The Arab Monetary Fund (AMF) granted Arab countries a total of AD 304.2m, or $1.3bn, in the first half (H1) of 2020, according to the fund’s Director General Abdulrahman bin Abdullah Al-Hamidi.
Al-Hamidi, who is also AMF Chairperson, said the funds were granted to help countries across the region combat the novel coronavirus (COVID-19) pandemic.
He affirmed the fund’s keenness to respond quickly to the needs of Arab countries in light of the global pandemic.
Al-Hamidi indicated that financial resources have been provided to a number of member states in the form of new loans, or withdrawals on existing loans. The financial stimuli are designed to help the region face the economic and financial repercussions resulting from the pandemic, and support reform efforts.
This took place through the application of the AMF’s Rapid Action Framework, which enabled borrowing member countries to take advantage of these resources as quickly as possible.
Al-Hamidi’s remarks came during a speech at the opening of the 44th session of the Board of Governors of Central Banks and Arab Monetary Institutions.
The AMF Director General stressed that the global economy is facing the worst economic crisis after the Great Depression of 1929.
It has been affected by a number of factors, the most important of which are the repercussions of the coronavirus pandemic, and the continued escalation of trade tensions between advanced economies. The global economy has also had to deal with concerns on the implications of a significant rise in public indebtedness levels, which have in turn affected activities in advanced economies and countries.
The global economy’s growth rate was expected to shrink by an average of 5.0% in 2020. Developed economies are likely to see economic contractions of as much as 8.0%, whilst emerging economies and developing countries would see contractions of up to 3.0%.
Al-Hamidi added that these developments will have important repercussions on Arab economies in the coming period. The expected decline in the growth of international trade will be reflected in the levels of external demand, which contributes about 48% to the GDP of Arab countries as a group.
An economic slowdown is also expected among Asian and European Union (EU) countries, both of which absorb about 65% of total Arab exports.
He added that the slowing levels of global demand for oil, due to the continued abundance of supply, would exert pressure on international oil prices. This is set to have a knock-on effect on the economies of Arab countries.
Al-Hamidi stressed that global central banks have abstained from returning to the traditional paths of monetary policy. This has occurred under the influence of slowing economic activity, and represents an opportunity for Arab economies to adopt monetary policies favourable to their growth.
This would be particularly useful for countries with fixed exchange rate systems, and is likely to relieve pressure on Arab currencies that have adopted flexible exchange rate regimes.
Al-Hamidi warned of the growing increase in worldwide indebtedness levels, which currently amount to about 331% of global GDP. This is likely to enhance the vulnerability of financial market conditions, with the increasing debt rates are the most prominent challenges facing Arab economies.
There has also been a recent increase in public debt rates, as the total public debt of Arab countries reached about 123% of the GDP of Arab borrowing countries.
On the other hand, Al-Hamidi referred to the AMF’s estimates which indicate that Arab countries collectively recorded a contraction of about 4.0% in 2020. The decline compares to the growth rate of about 1.6% recorded in 2019, a stark reflection of the repercussions the pandemic has had on regional economies.
The downturn is expected to lead to a decrease in external demand, which contributes about 48% of the total demand in Arab countries. It has also been affected by the decrease in remittances pumped into Arab countries from expatriate workers, in addition to a decline in the volumes of foreign direct investment (FDI) and outflows of foreign capital.
