Bailouts Are Big in the Middle East This Season
The International Monetary Fund has never been busier in the Middle East.
The fallout from terrorism, political turmoil and the collapse in oil prices has prompted a flurry of requests for bailouts, assistance or just plain advice.
Iraq is close to becoming the first major Arab oil producer to agree on a program with the Washington-based lender. Tunisia and Jordan, still suffering from the aftermath of the Arab Spring uprisings, hope to attract billions of dollars of loans and investments after receiving an IMF seal of approval. Even Morocco, which outperformed its neighbors after avoiding the worst of the Arab Spring turmoil, is considering renewing its $5 billion IMF credit line.
The IMF’s recent Washington meeting saw a slew of deals and negotiations as countries across the region faced up to a host of economic problems. Here’s a guide to who wants what:
Iraq: Can’t Cut Spending Fast Enough
Iraq expects to receive about $6 billion from the IMF and the World Bank this year to shore up its public finances as it grapples with a costly war against Islamic State militants. Oil sales account for more than half of the nation’s gross domestic product and over 90 percent of fiscal and current external receipts, according to Fitch Ratings Inc.
The IMF’s plan for Iraq entails tapping into debt and reserves to support the budget while authorities cut spending, Christian Josz, the IMF’s mission chief for Iraq, said in an interview in Washington. The deal could be sealed during an IMF visit next month, he said, and may unlock $15 billion-$20 billion of financing over three years.
It’s “not possible for Iraq to reduce spending at the same pace that they are losing revenue, so they will have deficits,” Josz said. “But after a few years, the situation will stabilize.”
Tunisia: Seeking Employment
The poster child of the Arab Spring was hit by two major terrorist attacks last year, hammering the vital tourism industry and shattering investor confidence. The economy expanded 0.8 percent in 2015, the lowest pace since 2011, and will grow by about 2 percent this year, according to official projections.
The IMF approved at staff level a $2.8 billion, four-year extended credit facility for Tunisia that remains subject to approval by its executive board, with a decision possible as early as next month. That would unlock funds from the European Union, the World Bank and the African Development Bank and make a planned Euro-bond issuance cheaper, Finance Minister Slim Chaker said in an interview.
Chaker singled out unemployment as "the largest challenge" facing his country. The jobless rate now hovers at 15 percent, higher than the level on the eve of the Arab Spring uprising, which was triggered in part by the self-immolation of 26-year-old Tunisian street vendor Mohamed Bouazizi in December 2010. The country has to create 600,000 job opportunities in the "short term, a very hard task," Chaker said.
Jordan: Doubling Down on Growth
The conflicts in Syria and Iraq have forced more than 650,000 refugees over the border into Jordan and crippled the country’s exporters. “The economy is not moving, and it is not our fault,” Finance Minister Omar Malhas said in an interview in Washington. “We’re hurt, we’re really, really hurt.”
Malhas said he expected to reach an agreement worth as much as 600 million special drawing rights ($845 million) with the IMF in May. That would release about $1.9 billion from donors and $1 billion in U.S.-backed bonds, enough to cover this year’s $2.8 billion funding gap, he said.
With the country’s population growing at about 3 percent a year, the economy needs to grow by double that amount to create jobs, he said. The growth estimate for 2016 is about 2.8 percent.
Morocco: Looking for Investments
While Morocco has avoided much of the turmoil that has spread in parts of the region since 2011, economic growth is expected to slow to 1 percent this year following a 4.2 percent expansion in 2015, largely due to low rainfall.
The country is taking IMF advice on adopting a flexible exchange-rate system, and also has plans to remove capital controls as part of efforts to turn Morocco into a regional financial hub and attract more investments.
Morocco is “seriously considering” renewing a $5 billion IMF credit line that expires in June, though it doesn’t plan to use it, Finance Minister Mohamed Boussaid said in a interview in Washington. The credit line is “like an umbrella for rainy days,” he said.
Egypt to Follow?
Germany’s Economy Minister Sigmar Gabriel on Sunday extended an offer to mediate for Egypt in talks with the IMF, the Paris Club and the European Union. But he also urged El-Sisi to embrace economic reforms as a condition for financial help, and raised what he described as Egypt’s “worrying” human rights situation.
An Egyptian government official told Bloomberg News in March that the country is preparing to start loan talks with the IMF, a plan denied by central bank Governor Tarek Amer. Borrowing from the IMF has traditionally been a contentious political issue in Egypt, due to perceptions that assistance comes with stringent financial conditions. The nation has held several rounds of negotiations since 2011, reaching two staff-level agreements that were never finalized.
The country’s economic woes are adding to pressure on President Abdel-Fattah El-Sisi, who is facing unprecedented criticism three years after he led the widely-sought ouster of predecessor Mohamed Mursi. Thousands took to the streets on Saturday to protest his decision to return two Red Sea islands to Saudi Arabia.