The International Monetary Fund (IMF) has said countries in the Middle East and Central Asia need to control their financing requirements, as a rise in government debt, aggravated by the coronavirus pandemic, threatens recovery chances.
The region saw an economic rebound in the third quarter as countries relaxed measures to contain the new coronavirus but the prospect remains highly uncertain and recovery roads will diverge depending on the speed of vaccinations, reliance on heavily affected sectors, such as tourism, and countries’ fiscal policy.
The IMF also said most countries will reach the pre-COVID-19 level this year. However, high financing needs could constrain the policy space required to support the recovery.
The IMF further cautioned that financing needs are projected to increase over the coming two years, with emerging markets in the region likely to need about USD 1.1 trillion during 2021-22 from USD 784 billion in 2018-19.
This presents financial stability risks and could slow economic recovery. Many countries rely on domestic banks to fund sovereign needs. Moreover, countries with high external debt have also become more volatile to a tightening of global financial conditions, which would increase their borrowing costs and prevent access to major markets.