The socio-economic cost of the pandemic

Sunday 29/03/2020
In this file photo taken on June 30, 2015 a logo is seen outside the headquarters of the International Monetary Fund in Washington, DC. – The world economy is facing “severe” economic damage from the coronavirus pandemic. (AFP)
In this file photo taken on June 30, 2015 a logo is seen outside the headquarters of the International Monetary Fund in Washington, DC. – The world economy is facing “severe” economic damage from the coronavirus pandemic. (AFP)

As Arab countries take increasingly drastic “social distancing” measures to cope with the mounting toll of the coronavirus pandemic, many in the region are deeply worried about the potentially catastrophic effects of the crisis on their economies.

The coronavirus epidemic challenges the Arab world on many fronts. It is an unprecedented health situation that risks overwhelming many of the inadequate health systems in place. The outbreak is also likely to bring about a storm that turns the socio-economic fundamentals in many parts in the region to shambles.

In some Middle Eastern and North African countries, such as Jordan and Tunisia, there are immediate concerns having to do with securing emergency funding from foreign countries and international institutions to cope with expenditures stemming from the public health crisis.

More long-term concerns involve the inevitable social disruption and loss of revenue from the lockdowns and work stoppages caused by the epidemic.

With about 40,000 confirmed coronavirus cases, the Middle East and North Africa region is starting to suffer the socio-economic fallout of the pandemic like other regions of the world. The global recession will hit the Arab region head-on and its effects will be felt by both oil producers and non-oil producing countries.

The suspension or abrupt slowdown of all forms of economic activity, including travel and tourism, the drastic curtailment of trade and finance combined with the drop in oil prices have generated what Jihad Azour, director of the International Monetary Fund’s Middle East and Central Asia Department, called “intertwined shocks” that are likely “to deal a severe blow to economic activity in the region, at least in the first half of this year, with potentially lasting consequences.”

The Economic and Social Commission for Western Asia (ESCWA) estimated the loss of revenue from oil exports in the region (from January through mid-March) at $11 billion and the loss by businesses in the capital market at $420 billion, with $550 million lost each day.

“The consequent loss of wealth is equivalent to 8% of the total regional wealth,” the regional organisation noted.

Even for non-oil exports, forecasts are dire. Many often-fragile economies have no substitute resources once tourism and trade are shuttered.

Jon B. Alterman, director of the Middle East Programme at the Centre for Strategic and International Studies in Washington, pointed to the additional risk that remittances from expatriate workers, which constitute up to 10% of the country’s income in such places as Egypt, Jordan, Tunisia, Morocco and Lebanon, would dry up as “skilled workers will return, unemployed, to markets that can’t provide for them.”

Governments across the region are introducing stimulus packages to boost business and re-establish economic balance. Measures include tax breaks, debt deferment and are likely to involve more direct forms of support as the crisis continues.

However, the crisis is likely to upend the reform-oriented austerity prescriptions and to create need for big spending policies instead at a time of diminishing revenues.

Addressing leaders of the 20 most industrialised countries on the eve of their March 26 videoconference, UN Secretary-General Antonio Guterres exhorted G20 leaders to “inject massive resources into economies, reaching double digit percentage points in the world’s gross domestic product” as he estimated the global cost of the pandemic at “trillions of dollars.” During their videoconference in Riyadh, March 16, G20 leaders pledged to inject $5 trillion into the world economy.

It will mean debtor countries and institutions accepting to put on hold scheduled debt repayment in line with the suggestion by the International Monetary Fund and World Bank “to provide a global sense of relief for developing countries.”

In both the short and long terms, most governments are concerned about the fallout of the crisis on the most vulnerable segments of society.

As companies are forced to shut operations, unemployment risks soar. With no guarantee of social benefits to make up for the loss of income, many of the unemployed may not be able to provide for themselves or their families.

The situation of millions of informal sector workers whose livelihood is endangered by shutdowns and closed borders is particularly precarious. They could join the millions in marginalised segments of the population who barely make ends meet in any normal day.

ESCWA forecasts unemployment in the region to increase this year by 1.2% causing the loss of at least 1.7 million jobs.

There are stirrings of inter-Arab consultations on coordinated approaches to weathering the storm. More needs to be done as countries of the region try to mitigate the cost of the unprecedented crisis.