MENA recovery underway, may see growth of 4.1% in 2021: IMF

Tribune News Network Doha Recovery is underway in the Middle East and North Africa (MENA) region with growth projected at 4.1 percent this year and next, ...

Tribune News NetworkDoha Recovery is underway in the Middle East and North Africa (MENA) region with growth projected at 4.1 percent this year and next, the International Monetary Fund (IMF) has said in its latest monthly edition of MENA newsletter.The IMF newsletter follows its recently concluded annual meetings and the release of its regional economic outlook. “Following an unprecedented contraction in economic activity last year, the recovery is underway despite resurgent pandemic waves, with growth projected at 4.1 percent this year and next. However, many countries will face difficult policy tradeoffs, with new emerging challenges, such as rising inflation, reduced policy space, and increasing inequities. But, the aim is still to make this recovery a transformational moment for the region by building inclusive, resilient, and greener economies,” IMF said.“Indeed, the crisis presents opportunities that could lead to this transformational recovery. Leveraging global trends, such as the use of digital technologies, will help improve the efficiency of social safety nets and ensure the regionstays competitive globally,” IMF said. “Investing in climate-resilient technology will be key to addressing the global existential crisis while also creating new job opportunities. In addition, reducing the role of the state through a thorough revaluation of the role and objectives of state-owned enterprises and their governance is critical to promote private sector innovation and growth,” it said.An uneven recovery is emerging across firms in the Middle East and Central Asia (ME&CA) region, after being hit hard by the COVID-19 crisis, it said.“Banking systems have been resilient so far, thanks to macro-financial policies and liquidity support, but risks are building up in those highly exposed to vulnerable firms. Over the medium term, a stress-testing exercise suggests that 15 to 25 percent of firms in the region may need to be either restructured or liquidated,” it said. Thus, until the recovery takes hold, targeted policy support to vulnerable but viable firms and sectors remains vital to prevent firm defaults.“Moreover, swift restructuring of viable but insolvent firms and liquidation of unviable ones would help ensure a stronger and more resilient recovery. To preserve financial stability, authorities should closely monitor macroprudential risks, maintain appropriate financial safety nets, and encourage vulnerable banks to use the period of respite that policy support affords to strengthen buffers against upcoming risks,” it said.The non-financial corporate sector in the Middle East, North Africa, and Pakistan (MENAP) entered the pandemic with weaker fundamentals than before previous crises and relative to firms in emerging market economies.In particular, pre-pandemic revenue growth, profitability and liquidity were lower, and leverage was higher. The pandemic has added to the region’s woes through an unprecedented decline in corporate revenue and profitability.After a historic revenue drop in the first half of 2020, it said, the gradual lift of containment measures allowed some firms in MENAP to start recovering. The pandemic’s second wave by the end of 2020 did not interrupt the emerging recovery because countries followed a different approach to lockdowns with less restrictions to work and travel. By the first quarter of 2021, revenue growth and profitability for the corporate sector had returned to pre-pandemic levels.However, not all firms have benefited equally from the recovery, and a widening divergence is emerging across different groups of firms.