COVID-19: Arab region’s economy to shrink by 5.7%

Geneva, 29 Jul (Kanaga Raja) – The consequences of the COVID-19 pandemic for the Arab region are likely to be deep and long-lasting, with the economies in this region expected to contract by 5.7 percent, according to a United Nations report.
According to a recent Policy Brief by the UN Secretary-General on the impact of COVID-19 on the Arab region, the economies of some conflict countries in the region are projected to shrink by as much as 13 percent.
“The twin shock of the pandemic and low oil prices has prompted the International Monetary Fund to lower its Middle East and North Africa economic forecast to its lowest level in 50 years,” said the UN report.
The value of the Arab stock market has dropped by 23 per cent, depriving the region of capital that could otherwise be invested in the recovery phase.
The impacts of these shocks will be felt by all countries and communities in the region with some groups likely to be especially hard hit, said the report.
According to the report, the COVID-19 pandemic has exposed serious fault lines and vulnerabilities in societies, institutions and economies all around the world.
The Arab region, home to 436 million people, initially kept transmission and mortality rates lower than the global average but more recent trends are cause for concern, especially in light of fragmented health care and insufficient primary care in many countries.
The pandemic has also magnified many decades-long challenges. These include violence and conflict; inequalities; unemployment; poverty; inadequate social safety nets; human rights concerns; insufficiently responsive institutions and governance systems; and an economic model that has not yet met the aspirations of all.
HEALTH AND HUMAN COSTS
According to the report, due to early action by member states, the health and human cost of the COVID-19 pandemic on the Arab region has been relatively low initially, but more recent trends are cause for concern.
As of 19 July 2020, 842,206 people have been infected, and 14,956 have died. This represents an average rate of infection of 1.9 cases per 1,000 people and 17.8 deaths per 1,000 cases, which is below the global average of 42.6 deaths per 1,000 cases.
COVID-19 is afflicting the Arab region at a time when health care in many countries is fragmented and primary care is under-served, said the report.
The pandemic has highlighted the deep inequalities and uneven capacity of health systems.
One-third of Arab countries have fewer than 10 health-care providers per 10,000 people, while the richest third have at least 50 providers per 10,000 population and, in some cases, over 70.
The regional doctor-to-population ratio stands at 2.9 per 1,000 people, below the world ratio of 3.42 per 1,000 people.
Similar trends are observed in hospital beds, intensive care units and primary care, with stark differences both between and within countries.
“While urban areas are emerging as the epicentres of this pandemic, people in rural areas and those who move between rural and urban areas for work or education, are also at risk.”
While on average 61 per cent of the population can access health services without suffering deep financial hardship, this rate varies significantly among countries, from as high as 77 per cent in Kuwait to as low as 22 per cent in Somalia.
Health insurance schemes are often fragmented and do not cover the unemployed or workers in the informal sector.
Out-of-pocket expenditure on health care is high at an average of 37 per cent of cost and can be as high as 81 per cent in poorer countries.
Conflict has also created an additional unexpected pressure on national health systems to deliver services to 11.5 million refugees, including Palestine refugees, and 14.5 million Internally Displaced Persons (IDPs) in the region, many of whom have been repeatedly displaced, said the report.
“Today, millions reside in camps, informal dwellings or under-serviced communities, which often lack regular access to health care and, crucially, water and sanitation services.”
ECONOMIC AND SOCIAL COSTS
According to the report, the economic costs of the pandemic are likely to be significant in the Arab region.
High dependence on oil resources, tourism and remittances – sectors that are negatively impacted by the pandemic, in addition to protracted conflict, further aggravate the impact of COVID-19 on the Arab region.
The region’s economies have not fully recovered from the 2008 global financial crisis, nor from the 2014 drop in oil prices.
“The consequences of the dramatic drop in oil prices in early 2020 and the projected continued low demand for oil are likely to compound the socioeconomic impact of the pandemic and will most certainly complicate recovery efforts.”
Arab countries whose economies are already vulnerable, were made even more so by the COVID-19 crisis, said the report.
The Arab region’s gross domestic product (GDP) is expected to fall by about $152 billion as a result of the forecasted 5.7 per cent contraction in growth between 2019 and 2020.
An average of 23 per cent loss to the major Arab stock markets has been recorded, depleting part of the region’s wealth.
The International Monetary Fund has lowered its Middle East and North Africa economic forecast to its lowest level in 50 years.
The region’s fiscal revenue, crucial to COVID-19 mitigation efforts, is expected to experience a loss of nearly $20 billion in indirect taxes, including $5 billion in import tariffs and $15 billion in other indirect taxes, including value added tax (VAT) and specific consumption taxes.
This will adversely impact government revenues, especially for non-oil rich Arab economies, said the report.
Against this backdrop, responding to the pandemic will increase fiscal deficits from an average of 2.9 per cent in 2018 to more than 10 per cent of GDP in 2020.
These deficits are likely to be financed by increased borrowing that is likely to burden most Arab countries with more debt.
At an average of 91 per cent in 2018, the public debt-to-GDP ratio is already high for most Arab middle-income countries, reaching unsustainable levels of 151 per cent and 212 per cent of GDP in Lebanon and the Sudan, respectively.
Compared with the $9.6 trillion in stimulus packages in countries across the world, the cumulative regional fiscal stimulus in the Arab region amounted to only $102 billion, equivalent to nearly 4 per cent of the Arab region’s GDP, significantly lower than the global average of 11 per cent.
When loan guarantees and credit support are excluded, the value of the fiscal stimulus packages is only about $95 billion, of which a major share has been extended by the Gulf Cooperation Council (GCC) Governments.
Measures necessary to limit the spread of COVID-19 are reducing employment across all sectors, especially the services sector which is the main employer in the Arab region, said the report.
The ILO estimates that 10.6 per cent of hours worked were lost across the entire Arab region in the second quarter of 2020, compared to the final quarter of 2019. This is the equivalent of 17 million full time jobs, based on a 48- hour working week.
Job losses are expected to be highest in the “most at risk” sectors, such as hospitality and food services, manufacturing, retail and business and administrative activities, where 18.2 million individuals are employed.
A higher toll is projected for the informal economy, where an estimated 89 per cent of workers are expected to be significantly impacted by lockdown measures.
“In a region where 14.3 million people were unemployed pre-COVID-19, these job losses are a potential major source of instability and an added social and economic responsibility for states.”
According to the report, trade, transport, foreign direct investment and conflict are some of the main regional and transboundary constraints that have exacerbated the impact of COVID-19 and are likely to hinder post-pandemic recovery efforts.
The report said that out of $1 trillion in exports, the Arab region is expected to lose $35 billion because of the COVID-19 crisis, excluding oil revenue loss.
Moreover, given that most exports from the region are related to energy, the global fall in oil prices and steep production cuts mean that the region will see its oil and gas revenues decline from $329 billion in 2019 to $197 billion in 2020 (equivalent to 40 per cent loss).
While the main decline in exports from the Arab region is likely to come from oil, the second and third most affected sectors are agriculture and food products which are expected to decline by 6 per cent and textiles and clothing by 5 per cent.
The region is also expected to import $111 billion less than the usual $828 billion imported prior to the pandemic.
While a significant share of import reductions is in consumer goods, imports of equipment and raw materials will also suffer, which will affect the pace of the recovery.
The report also noted that while Arab air carriers witnessed significant growth in their 2019 revenue, the sector risks losing approximately $23 billion in revenue and 2.4 million in jobs in 2020.
Foreign direct investment (FDI) is likely to drop by as much as 45 per cent, depriving the region of $17.8 billion that could have been used in recovery efforts and job creation.
FDI flows before the pandemic had already dropped to $31 billion in 2018 from a peak of $88.5 billion in 2008.
Sectors that could be most affected by the decline in FDI are electrical industries and transport industries, which represent the most integrated global value chains.
The report noted that armed conflict in the Arab region has caused immeasurable suffering and led to massive economic loss over the last decade.
“Violence and conflict represent a significant impediment to responding to COVID-19, placing millions of people in far more precarious situations than they otherwise might have been, from the health, humanitarian, human rights and socioeconomic perspectives.”
Ensuring humanitarian access and continuity of life-saving assistance is the first line of defence against COVID-19 for the most vulnerable people in the region, some 55.7 million people in need, said the report.
The situation in Yemen is particularly dire with 24.1 million people requiring humanitarian assistance. While in the Syrian Arab Republic 11.1 million are in need of assistance, full, sustained and un-impeded humanitarian access to all those in need remains a significant challenge.
Other worrisome situations include Iraq (4.1 million in need), Sudan (9.3 million in need), Somalia (5.2 million in need) and Libya (830,000 in need).
For the 2.4 million Palestinians in need of assistance in the Occupied Palestinian Territory, the pandemic adds vulnerability, said the report.
“The situation in Gaza is compounded by the occupation and the closures, which have created a particularly severe situation, especially for its collapsing health system’s ability to handle the pandemic.”
The impact of COVID-19 will be extreme for the 26 million refugees and IDPs hosted in the region, many of whom live in informal settlements or camps, with inadequate access to critical health-care services, water or sanitation.
The COVID-19 crisis is exacerbating existing vulnerabilities for all social groups, said the report, adding that poverty and inequality in Arab countries were already on the rise prior to the pandemic.
Inequality and discrimination have undermined the region’s progress in all the SDGs, while impinging on human rights and threatening peace and social cohesion.
The report said that owing to the pandemic, an estimated 14.3 million more people will slide into poverty, raising the total to 115 million people – slightly over 32 per cent of the population of the Arab Middle-Income Countries (MICs) and Least Developed Countries (LDCs).
Increased poverty could also lead to an additional 1.9 million people becoming under-nourished, it added.
Accounting for 40 per cent of all workers in the region, migrants will be hard hit by the pandemic in terms of access to services, job losses and ability to return to their countries of origin, said the report.
Despite the region’s substantial potential for agricultural development, high dependency on food imports renders it more vulnerable to crises such as COVID-19, when transport of food and other products is suspended, even for a short period.
The region spends around $110 billion on food imports, including up to 90 per cent of its grain needs and 65 per cent of its wheat needs.
The Arab region may witness food shortages and price hikes if a prolonged COVID-19 pandemic disrupts global food supply chains, production, transportation and distribution, the report cautioned.
These risks are highest in Yemen and the Syrian Arab Republic, where 15.9 million people (53 per cent of the population) and 9.3 million people (50 per cent), respectively, were classified as being “in crisis” prior to the pandemic.
According to the report, the response to the COVID-19 crisis can be used to address some of the long-standing structural weaknesses in the region, notably to build back better in line with the 2030 Agenda for Sustainable Development through stronger support to local authorities, while strengthening democracy, safeguarding human rights, and achieving and sustaining peace.
Despite some progress prior to the pandemic, the Arab region was not on track to achieve the Sustainable Development Goals (SDGs).
Recovery will therefore require a new approach to development and a whole-of-society strategy guided by a collective commitment to peace and stability and by the 2030 Agenda for Sustainable Development, the Paris Agreement, the Addis Ababa Action Agenda and the Sendai Framework, the report concluded. – Third World Network
(Published in SUNS #9171 dated 30 July 2020)