Cash injection helping Mena ward off recession: Al Masah

“As European and American policymakers formulate another round of stimulus measures to ward off another dip in global economic output, Mena countries and their stimulus packages provide a case study in how cash injection, rather than austerity, may be the best answer,” said the report entitled “Mena Stimulus: The Great Cash Escape”.

The report said the region is expected to record a real GDP growth of 4.2 per cent this year following surpluses recorded in 2010 and 2011. The growth projection is, however, is lower than the more upbeat projection given recently by the International Monetary Fund, or IMF.

The IMF now expects the Mena region to grow at a rate of 5.5 per cent in 2012, en-par with the average for emerging economies. This is up 1.3 per cent on its April forecast of just 4.3 per cent, and by far the largest positive revision for any region or country.

Al Masah Capital said the GCC in particular is making a very strong showing and with recovery in oil prices, it has been able to register solid fiscal surpluses despite heavy public spending. “In 2012, the IMF projects GCC to post a fiscal surplus of 15.3 per cent in its GDP. This is all good news and justifies the measures taken in 2009.”

Al Masah report argues that raising budgets in 2009 and implementing countercyclical fiscal measures have stood the countries of the Mena region in good stead. “In the aftermath of the financial crisis these measures have propelled a tangible growth and such stimulus packages are now paying off,” it said.

The Mena region was hit equally hard by the global financial crisis of 2008 and the fallout from the eruption of the Arab Spring although the better part of the last decade showed a marked upswing in growth.

“When the financial storm hit regional shores the bruising resulted in falling bank assets, bad loans and limited liquidity with key non oil sector activities posting a visible slowdown,” said Shailesh Dash of Al Masah Capital.

In the first storm, exports and investments to and from Europe were adversely affected. Even as it tried to stem the rot, the string of surpluses snapped in 2009 and Mena recorded a deficit of 2.3 per cent. The uncertainty that came with the Arab Spring added to the pressure as Libya, Egypt, Yemen, and Tunisia fell into the throes of a political renaissance and the powerful visuals of public unrest impacted Mena’s image as a ‘do business’ region.

“The region looked inward and set off a slew of incentive packages. Saudi Arabia announced an $126.7 billion expenditure budget in 2009, allocating nearly $46.5 billion toward social projects involving education and healthcare. This was backed by another $400 billion economic package intended to be utilised over 2009-14 with the express idea of creating infrastructure and generating new employment opportunities,” the report said.

The report said the UAE also stayed on course with its steady expansionary fiscal policy stressing infrastructure and social sector development. Kuwait, meanwhile, announced a $5.2 billion economic stimulus package in the same year to bail out its struggling banks and investment firms. The GCC, as an entity, promised Oman and Bahrain an economic aid package of $10 billion each to be invested in infrastructure, education, and healthcare. Outside the GCC, Egypt announced three fiscal stimulus measures between 2008 and 2010 that totalled $6.2 billion. Together the Mena countries held each other up and held on as the crisis abated.

“Today, these steps are showing that they were pragmatic and sensible and the consequences of their implementation can be quantified,” added Dash.

— issacjohn@khaleejtimes.com