KARACHI: In a report covering the Middle East, North Africa, Afghanistan and Pakistan (Menap) region, the International Monetary Fund (IMF) on Monday downgraded its growth forecasts even further from April, the last time such forecasts were issued at the outset of the Covid-19 challenge.

Referring to the countries in the Middle East and Central Asia Division (MCD) of the IMF, the report says “real GDP in the MCD region is projected to fall by 4.7 per cent in 2020, which is two percentage points lower than in the April 2020 Regional Economic Outlook, in line with revisions to global growth over this period.”

Most of the downgrade in growth forecast for the second half of 2020 owes itself to a worsening outlook for oil exporters, that are likely to see their export proceeds fall by $270 billion from 2019, which is larger than expected.

Pakistan’s growth forecast unchanged from April, but interest rate stimulus is largest in the region

For oil importing countries in the Menap region, including Egypt and Pakistan, the report says “the benefits from lower oil prices are mostly being offset by hampered trade, tourism, and remittances and tighter global financial conditions and spillovers on domestic credit conditions, which, along with confinement measures, continue to depress growth.”

Pakistan and Egypt are two countries in this group whose growth forecasts have not been changed from what their respective authorities have already notified, a downgrade of one percentage point. Both of these countries have undertaken the largest interest rate cuts out of all the countries in the region.

Read: IMF lowers country’s growth forecast to 1pc

“Pakistan and Egypt stand out with cuts of 525 basis points and 300bps, respectively, with Pakistan reducing its rate by a further 100bps in late June” the report notes.

Sixteen countries in the region undertook policy rate cuts of around 150bps, in line with the US Federal Reserve, although nine central banks in the region also participated in very large liquidity injections (greater than $40bn) into the economies at the same time.

Pakistan is also among the countries in the group that have allowed their exchange rate to operate as a shock absorber, despite some interventions, the report notes.

“The average size of the package in the MCD was actually smaller than any other region in the world, which reflects constrained policy space among oil importers and existing sizable government support in the economy among most oil exporters,” the reports notes.

Pakistan’s fiscal stimulus, around 2pc of the GDP as per the report was almost exactly the average size of the stimulus announced by the others, with Bahrain topping the list (at almost 6pc) and Yemen at the bottom.

The MCD region did not see the sharp spike in infections that the countries of the western hemisphere division reported, or the countries of the European division. But the graph in MCD countries continues to climb where the others plateaued out, or showed a sharp drop as in Europe.

Africa and Asia Pacific division countries showed even smaller rates of infection, with no appreciable increase as the pandemic spread.

Going forward, the fund says “downside risks are expected to dominate” the outlook for all countries that are part of the Middle East and Central Asia Division. Chief among these is the continuously rising infections. The countries have all seen an uptick in economic activity as they have opened up, but “newly rising infection numbers could halt these trends.”

“Although the region has thus far suffered relatively limited casualties, subsequent waves could test the capacity of health systems.” If the rate of increase of infections is not reversed, the countries face the prospect of “prolonged decline in activity from a reimposition of containment measures” or cross border spillovers.

Published in Dawn, July 14th, 2020