Hussein Bidawi, PhD candidate at the Toulouse School of Economics (TSE) and economist at BSI Economics, answers three questions about emerging economies in the face of the COVID-19 pandemic.
BSI Economics – Will the fall in oil prices worsen the situation in Middle Eastern countries ?
Hussein Bidawi – The fall in oil prices will have serious effects on the situation in the Middle East.On the onehand, the revenues of exporting countries will come under pressure. For example,Saudi Arabianeeds oil prices to beat $80 per barrel to balance its budget. The slowdown in exports will also put pressure on the fixed exchange rate regime of the Gulf Cooperation Council countries. However, they have enough foreign exchange reserves to defend their currencies and economies.On the otherhand, non-exporting countries in the region depend on capital flows from exporting countries (foreign direct investment), intra-regional trade, and remittances from migrants, all of which will decline.
Are emerging countries experiencing » sudden stops » in the face of these events ?
Yes, emerging countries are experiencing « sudden stops » like never before, with an unprecedented outflow of capital, much greater than in 2008 (more than $100 billion compared to around $24 billion in 2008). This creates a financing challenge for emerging countries and puts pressure on their exchange rates, leading to devaluations against the US dollar. It is important to remember that emerging countries are not all the same. For example,South Africahas fairly developed domestic financial markets and does not depend on external financing.
Whatrole willinternational institutions (IMF, World Bank) play in supporting emerging economies?
The role of international financial institutions will be threefold: first, financial support in the form of newemergencydebt for countries that need it, in order to save lives by financing health services, but also livelihoods through social security programs, which arealsoaimed at containing the pandemic. Second, they will play an important role inorganizingdebtreliefinitiatives for the least developed countries, either through debt cancellations or payment deferrals. These measures will create fiscal space to combat the current crisis. Finally, they will be crucial in providing technical advice to countries where institutions are less developed, for example wherethe informal sectoraccounts for a significant part of economicactivity.
