By Satish Kanady I The Peninsula
Doha: The International Monetary Fund (IMF) has appreciated Qatar’s timely response to the COVID-19 pandemic by announcing a massive stimulus package to infuse confidence in local economy.
The Fund, in its official blog, noted that Qatar is one of the countries in the region that has already introduced targeted measures to combat the social and economic impact of COVID-19.
The IMF said that the impact of COVID-19 and the oil price plunge in the Middle East and the Caucasus and Central Asia has been substantial and could intensify. With three-quarters of the countries reporting at least one confirmed case of COVID-19 and some facing a major outbreak, the coronavirus pandemic has become the largest near-term challenge to the region.
Beyond the devastating toll on human health, the pandemic is causing significant economic turmoil in the region through simultaneous shocks—a drop in domestic and external demand, a reduction in trade, disruption of production, a fall in consumer confidence, and tightening of financial conditions. The region’s oil exporters face the additional shock of plummeting oil prices.
Travel restrictions following the public health crisis have reduced the global demand for oil, and the absence of a new production agreement among Opec+ members has led to a glut in oil supply. As a result, oil prices have fallen by over 50 percent since the start of the public health crisis. The intertwined shocks are expected to deal a severe blow to economic activity in the region, at least in the first half of this year, with potentially lasting consequences.
Commenting on the Channels of economic impact, the Fund production and manufacturing are being disrupted and investment plans put on hold. These adverse shocks are compounded by a plunge in business and consumer confidence, as we have observed in economies around the world.
In addition to the economic disruptions from COVID-19, the region’s oil exporters are affected by lower commodity prices. Lower export receipts will weaken external positions and reduce revenue, putting pressures on government budgets and spilling over to the rest of the economy. Oil importers, on the other hand, will likely be affected by second-round effects, including lower remittance inflows and weaker demand for goods and services from the rest of the region.
Sharp spikes in global risk aversion and the flight of capital to safe assets have led to a decline in portfolio flows to the region by near $2bn since mid-February, with sizable outflows observed in recent weeks. Equity prices have fallen, and bond spreads have risen. Such a tightening in financial conditions could prove to be a major challenge, given the region’s estimated $35bn in maturing external sovereign debt in 2020. Against this challenging backdrop, the region is likely to see a big drop in growth this year.
The immediate policy priority for the region is to protect the population from the coronavirus. Efforts should focus on mitigation and containment measures to protect public health. Governments should spare no expense to ensure that health systems and social safety nets are adequately prepared to meet the needs of their populations.
Beyond that overarching imperative, economic policy responses should be directed at preventing the pandemic—a temporary health crisis—from developing into a protracted economic recession with lasting welfare losses to the society through increased unemployment and bankruptcies.
Temporary fiscal support should consist of measures that provide well-targeted support to affected households and businesses. This support should aim to help workers and firms weather the significant, but hopefully temporary, stop in economic activity that the health measures being implemented to control the spread of the coronavirus will entail.
This support will have to take account of the fiscal space that is available, and where policy space is limited be accommodated by reprioritizing revenue and spending objectives within existing fiscal envelopes.
Where liquidity shortages are a major concern, central banks should stand ready to provide ample liquidity to banks, particularly those lending to small and medium-sized enterprises, while regulators could support prudent restructuring of distressed loans without compromising loan classification and provisioning rules.
“Many countries are already introducing targeted measures. For example, several countries—Kazakhstan, Qatar, Saudi Arabia, and the United Arab Emirates, to name a few—have announced large financial packages to support the private sector.
These packages include targeted measures to defer taxes and government fees, defer loan payments, and increase concessional financing for small and medium-sized enterprises.”
Source from: The Peninsula Qatar