It projects that financing needs will increase in the next two years years, with emerging markets in the region likely to need around $1.1tn (£803bn) in 2021-2022 compared to $784bn in 2018-2019.

READ MORE: World Bank commits $2bn for vaccines in developing nations

Growth for the region's oil exporters was boosted by a boom for commodities and rise in oil prices. 

Brent (BZ=F) hit $65 a barrel in March this year — it rose over 240% in the last 12 months, while Crude futures (CL=F) stood at $63 per barrel. Prices across both benchmarks are expected to dip. 

A whirlwind ride for Brent Crude prices over the past year. Chart: Yahoo Finance
A whirlwind ride for Brent Crude prices over the past year. Chart: Yahoo Finance

Despite expected oil price dips through to the end of 2022, the surge from last year's all-time lows is boosting countries such as the United Arab Emirates and Saudi Arabia, which have both bolstered its vaccination rollouts.

But, lower demand and slump in oil prices caused fiscal deficits to widened in Middle East and North Africa to 10.1% of GDP in 2020 from 3.8% in 2019, IMF said. 

The pace of actual demand recovery, based on coronavirus inoculation rates and the degree to which sectors like travel and employment return to pre-pandemic norms, will remain an important uncertainty on the demand side.

Additionally, this recovery in activity reflects a "carryover from the last quarter of 2020" and is amplified by the expected pickup in activity in the second half of 2021.

"Oil prices have recovered since the last quarter of 2020, reflecting improved global demand, combined with the OPEC+ agreements to extend oil production cuts and Saudi Arabia's announcement of additional voluntary production cuts," the Fund said.

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It added that "early inoculators" for oil-rich Gulf nations, Kazakhstan and Morocco, will reach 2019 GDP levels next year. The IMF expects it will take other countries one year more to reach recovery to those levels. 

"Recovery has started, but recovery has started in an uneven, uncertain way," Jihad Azour, director of the Middle East and Central Asia Department at the IMF, told Reuters

Meanwhile, GDP in emerging Asian economies, excluding China, will decline nearly 8% by 2024 compared to pre-COVID projections, according to the IMF. 

While, Latin America and the Caribbean will take a 6% hit, sub-Saharan Africa will decrease more than 5% compared to pre-pandemic trends.

"We are a year into the crisis and recovery is back, but it is a divergent recovery,” Azour added. "We are at turning point. ... vaccination policy is economic policy."

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There have been similar concerns at global organisations over the issue of vaccine inequity in poorer nations at the back of the queue with little fiscal firepower. 

On Saturday, the World Bank said that it will have committed $2bn in aid by the end of April for coronavirus vaccine purchases, including development and manufacturing in some 40 developing countries.

Axel van Trotsenburg, World Bank's managing director of operations, told a forum that the money is part of around $12bn the organisation has set aside for vaccine purposes in low-and middle-income nations.

The organisation's president David Malpass said the bank expected this to expand to $4bn across 50 countries by mid-2021, in separate remarks to the lender's development committee.

However, health officials warned developing countries could lose out if the vaccination pace didn't pick up, amid the spread of the coronavirus and issues surrounding the vaccines meant to stop it.

World Health Organisation (WHO) director general Tedros Adhanom Ghebreyesus called for political will to bolster production of COVID-19 jabs and share supplies.

He called the failure to agree on a plan to waive intellectual property under the rules of the World Trade Organisation (WTO), the "elephant in the room." He added that the WTO waiver was meant for emergencies like the COVID crisis.

"We haven’t seen any emergency like this in our lifetime. If we cannot use it now, then when are we going to use it?” the WHO chief said. "The mother of all these bottlenecks is lack of political will."