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Middle East businesses must get busy with taking the road to recovery. Image Credit: Shuttertstock

Dubai: Several Middle East firms will need to go for extensive restructure or face liquidation even though there are more signs of economic recovery.

Depending on the strength of this bounce back and the scope of further support from the authorities, IMF’s latest report suggests that 15-25 per cent of regional businesses could be at risk. “Therefore, a gradual withdrawal of financial sector support remains key to preventing defaults that would harm private sector recovery, employment, and financial stability,” said IMF.

New hurdles

Meanwhile, new challenges are emerging for MENA economies such as rising inflation and inequitable economic growth. Several countries across the region have made significant strides - but progress has been inconsistent. “Since the beginning of this year, the MENA region has made good progress and the recovery is ongoing despite the new outbreaks,” said Jihad Azour, Director of the Middle East and Central Asia Department at IMF. “Yet, the recovery is uneven and incomplete, with new challenges emerging, such as rising inflation and inequities.”

The IMF official said that countries with higher vaccination rates and more policy space will recover more quickly and experience less scarring in the longer term. “Oil exporters will benefit from higher oil prices,” he added.

Although vaccine roll out has advanced rapidly in the GCC and some other countries, the region as a whole has only received 8 per cent of global administered doses, despite it making up 14 per cent of the global population. The disproportionate impact of the pandemic is most evident among young people, women, and migrant workers, as well as among smaller businesses.

According to the IMF report, 34 per cent percent of SMEs (small and medium enterprises) – which faced the largest declines in sales – received at least one form of policy support, compared with 48 per cent of large firms.

Some positives

Despite the impact of the pandemic, there have been some positive developments in the region’s private sector. Alongside a record rise in venture capital investments, there has been a conscious shift towards embracing Environmental Social Governance (ESG) principles in business. “As trust in business globally rises, I’m seeing a similar trend in our region, with the private sector increasingly seen as an essential partner to achieve our region’s national goals,” said Badr Jafar, CEO of Crescent Enterprises.

“In many ways, the pandemic forced sectors to work together around the world. The vaccine drive is a clear example of a successful public, private, and people partnership. I hope that the experiences of the past 18 months will provide inspiration as to the models of collaboration and cooperation we need to see in the region if we are to overcome our most difficult challenges”

Recovery is near

In addition to technical support and policy advice, the IMF has supported its members in the region with $20 billion in financing since the pandemic began and allocated Special Drawing Rights of $49.3 billion that supplement the region’s reserve assets, which will help countries manage policy difficult trade-offs.

“Ultimately, many countries will face difficult policy tradeoffs as they navigate their post-pandemic recovery,” the report said. “However, improved policies and forward-looking investments have the potential to lead to a transformational recovery, and a more sustainable, resilient, and inclusive future for the region.”