– IMF Managing Director’s Keynote Speech Eighth Annual Arab Fiscal Forum in Dubai, UAE
The Arab region plays an increasingly important role in a rapidly changing world. And this is reflected in the depth and quality of our engagements.
For the observable future ministers from the region will steer the direction of the World Bank and IMF – with Minister Al Hussaini as the chair of the development committee and minister Al-Jadaan as the chair of the IMFC. Having the Arab world lead both bodies is another milestone in the region’s global leadership. And the eighth Arab Fiscal Forum – like our annual meetings in Marrakech last fall is a demonstration of how we have nurtured and grown the partnership between the Arab World and the IMF over many years.
It reminds me of a classic Arab proverb: “A tree begins with a seed.”
At a time of economic challenges, geopolitical tension, and war, it is so important that we plant seeds now—of growth and cooperation, of peace and prosperity. What is the soil we plant in?
Let’s look at the current conditions and what we see ahead
While uncertainties are still high, we can be a bit more confident about the economic outlook, because the global economy has been surprisingly resilient. Growth exceeded expectations in 2023, and global headline inflation is expected to fall in 2024. But we cannot declare victory prematurely.
Medium-term growth prospects remain anemic at around 3 percent, compared to the historical average of about 3.8 percent. They could be boosted by factors like developments in artificial intelligence. But with roughly 40 percent of jobs exposed to AI – both globally and in the Arab world – its effects are uncertain. Countries that lack the infrastructure and skilled workforces to harness this technology could fall further behind.
Turning to immediate prospects for the Middle East and North Africa, we expect GDP growth to reach 2.9 percent this year – higher than last year, but still below our October projections.
This is largely due to short-term cuts in oil production, the Gaza-Israel conflict, and tight monetary policies, which are still needed. Among exporters, slow growth outside the hydrocarbon sector is another factor. And declining oil demand will become an increasing headwind over the medium term. Net energy importers, meanwhile, are held back by historically high debt and borrowing needs, and limited access to external financing.
Economically, the impact of the conflict has been devastating in Gaza, where activity dropped 80 percent from October through December compared with a year earlier – and in the West Bank, where the drop was 22 percent. The Palestinian economy’s dire outlook is worsening as the conflict persists – only a durable peace and political solution will fundamentally change it. The IMF will continue to provide policy advice and technical assistance to the Palestinian Authority and Palestinian Monetary Authority.
Looking at neighboring economies, the conflict is weighing on tourism, a lifeline for many. We are closely watching the fiscal impacts, which could be seen in areas such as higher spending on social safety nets and defense.
Across the region and beyond, the impact is felt through rising freight costs and reduced Red Sea transit volumes – down by nearly 50 percent this year in our PortWatch data.
This exceptionally uncertain moment compounds the challenges of economies that are still recovering from previous shocks. And further widening of the conflict would aggravate the economic harm.
But the Arab world can plant the seed of a better and more stable future in these challenging conditions. It can meet the reconstruction needs to come, strengthen resilience, and create the opportunities growing populations demand.
How? By creating fiscal space
This is the tree we must grow. Like the UAE’s national tree, the Ghaf, it must be resilient – able to withstand shocks and keep bearing fruit.
The first way to nourish the tree is by mobilizing revenues. Countries can expand tax capacity with stronger institutions, better-designed frameworks, and more robust revenue collection.
Tax policy design is key. Multiple countries have improved VAT systems. Some, like Morocco, have expanded personal income taxes – which are underutilized in the region – and made them more progressive. And eleven Arab countries have already joined the global minimum corporate tax agreement.
Diversifying away from hydrocarbon revenues is key for oil exporters – the UAE’s federal corporate income tax rate of 9 percent became effective last year. Non-commodity exporters can reduce exemptions and limit preferential rates, as Tunisia has done.
And since up to 50 percent of the region’s tax revenue comes from customs and other indirect taxes, Jordan and Saudi Arabia have been promoting electronic invoicing. Strengthening compliance can pay off big!
Second, we can grow the tree by eliminating regressive energy subsidies.
A paper we’re launching here tomorrow shows that phasing out explicit energy subsidies could save $336 billion in the region, equivalent to Iraq’s and Libya’s economies combined, including in oil-exporting countries. In addition to savings, it discourages pollution, and helps improve social spending, a triple dividend.
Egypt, Jordan, and Morocco have succeeded with comprehensive subsidy reform plans featuring robust public communications, appropriate phasing of price increases, and targeted cash support for the most vulnerable.
The third way to nourish the fiscal tree is: improve the performance of state-owned enterprises. We have a saying at the IMF, it’s not only what you owe, it’s what you own. And Arab-world SOEs own a lot, with assets exceeding 50 percent, and even 100 percent of GDP in some countries.
Oman is addressing this problem head-on, instituting more robust governance, better accountability, and stronger financial management of SOEs, and they are planning some divestments.
The result? SOE debt dropped from 41 percent of GDP in 2021 to 30 percent in 2022.
As new revenue and more efficient spending help our tree grow, it will bear more fruit. It will give you the fiscal space needed to maintain debt sustainability and build resilience against shocks in the short-term.
Longer-term, it will help you to implement the new social contract we came together around in Marrakech to accelerate the transformation of your economies for a future that is more inclusive and green, and more digital.
Think of investments to prepare for AI, like upskilling workers and improving internet access in low-income countries. Or steps like developing a national strategy and clear regulations for AI, which landed the Emirates in the top tier of the IMF’s AI Preparedness Index.
All aspects of this work will benefit from collaboration and solidarity within the region. Continued strong support from Gulf Cooperation Council countries is critical.
As you act to transform your economies, the IMF is here to help.
We have made available roughly $64 billion in liquidity and reserves to the MENA region since the pandemic began, including $8 billion in the last year. Of that, $1.6 billion is from our newest instrument – the Resilience and Sustainability Trust to help Morocco and Mauritania transition to greener economies.
With the World Bank, we provided $4.5 billion in debt relief for Somalia, the culmination of years of rebuilding.
We have also ramped up capacity development throughout the region and our new office in Riyadh is strengthening our presence and partnerships with Arab institutions.
In short, we’re here for the long haul to help you grow a fiscal tree that is strong enough to survive the worst winds and most devastating droughts.
Because the Ghaf is so durable, adaptable, and beautiful, it has become something more to the Emirates than just a tree, it has become a symbol of stability and peace.
When we transform economies, there is no limit to what we can achieve.
