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OECD study of Covid-19 responses in the MENA region- An Excerpt

As part of its country-by-country analysis of the impacts and consequences of the coronavirus pandemic on our lives and societies, the OECD has produced a short study of Covid-19 responses in the Middle Eastern and North African region

Some countries have adopted rapid, decisive and innovative measures to contain the virus The shock to the global tourism industry could amount to 45-70% of output depending on severity of the pandemic Flight of capital to safe assets have led to a decline in portfolio flows to the MENA region

The study looks at how the virus is spreading in the region, what containment measures are being taken, and how healthcare systems and economies are coping.

 You can download the paper at this link: Covid-19 Crisis Response in MENA Countries.

The below is an excerpt.

As the coronavirus pandemic sweeps across the Middle East, countries have sought to slow the increase of cases by limiting the movements of hundreds of millions of people. There are    over 100,000 of tested cases across the MENA region, the vast majority (73%) being in Iran. Among Arab states, Saudi Arabia has the most confirmed cases, followed by the United Arab Emirates and Qatar.

The pandemic is affecting MENA economies’ ability to cope as the virus strains medical systems, some of which are particularly weak and overcrowded.  

On the other hand, some countries have adopted rapid, decisive and innovative measures to contain the virus, such as virtual doctors and sanitising robots in the UAE, or ramping up domestic masks production in Morocco.

According to the World Bank, the pandemic “will confront MENA countries with both a negative supply shock and a negative demand shock”.   As countries have taken a series of containment measures limiting transportation and economic activity, these are strongly weighing on the ability of workers to go to work and on businesses to continue contributing to the economy. At the same time, the region suffers from a drop in demand at the regional and at global levels, as most supply chains are disrupted.

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The effects of containment measures on the services sector, which employs a large number of people in the region, will cause wide reverberations  if unemployment rises and wages and remittances fall.  The UN Economic and Social Commission for West Asia estimates that the economic slowdown caused by the pandemic will cause an additional 8.3 million people to fall into poverty.

Further, bottoming crude oil prices, below $20 as of 15 April, have put additional strain on even the region’s wealthiest countries. On Thursday, 9 April, OPEC, Russia and other producers tentatively agreed to the biggest oil production cuts in history. They decided to withdraw 10 million barrels per day or 10% of global production from the market for the months of May and June, a step further supported by G20 Energy Ministers

Challenges to health systems and health sector responses

Over the past 25 years, Gulf Cooperation Council countries have undertaken substantial investments in healthcare infrastructure, alongside efforts to increase the number of doctors and nursing personnel. This has significantly improved the quality of healthcare services in the region. In an assessment of COVID-19 preparedness published mid-March by the WHO, where countries were ranked on a scale of 1 to 5, with 1 meaning no capacity to respond and 5 meaning sustainable capacity, all GCC countries except Qatar scored either 4 or 5.

Other MENA economies have been suffering from low health expenditures, human resource shortages in the  health care sector and lack of medical equipment. Total health expenditure per capita in most MENA countries is significantly below global averages for countries in similar income categories. Furthermore, the number of physicians per 1,000 inhabitants in the region is significantly below the WHO recommended threshold of 4.45   doctors, nurses, and midwives per 1,000 population, and as low as 0.72 and 0.79 in Morocco and Egypt  respectively.

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Tourism

Tourism is one of the worst-affected sectors of the economy during the crisis. The shock to the global tourism industry could amount to 45-70% of output depending on the severity of the pandemic. Many countries, including in the MENA region, are adopting targeted measures to support the tourism industry in their countries.  

Containment measures and the hit on economic growth in the United States, the European Union and China will also lead to fewer tourist arrivals to the Middle East. Such decline in tourism activity is expected to have a significant impact in many countries in the region, especially those relying heavily on tourism as a source of income, notably Morocco, Tunisia, Lebanon and Egypt. In Egypt, where the tourism sector contributes close to 12%3 of GDP, the International Food Policy Research Institute (IFPRI) estimates that losses in tourism revenues will account for two thirds of total losses in GDP caused by the crisis.

Financial market reactions

Sharp spikes in global risk aversion and the flight of capital to safe assets have led to a decline in portfolio flows to the MENA region by near $2 billion since mid-February.

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 $35 billion in maturing external sovereign debt in 2020. This has triggered reactions from central banks, lowering interest rates to sustain access to credit.

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Economic support measures

Saudi Arabia

The Saudi Arabian Monetary Authority (SAMA) announced a set of measures and guidelines for banks to limit the negative impact of the crisis. On 14 March, SAMA unveiled a SAR 50 billion ($13.3 billion) package to allow banks to defer loan payments for six months and increase lending to  the   private  sector.  On 29 March, SAMA instructed commercial banks to  support businesses and individuals affected by the crisis through   restructuring  loans without charges and reviewing different fees to adjust to the drop in interest rates. The Saudi government also announced on 20 March a SAR 70 billion ($18.7 billion) economic package to support the private sector, especially SMEs and sectors most affected by the crisis. On 3 April, a royal decree was issued unlocking an additional SAR 9 billion ($2.4 billion) to cover part of private sector salaries in heavily impacted sectors. To prevent companies from laying off employees, the decree provides that the government will compensate 60% of those salaries for a period of three months. More than 1.2 million citizens are expected to benefit from this measure.

United Arab Emirates

The Central Bank of the UAE announced on 15 March an AED 100 billion ($27.2 billion) stimulus package allowing banks to grant temporary relief on retail and business loans. This package was increased on 5 April to AED 256 billion ($69.7 billion), with deferral of loan payments extended to the end of 2020. Other measures announced include cutting reserve requirements for banks from 14% to 7% and unlocking AED 50 billion ($13.6 billion) in zero interest loans for banks to support SMEs.

On 24 March, the UAE government announced a comprehensive economic package of AED 16 billion ($4.36 billion) to mitigate the effects of the crisis and support business continuity. The measures aim at lowering the cost of doing businesses.

At the local level, governments of several emirates have introduced financial assistance measures.  Measures taken by the government of Dubai include a refund of 20% of customs fees imposed on imported goods, cuts in municipality fees imposed on sales at hotels, and a 10% reduction in water and electricity bills. In addition, the government of Abu Dhabi has reduced or suspended various government fees and penalties and granted substantial rebates to lease payments for companies in the tourism, hospitality and entertainment sectors.