7th Arab Fiscal Forum: “unsustainable debt can only be addressed through multilateral cooperation” (Kristalina Georgieva)

(TAP correspondent Nedra Boukesra)- International Monetary Fund (IMF) chief Kristalina Georgieva said Sunday in Dubai that one of the most pressing challenges facing the MENA region is to find ways to ” to strengthen the resilience of public finances to protect people, economies, and climate.”

Georgieva, who was speaking at the opening of the 7th Arab Fiscal Forum on “Fiscal Sustainability in the Arab World: Challenges and Opportunities”, stressed the importance of reviewing fiscal policies in the region. She underlined the importance of strengthening cooperation and solidarity among countries in the region to address the risk of destabilisation and the challenges of climate change.

The forum, which precedes the World Government Summit (February 13 to 15 in Dubai, under the theme “Shaping Future Governments”), will be attended by Arab finance ministers and central bank governors, including Marouane Abassi, Governor of the Central Bank of Tunisia (CBT).

The Managing Director of IMF stated that unsustainable debt can only be addressed through multilateral cooperation.

Crushing debt burdens weigh on spending on health, education, and infrastructure. This hits the vulnerable hardest, but it is also a shared problem for the region,” where for some countries, domestic policies are simply not enough to resolve this pressing challenge.”

She recalled the latest projections of the IMF for the region and world, reminding that as the global economy slows, growth is also expected to drop in the Middle East and North Africa—from 5.4 percent in 2022 to 3.2 percent this year before ticking up to 3.5 percent in 2024. The OPEC+ production cuts would reduce overall revenue for the oil exporters. For oil importers, the challenges would continue. Public debt is a particular concern, with several economies in the region facing elevated debt-to-GDP ratios—some close to 90 percent.

Moreover, for the fourth consecutive year, inflation in the region is expected “to surpass 10 percent—above the global average, (except for Gulf Cooperation Council countries).”

“For the region’s emerging market and low-income economies, this situation reflects the lingering effects of higher food prices and, in some cases, exchange rate depreciations.” Shoe, however, said that the Fund expected inflation to gradually decline as commodity prices settle and tighter monetary and fiscal policies have their intended effect.

The IMF Managing Director expressed worry about the significant risks of destabilisation in the region, due to Russia’s war in Ukraine and climate disasters could worsen food shortages for the most vulnerable. Add to this persistently high unemployment, especially among young people, and you have a significant risk to social stability. Tighter global or domestic financial conditions could lead to high borrowing costs and, in some cases, a financing crunch.

Domestically, delays in much-needed reforms could weigh on regional prospects and government finances, she pointed out.

Though, another tough year is faced, “there are reasons for optimism. We are not without solutions to make it better!” the IMF Managing Director pointed out.

Three guiding principles are highlighted for the IMF chief for countries to use fiscal policies to build resilience and then focus on how we can team up to score points on issues that we can only address together.

The first principle is having a robust framework to conduct fiscal policy and manage fiscal risks, with today’s shock-prone and uncertain world.

The second principle is long-term planning and investment to address climate challenges.

She, in this regard, pointed out that Governments in the region have identified multi-year financing needs of over $750 billion for these actions. “Enabling the environment for private climate finance through the right policies and financial solutions is key to meeting these needs.”

For instance, investment in climate-resilient infrastructure and early warning systems are critical for increasing regional resilience. So, is investing in renewable energy and making regional economies less carbon intensive, she stressed.

As for the third principle, it consists of boosting tax revenues. “Many countries in the region have made good progress in expanding their tax capacity. And yet, the average tax-to-GDP ratio, excluding hydrocarbon-related revenue, remains at about 11 percent—less than half of what could potentially be collected.”

The IMF chief said this can be increased by improving tax policy design and phasing out inefficient tax exemptions

She also underscored the importance of modernising tax administration, providing countries in the region with capacity building programmes in this area.

Moreover, it is necessary to “deepening international cooperation to resolve unsustainable debt challenge” which “hits the vulnerable hardest, but it is also a shared problem for the region and the world.”

Georgieva said now is the time to move the ball forward, especially since the Arab world has a strong record of collaboration.

She recalled for example that over the past five years, GCC countries have provided $54 billion in financing for budget and balance-of-payments needs. They have also supported low-income countries, and fragile and conflict-affected states in the region, through debt reduction and food security support. This includes $10 billion in support announced by the Arab Coordination Group last year. Donor countries can further support regional economic stability and growth through multilateral initiatives.

With countries with stronger reserves, the IMF is working today to channel these assets (including channeling SDRs) to countries with greater needs, she stated, adding the IMF is proud to partner with its members in the region

The 7th Arab Fiscal Forum, organised by the Arab Monetary Fund and its partner, the IMF, in cooperation with the Ministry of Finance of the United Arab Emirates, will address the financing of fiscal needs and ways to strengthen domestic revenue mobilisation, as well as the management of fiscal risks and opportunities and fiscal policies. Issues related to broadening the tax base and increasing taxpayer participation by engaging the informal sector will also be on the agenda.