Middle East: IMF warns of social unrest risk in ‘fragile’ states

The IMF expects Lebanon’s economy to shrink 25 percent this year, as COVID-19 fallout exacerbates an economic and political crisis that took root before the pandemic struck.

The economic fallout of the coronavirus pandemic is expected to bring about the largest contraction in the past 20 years for most countries in the Middle East and North Africa (MENA), the International Monetary Fund said on Monday, with some fragile states in the region at higher risk of mounting social unrest due to COVID-19 disruptions.

In the October update to its Regional Outlook covering the Middle East and Central Asia, the IMF revised its economic forecasts for the MENA countries slightly upward, with an expected contraction of 5 percent overall this year – slightly better than the 5.7 percent hit the Fund had forecast in July.

The October outlook included a breakout section addressing the humanitarian and economic challenges the pandemic is posing to “fragile” MENA states – defined as those that are racked by armed conflict or steeped in political and economic uncertainty.

The region also hosts a disproportionate number of the world’s refugees and internally displaced people, leading to larger “informal” economic sectors where people carve out a living.

“The large informal sectors of fragile states have been hit particularly hard by coronavirus containment measures, with lack of digitalization and limited remote working,” said the IMF.

“Although most governments have activated social safety nets, these remain weak because of poor design and insufficient information about recipients (especially given the presence of internally displaced people and refugees).”

In Lebanon, where a severe financial and political crisis had taken shape prior to COVID-19 and has worsened during the pandemic, the IMF sees the economy shrinking 25 percent this year – second only to Libya as the worst performing in MENA.

The Gulf

The economies of the six countries compromising the Gulf Cooperation Council (GCC) are expected to collectively shrink 6 percent this year – a marked improvement over the IMF’s July forecast for a 7.3 percent contraction.

In addition to the economic fallout of lockdowns, energy-producing countries have also had to whether a sharp fall in oil prices thanks to slumping global demand.

Qatar’s economy is forecast to shrink the least of the group with a contraction of 4.5 percent expected this year before rebounding to a plus-side growth rate of 2.5 percent for 2021.

Kuwait is expected to take the hardest knock of the Gulf Arab countries with a 12.1 percent economic contraction this year before returning to a growth rate of 2.5 percent in 2021.

The largest Gulf economy, Saudi Arabia, is expected to shrink 5.4 percent this year before rebounding to 3.1 percent growth next year.

The only Gulf country expected to become mired in recession is Oman, where the Fund sees the economy shrinking 10 percent this year and contracting 0.5 percent in 2021.

Last week, the IMF revised its forecast for global growth to negative 4.4 percent for 2020 – less severe than its summer forecast but still on track for the worst performance since the Great Depression.