Impact of COVID in Middle-East and North Africa

- Summarised from World Bank's authors Rabah Arezki, Rachel Yuting Fan and Ha Nguyen's chapter in COVID in developing economies

Study says that MENA countries have poor testing and contract tracing system. MENA countries rank poorly in Global Health Security Index which measures preparedness to deal with pandemics. In two important components of the index, "epidemiology workforce" and "emergency preparedness and response planning" the region ranks near the bottom. However, some countries in the region especially those with GCC stand better.

MENA countries face dual shock - both supply and demand. The former is due to declining labour productivity, arising due reduction in labour supply, infrastructure, capital and intermediate inputs etc.

The latter has regional and global components. Global and regional decline in demand and disruption of value chains effect economy-dominant oil and tourism sector. Especially the heavy dependence on oil, and thus its crashing prices become a major channel for transmission of shock to these countries. Further, investment and demand in the region have declined due to uncertainties.

Economic impact:

• Output Loss
• The macroeconomic impact was approximated by changes in consensus growth forecast  (the difference between March, April, May 2020 with December 2019) compiled by Focus Economics. The average depth of recession got more severe with time, that is, from March to May. The decline in the forecast is biggest for developing-oil-exporting countries (-6.1pp) followed by MENA (-5.1pp), GCC (-4.7pp) and then developing-oil-importing countries (-4.3pp).
• The decline in oil-exporting economies are due to reduced prices, thereby reducing revenues
• The decline in oil-importing economies is indirectly by reduced FDI, remittances, tourism and official development assistance (ODA) from exporters. In fact, ODA and remittances from GCC contributes a significant fraction in MENA economies
• Among MENA countries oil-exporting economies do not face more declination than oil-importing economies. This might be due to the connection between these two-subgroups of MENA through remittances, investment and capital flows. The growth forecast declines, however, are positively correlated with GHS index, which implies that in MENA pandemic mitigation and preparedness matters more for the economic impact of the shock.
• Poverty and social consequences
• Dual labour market
• Public sector
• Accounts for a large fraction of employment
• Politically significant groups - educated middle class and key members receive guaranteed employment and subsidies, little to no govt accountability or citizen's voice etc
• Other
• The large informal sector with little job security and no-social security
• Self-employment and another informal employment form a major fraction of the labour force in MENA
• COVID could increase inequality in MENA as
•  workers in the formal sector would continue to receive the predictable income while self-employed or the informal workers would suffer badly
• Lack of social protection in the informal sectors might raise inequalities too as a result of lockdowns
• Workers in tourism, retail, textile sectors would be badly hit. Similarly migrant workers from GCC who do not receive social safety nets being non-citizens of MENA
• Impact of dual shock on poverty was obtained by collecting data on poverty rate to growth elasticity along with the change in growth forecast for each MENA country. Poverty rate changes (as % of the population) was therefore calculated on the basis of international ($1.9), lower-middle-income ($3.2) and upper-middle-income ($5.5) threshold for poverty

Policy Impact:

• What was done
• MENA countries were swift in their policy response - health-related like social distancing, fiscal and monetary steps. However, for extra spending, developing MENA had to accept international help (like Egypt and Tunisia getting IMF loans)
• Since GCC have adequate buffers, they announced large fiscal and monetary measures 
• Many countries postponed tax deadlines, extended unemployment benefits and undertook cash transfer schemes for poor. Jordan and Iraq supported MSME's through a moratorium on interest payments and postponed custom duties
• What should be done going ahead
• Tailor policy responses
• Focus on efficient and appropriate spending required to deal with the crisis (like increase expenditure in the health sector) rather than improving fiscal stance
• Support private sector
• Combination of bailouts and lending conditions to MSME
• Support strategic sectors like network and service sectors (transport, logistics, finance) to protect production capacity and support recovery. Bailout such strategic sectors if required
• Focus on business regulations like bankruptcy reforms and workouts to resolve corporate issues
• Support (sovereign wealth fund, print or borrow) private sector and dilute distress
• Support vulnerable households
• Cash transfers to vulnerable households including ex-pat GCC works force
• Since MENA countries have a large workforce and restricted revenue, targetted transfers should be done
• Reduce leakages
• Set and design policies with clear instructions for desired beneficiaries. Ex - ensuring banks do not benefit eased lending conditions to exclusively to existing customers only
• Control of corruption and setting limits of monopolization
• Freeing informational flows, increase transparency and data disclosures
• Support regional and global efforts
• Some MENA economies stand weak, while some have fixed exchange rates and thus would require international assistance
• GCC, a major aid source might play a big role in offering assistance. G-20 has agreed to debt-relief for low-income countries but it may be extended,
• To middle-income countries who suffer badly as well
• Private creditor participation should be required 
• Reforming role of the state and promoting competition
• Replace the old inequitable social contract with an equitable and universal one
• Public service reforms that retain talented workers
• Improve public procurement
• Remove unfair protections or shut down inefficient enterprises. Making them operate in a transparent environment will reduce subsidies given and increase tax
• Formalisation would increase the tax base which can be then used to fund health and income services for all

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