Robust healthcare systems and timely GCC policy actions averted deeper crises, IMF says

Fiscal packages and liquidity support protected the financial sector while shielding incomes and livelihoods of companies and individuals

Kristalina Georgieva said the year 2020 presented the biggest challenge to the world economy since the Second World War and Great Depression. Reuters

Robust public health systems and timely fiscal and monetary action by Gulf governments and central banks have helped avert deeper healthcare and economic crises in the wake of the Covid-19 pandemic, according the International Monetary Fund's chief.

Fiscal packages and liquidity support protected regional economies and also shielded incomes and livelihoods, managing director of the IMF, Kristalina Georgieva, said at a meeting of GCC ministers of finance and central bank governors on Sunday.

“I want to stress where you have been really exemplary in this region – rising to the challenge with swift policy responses,” she said in her virtual remarks at the meeting. “Timely and innovative measures included tax exemptions and deferrals, cash transfers and subsidies to small and medium-sized enterprises.”

Policymakers, she said, enhanced already-strong public health systems in the six-member economic bloc of the GCC, which kept fatality rates in the region among the lowest in the world. The UAE, the Arab world's second-biggest economy, and Bahrain deployed some of the largest per capita testing and contact tracing regimes in the world.

"I cannot stress enough how important having those in place is for people and for the economy,” Ms Georgieva said.

The pandemic has tipped the global economy into its deepest recession since 1930 as it upended global trade and severely disrupted the travel and tourism industry.

In its latest World Economic Outlook released earlier this month, the IMF estimated global output to shrink 4.4 per cent in 2020 with a sluggish and uneven recovery next year. It expects the GCC economy to shrink 6 per cent this year, less than a previous 7.1 per cent contraction forecast. The fund projects Gulf economies to expand 2.3 per cent in 2021.

Governments and central banks globally have so far rolled out more than $12 trillion of fiscal and monetary support to stabilise financial markets and protect jobs. The UAE was the first in the Middle East and North Africa region to roll out a Dh100bn ($27.25bn) stimulus in March, to support companies and individuals affected by the pandemic. The package, which included zero-cost loans and looser capital requirements to increase lending, was later increased to Dh256bn.

With the pandemic still ranging in most parts of the world, policymakers in the region need to maintain their supportive fiscal and monetary policies until “we are out of the woods”, Ms Georgieva said.

She called on Gulf countries to “increasingly target households and businesses most in need," and "start shifting support away to firms that are likely to succeed and to individuals most in need.”

In terms of continued economic reforms across the hydrocarbon-rich region, diversification of government revenue and spending efficiency should take precedence, she said.

Governments should also look at ways to strengthening social safety nets, improving the management of state assets and liabilities and putting in place robust medium-term fiscal frameworks to anchor stability.

The IMF, she added, can support in further developing these policies, and help in stress-testing medium-term financial frameworks.

“We are also very keen to continue work on social spending for inclusive growth in the region,” Ms Georgieva said.

She also said that the GCC, which is trying to increase the proportion of renewables in its energy mix, has a “wonderful chance to go green. The sun is as abundant – more abundant than oil”.

“I want to praise the UAE for building the world’s largest solar power plant. And you can continue what you have been doing.”

Mr Georgieva also commended Gulf countries on leveraging technology, which she said helps companies and the labour force operate amid the pandemic.

"I want to praise you for what you have done on digital," she said.

"Full standalone 5G wireless in this region will enable remote work, education, telemedicine, and e-government, and you can pursue with even more imagination the application of technologies to be even more competitive in areas where the digital revolution clearly is accelerating."