The International Monetary Fund (IMF) is advocating for the development of small and medium-sized enterprises (SMEs) and greater financial inclusion in the Arab world.
During the World Government Summit in Dubai, UAE, IMF Managing Director Christine Lagarde emphasized the need for Arab countries to prioritize growth and job creation. She highlighted the significant role of SMEs in generating employment, diversifying economies, and driving overall economic growth.
Lagarde pointed out that while SMEs make up 96% of registered companies and employ half of the workforce in the Arab region, they face significant challenges in accessing finance. Lending to SMEs in the region represents only 7% of total bank lending, the lowest globally.
According to the IMF, bridging this financial inclusion gap could yield substantial economic benefits, potentially increasing annual economic growth by up to 1% and creating around 15 million new jobs by 2025 in the Arab region. Enhanced financial inclusion could also improve the effectiveness of fiscal and monetary policies.
Lagarde emphasized that a comprehensive approach is crucial for promoting SME financial inclusion. She outlined three key success factors: robust economic fundamentals and financial sectors, strong institutional frameworks, and the availability of alternative financing channels for SMEs.
This translates to creating a level playing field for SMEs by fostering a competitive economy, a supportive banking sector, good governance, robust financial supervision, accessible credit information, strong legal frameworks, utilizing capital markets, and developing dedicated SME capital market segments. Lagarde also highlighted the transformative potential of Fintech in enhancing competition among credit providers and expanding credit information for SMEs.
On February 12, a departmental paper was released, focusing on how SME financial inclusion is central to economic diversification, growth, and addressing job creation challenges faced by many countries.
Source: IMF website. Infographic on boosting economic growth and job creation in the Middle East and Central Asia.
In other news from the IMF:
Jordan
Jordan experienced export growth in 2018, bolstered by the reopening of its border with Iraq. Tourism has seen significant growth, and credit to the private sector has increased steadily for three consecutive years. This information comes from an IMF team that visited Amman from January 27 to February 7 to assess the country’s recent economic developments and discuss economic policies and reforms under Jordan’s IMF-supported Extended Fund Facility (EFF) arrangement.
Martin Cerisola, the team leader, noted that economic growth remained around 2%, and inflation remained relatively stable, falling below 4% by year-end. However, he highlighted that weak growth and insufficient investment continue to hinder job creation, with unemployment hovering around 18%, posing challenges for the population.
Cerisola expressed optimism about Jordan’s economic outlook, citing factors such as the reopened border with Iraq and associated trade and investment agreements, the expanded trade agreement with the European Union, and efforts to reduce energy costs. These developments are expected to contribute to a steady recovery in investment, exports, competitiveness, and growth. However, challenges remain, including tighter global financing conditions and increased vulnerabilities.
UAE
The IMF reports that the UAE’s economy is rebounding from the slowdown experienced in 2015–16 due to declining oil prices. Growth is expected to strengthen in the coming years, driven by increased investment, private sector credit growth, improved economic conditions in trading partner countries, and a boost to tourism from Expo 2020.
Non-oil sector growth is projected to reach 3.9% in 2019 and 4.2% in 2020. The oil sector’s outlook has also improved, supported by higher oil prices and output. Overall real GDP growth is projected to be around 3.7% for 2019–20. Inflation is expected to remain subdued, despite the introduction of VAT in 2018.
IMF directors emphasized that the UAE’s goal of developing a dynamic, diversified, and knowledge-based economy requires ongoing reforms to enhance the private sector’s role and promote talent and inclusiveness. They welcomed recent reforms, including the liberalization of foreign investment, and encouraged swift implementation while broadening and deepening policy initiatives to improve productivity and competitiveness.
Timor-Leste
Government spending in Timor-Leste is anticipated to regain momentum in 2019, with projected non-oil GDP growth of 5%. Niklas Westelius of the IMF, who visited Timor-Leste from January 14-25 to conduct the 2019 Article IV Consultation discussions, noted that inflation rose in 2018 and is expected to reach around 3% by the end of 2019, below the government’s target of 4%.
Westelius identified political uncertainty as the main downside risk to the near-term outlook, with the potential to curb public spending and hinder reform efforts. In the medium term, insufficient progress in diversifying the economy and generating private-sector jobs could negatively impact labor market outcomes.
Furthermore, with oil revenue from existing fields projected to deplete by 2022, continued withdrawals from the Petroleum Fund could pose risks to long-term fiscal sustainability. On the other hand, the development of the Greater Sunrise fields represents a potential upside risk beyond the medium term, contingent on the project’s technical and economic viability and the implementation of appropriate safeguards to minimize funding risks.
Hong Kong
According to IMF projections, Hong Kong SAR’s economy is expected to grow by 3.5% in 2018 and 2.9% in 2019. The organization stated that private consumption, driven by a tight labor market, and investment are anticipated to continue supporting growth. However, headwinds include escalating trade tensions, tighter global financial conditions, and slowing growth in mainland China.
Risks to the economic outlook encompass further escalation of global trade tensions, potential disorderly tightening of global financial conditions, slower-than-expected growth in mainland China, and a sharp correction in the housing market.
Explore:
Hashtag: #finaccess