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Global economy will take years to recover from pandemic; MENA to witness some growth in 2021: WB

Ahram Online asked the World Bank office about the forecast of the global economic outlook, including the MENA region, with a special focus on Egypt

Doaa A.Moneim , Tuesday 26 Jan 2021
World Bank
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The global economy is expected to bounce back during 2021 but will still be below pre-pandemic levels for many years to come, according to the update reports on the global economy that were issued by several global financial institutions, including the World Bank (WB).

Ahram Online communicated with the World Bank office in Washington DC to discuss the results of its recent World Economic Prospects 2021 Report, released on 5 January, in order to understand how COVID-19 is expected to affect the global economy in 2021, with a special focus on the Egyptian economy.

Ahram Online sent its questions to the WB office, which emailed us with the answers.

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In terms of the Middle East and North Africa (MENA) region’s economy, the WB told Ahram Online that the region’s growth is projected to recover, reaching 2.1 percent in 2021 and 3.1 percent in 2022.

It added that these growth rates are significantly below the average of the past two decades.

The WB attributed such a subdued performance to oil production cuts, which were implemented to help stabilise oil prices in oil-exporting economiesongoing COVID-19 outbreaks and pandemic-related uncertainties; political risk in some economies; and the possibility of lasting scars on the drivers of long-term growth such as productivity, education, and investment.

It added that despite recent positive news regarding vaccine developments, the pandemic will continue to have adverse health and economic effects in the near term, which requires ongoing efforts by both governments and citizens to control the spread of the virus, minimise delays in vaccine procurement and distribution, and take steps to protect vulnerable populations.

“If downside risks related to the pandemic’s evolution were to materialise, the region could see no economic growth in 2021,” the WB warned.

Regarding the its projections for oil prices over the medium and long term in light of recent developments, the WB told Ahram Online that oil prices have rebounded from their trough in 2020 as a result of ongoing production restraint among OPEC and its non-OPEC partners (OPEC+).

It added that while oil demand is expected to stabilise over the next couple of years, the strength of the recovery will depend on the distribution and uptake of the COVID-19 vaccines.

“Oil prices are expected to average $44 per barrel in 2021 and $50 in 2022. Jet fuel oil consumption, in particular, is expected to remain soft for some time as travel continues to be subdued,” it projected.

Over the long term, oil prices are expected to rise gradually from current levels, reaching around $60 per barrel by 2026, which reflects an expectation that sufficient production spare capacity is available to meet the projected recovery in demand, according to the WB’s estimations.

It added that the forecast in this regard depends on the resilience of the US shale industry and whether OPEC+ can continue to restrict oil supplies if demand disappoints.

Concerning the its predictions on key economic sectors, including tourism, exports and trade exchange in the region, and in Egypt in particular, the WB said that the pandemic is likely to continue to weigh on the regional economies that rely on tourism, exports, and other sectors requiring face-to-face interactions.

It also noted that the ultimate growth outcome is highly dependent on the future evolution of COVID-19 and vaccine efforts.

For Egypt, the WB pointed out that tourism, which is a significant part of the country’s economy and an important source of foreign exchange, has taken a hit with tourist arrivals currently at one-fifth of the levels seen in 2020.

“Renewed lockdowns and outbreaks in some of the world’s major economies continue to dim this picture. Tourism revenue is likely to remain significantly below pre-pandemic levels due to depressed demand, as potential tourists remain wary of social interactions and international travel continues to face restrictions,” said the WB.

In terms of exports in the region, the WB revealed that they contracted by almost 10 percent in 2020, but are expected to regain 2019 levels only after 2022.

In Egypt, the volume of goods and service exports shrank by about one-fifth in FY2019/2020 and is expected to remain weak going forward, according to the WB.

On the elevated external and internal debt issue amid the pandemic and the uncertainty it imposed, the WB said that the COVID-19 recession, and associated fiscal policy response, have triggered a surge in debt levels in emerging market and developing economies, adding that even before the pandemic, a rapid debt buildup in these economies had already raised concerns about debt sustainability.

“The pandemic has made this wave of debt even more dangerous by exacerbating debt-related risks. In the MENA, gross government debt to GDP ratio rose by double-digit rates in more than half of the region’s economies in 2020 in response to the pandemic. The level of government debt is elevated in several economies, particularly Lebanon — which defaulted on its debt in 2020 — Bahrain, Jordan, Egypt, and Tunisia”, it illustrated.

They added that the fiscal response that exacerbated debt burdens was necessary to address the health and economic fallout and prevent further loss of life and incomes.

Going forward, however, policy makers in the region should balance the need to respond to the ongoing economic repercussions from the crisis and avoid premature fiscal tightening that may undermine the recovery, while not fomenting the next crisis, according the WB.

In this regard, the WB proposed several measures that can be taken to manage the risks from rising debt levels.

“First, debt spending needs to be focused, to the extent possible, on financing growth-enhancing investments that raise living standards. Second, improving debt management, through measures such as extending the maturity of existing debt and understanding contingent liabilities, can help to prevent a liquidity crisis from becoming a solvency crisis.”

“Third, countries should improve debt transparency, which may help to lower borrowing costs, empower its citizens, and improve the efficiency of debt spending. Finally, debt-specific measures should be complemented with improving governance and institutional capacity and other reforms that empower the private sector”, it explained.

The international community also has a role to play in assisting countries, especially low-income economies, with managing the risks associated with high debt burdens and ensuring they have the resources needed to address the pandemic’s health and economic consequences, according to the WB.

In this regard, they expounded that the WB and the International Monetary Fund have undertaken emergency funding that has assisted more than a hundred economies, while the debt service suspension initiative has provided $5 billion in relief, including to Djibouti and Yemen.

“These should be only the first steps in finding long-term solutions to debt sustainability and if a crisis hits its resolution,” it affirmed.

In a response to an Ahram Online question about how the WB sees the African Continental Free Trade Area agreement’s (AfCFTA) impact on the economic performance of Africa, with a focus on Egypt, it said that it holds significant promise in facilitating the flow of goods and finance across the continent and helping to increase employment and incomes.

It added that it has the potential to lift tens of millions of Africans out of poverty, raise the volume of exports by about one-third, and help close the gender wage gap.

For Egypt, it said that the country will see significant benefits from the agreement given its relatively high initial barriers to trade and limited share of exports going to the rest of the continent.

“The gains from AfCFTA are a function of both its successful implementation over time, its scope, and its signatory countries’ ability to improve complementary factors. These factors include the quality and availability of infrastructure, the reorientation of transport systems to intra-continental trade, the reduction of non-tariff barriers, the implementation of reforms to diversify exports and move them up the value chain, and the improvement of governance, institutional capacity, and political stability”, it illustrated.

Ahram Online also asked the WB about the expected impacts of the signed reconciliation deal between GCC countries, Qatar, and Egypt on the economic performance of the region.

In this regard, the WB said that broader integration through trade and investment can be an important source of growth for the region, and any efforts to improve regional cooperation to facilitate regional solutions for regional problems are meaningful.

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