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00:00She had really good to have you with us over here in the region. I want to talk about your reports. We talk about resilience and uncertainty. Will it last? But in the reports what I think is really interesting and you and I spoke back in April six months ago. The landscape for the world's economy looks very different. But despite that despite the external shocks despite the fact that there was a war in June between Iran and Israel. The region has fared remarkably well. What do you point down this resilience to?
00:28Well we have gone through many things this year and some of them are still with us. Uncertainty is still with us. Despite that economies in the region have performed well for different reasons. For example oil exporting countries the non-oil sector keeps progressing and the unwinding of the OPEC plus led that additional production came in that compensated the drop in oil price.
00:56For oil importing countries remittances tourism some of the sectors like agriculture and manufacturing performed relatively well. Also I think we need to add two elements. The tariff shock was limited in the region because of the limited trade with the U.S.
01:13gas and the tariff was 10 and 15 percent in most of the cases oil and gas were excluded. The second thing access to market was made available for most of the countries in the region.
01:24And up until September we had the total issuance of 48 billion dollars higher than all the 2024. Of course this comes with a lot of risks and uncertainties that countries need to deal with.
01:39Especially those who have vulnerabilities need to double down on reforms in order to protect their economies going forward.
01:46Yeah. On the tariff shock. I remember when we spoke about this back in April you had spoken then about the fact that it's unlikely to have a big impact directly because of the limited absolute number of trade between many of these GCC nations and the U.S.
01:59But that it could have indirect effects. Do you expect those impacts to actually occur perhaps in 2026. Is it just a delayed impact from.
02:07Yes exactly. I think you are pointing on the on the right issue. Uncertainty is here still very elevated and will stay with us. We are seeing many changes taking place at the same time.
02:21Trade is changing and there are a certain number of important transformations that could lead to a second round effect on the region.
02:29Yet the positive side of it is this new world trade order and new world economic order could open opportunities for countries in the region to increase their connectivities with new you know other economic groupings but also to seek new opportunities.
02:48And this is something that we see some of the countries doing especially in the Gulf trading more with Africa with Central Asia and Caucasus and also strengthening their relationship historically with the region.
02:59Oil prices right now as we speak we have brands close to around $61. How much downside risk does that pose to economic growth for the oil exporting countries next year if oil stays around this level.
03:11Well of course those prices are beneficial to the oil importing countries. They reduce their negative impact on prices as well as also on their current account.
03:21For the oil exporting countries the unwinding of the OPEC plus cuts led to an increase in production by 2.2 million barrel.
03:29And this is continuing this year and next for mainly the GCC because this is where the capacity still exists and therefore the increase in production compensated the drop in oil price.
03:43Yet the surpluses both in the current account and on the fiscal will gradually narrow which requires from those countries to continue their effort in diversifying revenues outside oil
03:56and making sure that their balance sheets are managed in a way that will preserve them from any shock that could occur that would lead to hiking interest rates or drop in international demand.
04:10Yeah. Well earlier on you were talking about market access and the fact that there's been a lot of plenty of sovereign bond issuance this year even corporate issuance out of the region as well.
04:20On Saudi Arabia specifically and I believe they have been the most active EM issuer year to date.
04:25Are you worried about how much extra debt Saudi Arabia is taking on both both on balance sheets and off balance sheets.
04:34Well Saudi has strong buffers.
04:38And also they have ample level of liquidity which will allow them to address short term and long term issues.
04:47And throughout the last few years they have done two important things.
04:52One is to diversify their revenues outside oil.
04:55And we see gradually this taking shape in a context of medium term fiscal framework.
05:01But also on the other hand keeping their liquidity high.
05:05And recently also they have reprioritized some of their projects part of a medium term investment planning.
05:12Which also provided additional positive sentiment in the market.
05:18Of course the transformation of the economy will continue taking time.
05:24But I would say Saudi is on the right track on that front.
05:28So early in the summer the IMF noted that in Saudi's case investment linked imports had led to the emergence of twin deficits.
05:36So they've got both a current account deficit and a budget deficit.
05:39As Saudi Arabia goes down the route of recalibrating, reprioritizing projects.
05:44Do you expect that to have an impact on the trajectory of this twin deficit situation?
05:50Well part of the answer depends on the oil price and the oil production.
05:54If oil price recover giving the capacity of production in Saudi this will have a positive impact.
06:02Any increase by 1 million barrel a day provides Saudi with additional improvement in their fiscal by 3.2% and current account by 3.7%.
06:14Therefore increase in oil price or recovery in oil production has immediate impact on the fiscal as well as on the current account.
06:23Yet diversifying revenues will have an impact on the fiscal.
06:27Recalibrating and managing their investment portfolio will have an impact on their current account.
06:35But also there is something for the long term.
06:37Investing in sectors that are export led.
06:41Investing in sectors like technology will allow the Saudi economy to be generating foreign currencies outside the set of oil.
06:50Yeah.
06:50Let me ask you about Egypt as well.
06:53How were the discussions last week in D.C.?
06:56We had positive discussions with the Egyptian authorities.
07:00As you know the Egyptian economy is recovering.
07:03Growth is improving.
07:05Inflation is coming down.
07:07And also we are seeing a surplus in the primary balance.
07:15This has helped Egypt to improve its stability despite all these shocks.
07:21What is needed for Egypt today is to accelerate on the growth agenda.
07:26The growth agenda has three pillars.
07:28One is to level the playing field for the private sector.
07:31Two is to divest.
07:34Especially that there are a certain number of entities in the public sector that they are in the competitive domain.
07:40A recent study showed that 72% of the SOEs are in the commercial domain.
07:44Therefore, I think there is great opportunity here for the state to reposition itself from being a competitor to being an enabler.
07:52Three, which is very important, is to, with all the transformations that are taking place, for Egypt also to reposition its economy.
08:01Do you believe that Egypt has made enough progress on asset sales?
08:06Egypt has started with a plan on that in 2022.
08:11They have now a list of assets.
08:13They have created a certain number of institutions in charge of that.
08:17I think now it's time to accelerate transactions and also to open up certain sectors for more competition.
08:25And is it your expectation that Egypt will pass the reviews by end of 2025?
08:29I know that the fifth and the sixth programs were combined together.
08:32Yes, fifth and sixth review, in addition to the first review of the Resilience Sustainability Facility that comes to help on the energy side.
08:41We are currently discussing with the authorities to see if everything is ready.
08:45And when things are ready, we will immediately send a mission in order to finalize the review.
08:50Okay. Let me ask you about Lebanon as well, because looking at Lebanon-Europe bonds, there's been a big rebound in the price of where these bonds are trading.
08:59But no real tangible progress to speak of from an outsider's perspective when it comes to actually obtaining an IMF program.
09:07Just give us a mark to market of how these discussions are going right now with Lebanon.
09:11Well, as you know, the authorities have requested the program back in April.
09:14And then we had a mission, several missions. The last one was in September.
09:19And during the last weekend annual meetings, the team and the authorities were discussing together.
09:24What Lebanon needs today is to address this with the banking sector issue,
09:28to rebuild the banking system that brings confidence, finance the economy while respecting the depositors' rights,
09:38especially the small depositors' rights, and address the issues through the right hierarchy of claim.
09:45On the other side, also, debt sustainability is very important because you need to achieve macroeconomic stability.
09:51And this is an important issue that requires to address the debt problem, but also to have the right fiscal policy.
10:00Three is to accelerate structural reforms.
10:03This economy needs to grow.
10:04In 2024, Lebanon had negative growth, and Lebanon has great potential.
10:10Therefore, you need to bring confidence back, address the long-lasting issues that have been here at least for the last six years,
10:16and provide an impetus for growth and recovery to take place.
10:22Yeah.
10:23Do you believe that the authorities have the right intention to do what is necessary in order to secure the IMF program?
10:31Well, I would say they have requested the program, which means that they want an IMF support,
10:37and the discussion between them and the team is very active.
10:42Again, Lebanon has an opportunity today to address once for all all these issues and to build back better,
10:50and also to build an economy that is more sustainable.
10:54Yeah.
10:54And just finally, in the report, you have a whole section devoted to countries that are emerging from conflict,
11:01and Lebanon, one of them, but of course, Syria, Gaza.
11:04And you point out that macroeconomic stability, the rebuilding of institutions, governance,
11:11are key to setting these countries back on track.
11:14What do you think should be a first-order priority?
11:16Well, the region has many cases to address, and they are different.
11:22Lebanon is different from Syria.
11:24But there are clear fundamentals.
11:27In the case of Syria, for example, you need to rebuild institutions, a new central bank, new ministry of finance.
11:33You need to build a new financial system.
11:36This will help you channel support, which is very important today, especially that we are seeing ODA declining.
11:43A country like Lebanon has the fundamentals, but need to make sure that the economy addresses lagging problems.
11:53In the case of Yemen, it's also a different story.
11:57But what we are trying to do here is to use three decades of analysis and show what has worked and how it worked,
12:07and help countries to deal with that.
12:08The fund is very much engaged in order to help countries recover from those situations,
12:14in coordination with the regional institutions with some of the leading countries.
12:20Back in February in Alola, we had an important gathering around that.
12:24At the spring meetings, we had a roundtable on Syria.
12:26We are very active in most of those countries in order to help address those issues,
12:31because we believe that the recovery of those countries will have a regional benefit too,
12:36will create more stability, and potentially could create more growth for the entire region.
12:41Jihad, thank you so much. Always a pleasure.
12:43Thank you for having me.
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