International Monetary Fund (IMF) officials have suggested the utilization of Sovereign Wealth Funds in the Middle East to boost growth, reported Al Jazeera. The sudden drop in the rate of oil export due to the Coronavirus pandemic, is having a devastating impact on the condition of the regional economies.
According to the IMF, oil exporters in the Middle East and North Africa (MENA) region are expected to suffer an annual decline oil export receipts of $226 billion in 2020.
Since the start of the global lockdown due to corona virus, the demand for oil supply has decreased exponentially, which has in turn decreased the oil prices globally. The loss incurred by the decline in oil export prices will weigh heavily on the budgets, and the ever widening fiscal deficits of many Middle Eastern nations, potentially hampering their social spending and growth rate.
Jihad Azour, director of the IMF’s Middle East and Central Asian department, said that new areas of growth are to be found by the oil exporters amid the Covid-19 lockdown which has caused the sudden downstream growth of income by plunging oil prices globally. “Sovereign wealth funds can play a role, regional institutions can play a role.” he said in an online conference to address the issue.
Abu Dhabi, Kuwait, Qatar, Saudi Arabia have among the world largest Sovereign Funds, but their assets are predicted to decline by $296 billion by the end of the year as per the estimate of the Institute of International Finance. MENA oil exporters are much likely to see a GDP contraction of 4.2% this year, twice than the previous projection.
While calling for acceleration and diversification of regional economies, Azour said, “There are a certain number of taboos that lived with us for some time, that oil exporting economies for example have to be pro-cyclical, this is something that we could break… Or that instruments cannot be redirected, that sovereign wealth funds cannot be redirected to help the economy grow,”
Central banks in Bahrain, Qatar, United Arab Emirates, Morocco, Jordan, Saudi Arabia, and Tunisia have provided $47 billion in combined additional liquidity support.
Picture Credit: IMF