THE ARAB MONETARY FUND LAUNCHES THE TWELFTH ISSUE OF A POLICY BRIEF ON “FISCAL STIMULUS PACKAGES ADOPTED TO TACKLE THE EMERGING CORONA VIRUS”

by **claud39** Mon Apr 20, 2020 10:58 am

THE ARAB MONETARY FUND LAUNCHES THE TWELFTH ISSUE OF A POLICY BRIEF ON “FISCAL STIMULUS PACKAGES ADOPTED TO TACKLE THE EMERGING CORONA VIRUS”

2020-04-19

A Stnfar international to face the consequences of the spread of Corona virus emerging adoption of stimulus packages by about $ 8 trillion , according to international estimates

The size of the stimulus packages adopted by Arab governments to 194 billion dollars to date to meet the humanitarian and economic repercussions of the virus

Arab stimulus packages focus on increasing health spending, supporting credit and liquidity, providing aid to affected families and companies, and securing salaries and wages.

Financing spending packages through supplementary budgets, issuing bonds, raising borrowing ceilings, and private funds

The Arab Monetary Fund provides credit facilities to support the efforts of its member states to overcome the crisis and secure their needs of strategic commodities in these difficult times

Raising the efficiency of spending on health, supporting small and medium enterprises, and integrating the informal sector, priorities highlighted by the crisis

Stimulus packages impose challenges on the state of public budgets and require in the medium term to intensify financial reform and strengthen policy space to face economic shocks

As part of its keenness to develop its research activities, the Arab Monetary Fund issued the twelfth series of a policy brief series on fiscal stimulus packages to tackle the emerging corona virus. The summary indicated that in the aftermath of the global spread of the emerging corona virus during the month of March 2020 and the tendency of many countries in the world to adopt several precautionary policies that included cases of total closures of their borders, international institutions and governments of the countries of the world have come to adopt policies to face the human and economic repercussions resulting from the spread of the virus .

In this context, the G20, headed by the Kingdom of Saudi Arabia, adopted a number of initiatives, the most important of which is the G20 Global Pandemic Preparedness Initiative , which is concerned with conducting an assessment of the readiness of the countries of the world to face the epidemic and identifying the existing gaps in order to formulate effective interventions.

To enable the countries of the world to cope with the epidemic, the countries of the group adopted a massive stimulus package of $ 5 trillion (representing 5.7 per cent of global GDP) to provide financial resources urgently to support credit and liquidity lines and enable governments to increase levels of spending on health and support affected sectors and groups Fragile. The global financial stimulus packages totaled $ 8 trillion (about 8.8 percent of global GDP).

Regionally, the governments of the Arab countries, represented by the central banks and ministries of finance, adopted incentive packages of about $ 194 billion to date, with the aim of supporting the affected groups and reducing the expected impact of the virus restricting the movement of activity in a number of basic economic sectors on the income of families and companies .

The stimulus packages included several interventions that ranged from directing more financial allocations to support health systems, reducing interest by rates ranging between 1.5 and 3.0 percentage points, reducing mandatory reserve ratios, pumping liquidity into the banking sector to support credit, and postponing loan installments and interest due on individuals and projects Affected small and medium-sized enterprises for a period ranging between 3 to six months, and exempting citizens from water and electricity services fees for three months, and other supportive interventions, including the implementation of generalized basic income programs, which reduces the expected impact of the spread of the virus on an economy T. Arab countries this year. In this regard, it is noted that the levels of stimulus packages vary according to the available fiscal space in each Arab country, as well as the levels of social safety nets and the ability of countries to mobilize huge funds in a short time to overcome economic shocks.

The summary also touched on the mechanisms of financing fiscal stimulus packages at the global and regional levels, where funding for the announced stimulus packages was a challenge for the world's governments in developed and developing economies in light of the need to mobilize huge financial resources quickly to direct them to the most affected sectors, at a time when debt levels are increasing in A large number of countries.

The means of financing the packages varied from one country to another. Some countries resorted to legislative amendments to the budget laws to allow the ceilings set for the level of deficits in public finances to go beyond the approval of parliamentary institutions for huge stimulus packages, especially in the European Union. While other countries resorted to financing packages by reducing some spending items or postponing the financing of some projects to provide a space that allows financing packages without significant pressure on the conditions of budgets.

Part of package financing in a large number of countries also consists of delaying governments to collect tax payments for a period ranging between three and six months without resorting to spending increases, in addition to financing by launching capital and liquidity control margins to support banks ’ability to grant credit. Others resorted to borrowing to finance packages or create funds in which private sector institutions participate in donations to mobilize adequate financing resources.

The summary touched on the role of the Arab Monetary Fund in providing support to its member states to overcome the crisis, through a number of facilities that contribute to bridging the financing gap in the balance of payments, thus strengthening reserves and supporting the ability of member states to contain the negative economic and financial impacts of the virus .

On the other hand, the Arab Trade Financing Program, through the activity of its national agencies network (banks and financial institutions - public and private), supports Arab countries by making use of lines of credit facilities to finance eligible commercial transactions. At the same time, the program offers specific lines of credit dedicated to financing strategic goods to enable sovereign entities to secure their strategic goods needs in these difficult times.

On the other hand, the twelfth issue of the policy brief pointed to some policy implications, including those relating to the necessity to prioritize the spending items included in the fiscal stimulus packages and seeking to adopt future measures that mitigate any expected impacts resulting from the spread of such epidemics, as well as Supporting the levels of the economy's ability to cope with crises, as follows :

Supporting the health sector and raising the effectiveness of health spending

Although spending packages focused on pumping money to a number of affected sectors, prioritization at this stage is necessary to improve response levels and facilitate the economic recovery process. In this context, support to the health sector is considered one of the most important priorities in the current stage, as other governments of the countries of the world have revitalized Arab governments to provide the necessary funding to support the health sector despite the fact that the levels of spending on health amounting to approximately 5 percent of the gross domestic product in the Arab countries Much less than the global level of 6 percent, but the health sector in a number of Arab countries faces a number of challenges, perhaps the most important of which is the need to raise the efficiency of spending on health, raise the level of quality of government services, and improve the conditions of health sector workers who represent the So, the first one in such circumstances.

Supporting the ability of small and medium enterprises to face economic shocks

The emerging crisis of the Corona virus has had major impacts on these projects, as they are unable to withstand economic shocks compared to large companies with financial surpluses. Then the interventions included in the spending packages focused heavily on supporting MSMEs to help them overcome the negative repercussions of the spread of the virus through several mechanisms that included being exempted from direct and indirect taxes, government service fees, rents in industrial areas and other measures, especially those operating in the sectors The affected sector, especially the services sector in general and the tourism sector in particular, whose estimates indicate that 80 per cent of the projects operating in it are small and medium enterprises. In this context, it is necessary to strive to further enable this sector to overcome various economic shocks by enhancing its access opportunities to finance and guarantees.

Inclusiveness of the informal sector in the formal economy system

One of the most important factors that raised the value of financial stimulus packages in some Arab countries is to allocate funds to reduce levels of enterprise damage in the informal sector and seasonal employment. The informal sector remains a significant importance, exceeding 60 percent of GDP in some Arab countries. In such cases, this sector is the most affected in the absence of any social security system. Consequently, one of the most important priorities in the medium term relates to integrating the informal sector into the formal system in order to provide social protection for workers in the sector according to structured frameworks and without the state bearing huge burdens to support these groups and create buffers that enable these groups to absorb economic shocks.

Financial sustainability

Corona-related developments will affect Arab budgets, which will result in a decline in the proceeds of oil and tax revenues in Arab countries at a time when the governments of these countries will need to increase levels of spending to support health systems, and finance spending packages intended to mitigate the negative effects of the virus. It will also represent a challenge on the other hand to the efforts of Arab countries to maintain financial discipline and financial sustainability, and will lead to the prolongation of the period required to return to the balanced paths of public budgets in a number of countries that adopt medium-term programs for financial balance. Consequently, regaining the pace of movement towards financial sustainability will require in the medium term to intensify the pace of financial reform in a large number of Arab countries.

Strengthening policy space in Arab countries to face shocks

Arab economies, of course being open to the outside world, are affected by external economic shocks. The structural conditions of some Arab economies also prevent raising their levels of ability to cope with economic shocks. In this context, the importance of adopting structural reforms aimed at reducing deficits in the public budgets, ensuring that the public debt remains at sustainable levels and an adequate level of official reserves are highlighted in this context. The presence of developed financial sectors, a disciplined monetary policy, and a total fiscal and precautionary policy that are opposite to the economic cycle, are all factors that enhance the ability of Arab economies to cope with economic shocks at the lowest possible cost.

The full version of the issue is available at this link

https://www.amf.org.ae/ar/economic-briefs/issue-12-apr-20

https://www.amf.org.ae/ar/content/%D8%B5%D9%86%D8%AF%D9%88%D9%82-%D8%A7%D9%84%D9%86%D9%82%D8%AF-%D8%A7%D9%84%D8%B9%D8%B1%D8%A8%D9%8A-%D9%8A%D9%8F%D8%B7%D9%84%D9%82-%D8%A7%D9%84%D8%B9%D8%AF%D8%AF-%D8%A7%D9%84%D8%AB%D8%A7%D9%86%D9%8A-%D8%B9%D8%B4%D8%B1-%D9%85%D9%86-%D9%85%D9%88%D8%AC%D8%B2-%D8%B3%D9%8A%D8%A7%D8%B3%D8%A7%D8%AA-%D8%AD%D9%88%D9%84-%D8%AD%D8%B2%D9%85-%D8%A7%D9%84%D8%AA%D8%AD%D9%81%D9%8A%D8%B2-%D8%A7%D9%84%D9%85%D8%A7%D9%84%D9%8A-%D8%A7%D9%84%D9%85%D9%8F%D8%AA%D8%A8%D9%86%D8%A7%D8%A9