Transcript The Global Financial Crisis

Implications of the Global
Turmoil on Economic Outlook
for MENA Countries,
Afghanistan, and Pakistan
Masood Ahmed
Director, Middle East and Central Asia Department
Dubai, February 2009
Outline

The Global Outlook

The Outlook for MENAP



Oil-exporting countries
Emerging markets and developing
countries
Risks to the Outlook
The Global Outlook
Global financial system slowly coming
back from the brink
Bank CDS
Spreads
High-Grade
Spreads
(5-years; basis points)
(basis points)
Interbank Markets
(3-month LIBOR minus
T-bill rate; in percent)
500.0
900
U.S.
800
400.0
Sovereign
EMBI
U.S.
median
700
600
300.0
500
Euro
area
U.S.
400
200.0
Europe
median
Japan
300
Europe
200
100.0
100
1/22
0.0
Jan07
1/22
Jul07
Jan08
Jul08
JanJan07
09
Jul07
Jan08
Jul08
Jan09
1/22
Jan07
Jul07
Jan08
Jul08
Jan09
0
And the spread of the crisis to emerging
markets will continue
Heat Map of Systemic Asset Classes
Emerging markets
Corporate credit
Prime RMBS
Commercial MBS
Money markets
Financial institutions
Mortgage Related ABS
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08
Three major channels of transmission
to emerging markets

Declining External Demand and Exports

Lower Commodity Prices

Tighter Credit (External Financing)
Emerging economies’ growth slowed by
falling exports and industrial Production...
Industrial Production
Merchandise Exports
(in percent change from a year earlier)
(in percent change from a year earlier)
20
Emg. Asia
Emg. Asia
60
Emg.
Europe
15
40
10
20
5
Latin
America
Latin
America
0
0
-20
Emg.
Europe
-5
Nov.08
Nov.08
-10
03
04
05
06
07
08
-40
09
03
04
05
06
07
08
09
...And lower commodity prices
Commodity Price Indices
(index: Jan. 2002=100)
700
Metal Index
Beverage Index
600
Food Index
500
Agricultural Raw
Material
Energy
400
300
200
100
Proj.
0
Jan-02
Jan-04
Jan-06
Jan-08
And financial pressures
Sovereign CDS Spreads
Equity Prices
(index: 7/1/2007=100)
(index: 7/1/2007=100)
3600
120
3200
110
Current account deficit larger
than 5% of 2007 GDP
2800
Current account surplus
or small deficit
100
2400
90
2000
80
1600
70
Current account surplus
or small deficit
1200
Current account deficit larger
than 5% of 2007 GDP
60
50
800
40
400
1/22
0
Jul07
Oct07
Jan- Apr08
08
Jul08
Oct08
Jan09
Jul07
Oct07
Jan08
Apr08
Jul08
1/22
Oct08
30
Jan09
Global economy heading for major downturn
Real GDP Growth
(Annual percent change)
10
10
8
8
6
6
4
4
2
2
0
0
World
-2
-4
1970
-2
Emerging and Developing
Advanced
1978
1986
1994
2002
-4
2010
All regions affected...
Overview of the World Economic Outlook Projections
(Year on Year)
Projections
Difference from
Nov. 2008 WEO
Projections
2007
2008
2009
2010
2009
2010
5.2
3.4
0.5
3.0
-1.7
-0.8
2.7
1.0
-2.0
1.1
-1.7
-0.5
United States
2.0
1.1
-1.6
1.6
-0.9
0.1
Euro Area
2.6
1.0
-2.0
0.2
-1.5
-0.7
8.3
6.3
3.3
5.0
-1.8
-1.2
World output
Advanced Economies
Emerging and Developing
economies
The uncertainty surrounding the
outlook is unusually large
Downside risks continue to dominate

Pernicious feedback loops between real activity and
financial markets intensify further.

More prolonged and severe process of deleveraging.

Current policy efforts not sufficient.

Further deterioration in global financial conditions
accompanied by sudden stops and disruptive currency
depreciation in a number of emerging markets
Strong and coordinated policy efforts are
needed to rekindle activity at the global level

Financial sector: Restore normal functioning of
financial markets.

Monetary policy: Unlock key credit markets.

Fiscal policy: Timely and coordinated implementation
of stimulus, use available fiscal space, but keep an eye on
long-term sustainability.
Economic Outlook for the Middle
Eastern Region (MENAP)
MENAP Oil Exporters (12)
MENAP Developing Economies (10)
Syria
Tunisia
Lebanon
Iran
Iraq
Morocco
Afghanistan
Jordan
Algeria
Libya
Egypt
West Bank Kuwait
and Gaza
Bahrain
Saudi Arabia
Qatar
United Arab
Emirates
Oman
Mauritania
Sudan
Yemen
Djibouti
Somalia
Pakistan
The slump in global demand has led to a
collapse in commodity prices
Oil Prices
(In U.S. dollars per barrel)
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
2000
0
2002
2004
2006
2008
2010
Lower oil prices hitting MENAP oil
exports
Total Exports and Fiscal Revenue
1200
Exports - billions of U.S. dollars (left axis)
Revenue - percent of GDP (right axis)
45
1000
40
800
600
35
400
200
2000
2002
2004
2006
2008
30
2010
But governments likely to maintain
spending
1000
Total Imports and Fiscal Expenditure
(In billions of U.S. dollars)
1000
Imports
800
Expenditures
800
600
600
400
400
200
200
0
2000
2002
2004
2006
2008
0
2010
External and fiscal balances to
deteriorate
Current Account and Fiscal Balances
(In percent of GDP)
24
24
18
18
12
12
6
6
0
0
Current account balance
Overall fiscal balance
-6
2000
2002
2004
2006
2008
-6
2010
Growth in oil producers is expected to slow...
Real GDP Growth, Oil-Exporting Countries
(Annual percent change)
9
9
8
8
7
7
6
6
5
5
4
4
3
3
World
2
MENAP oil expoters
2
1
GCC
1
0
2000
2002
2004
2006
2008
0
2010
Growth in MENAP oil producers is
expected to slow...
Real GDP Growth
(Annual percent change)
12
12
10
10
8
8
6
6
4
4
2
2
0
0
Non-oil GDP
-2
Oil GDP
-4
-6
2000
-2
-4
Total real GDP
2002
2004
2006
2008
-6
2010
GCC: Key Economic Indicators
Real GDP growth (in percent)
Inflation rate (in percent)
Oil exports (in billions of US$)
Government revenue from oil
(in billions of US$)
External current account
balance (in percent of GDP)
Fiscal balance (in percent of
GDP)
2007
5.3
6.3
411
314
2008
6.8
10.6
584
460
2009
3.5
6.3
298
257
25.0
27.5
-0.1
17.6
22.8
-3.1
The global slowdown will have a significant
impact on growth in MENAP Developing
Countries
Real GDP Growth
(Annual percent change)
7
6
5
4
3
2
World
1
0
2000
MENAP developing countries
2002
2004
2006
2008
2010
Global slowdown is expected to hit
export growth...
Exports and Remittances
30
(Annual percent change)
30
20
20
10
10
0
0
Exports
Worker remittances
-10
-10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
...but the external position is expected to
improve
External Current Account Balance
2
(In percent of GDP)
2
1
1
0
0
-1
-1
-2
-2
-3
-3
-4
-4
-5
-5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
...while fiscal cushion is absent in most
of these countries
Overall Fiscal Balance
-2
(In percent of GDP)
-2
-3
-3
-4
-4
-5
-5
-6
-6
-7
-7
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Risks to the Outlook
Oil prices do not recover as expected
Oil Break Even Prices, 2009
(U.S. dollar per barrel)
90
Fiscal balance
Current account balance
2009 WEO oil price projection
80
90
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
ALG BHR
IRN
IRQ KWT LBY OMN QAT SAU UAE
Global growth and investor sentiment
weaken further




Weaker exports, tourism, and remittances
decline
Sudden stops or reversal in capital flows
Slowdown in Europe impacts North Africa
Slowdown in MENAP oil producers impacts the
whole region
Asset price corrections deepen further
Change in Stock Market Indices
(Jan 01, 2008 – Jan 23, 2009, in U.S. dollars)
-83%
-66%
-65%
-62%
-59%
-48%
-58%
-54%
-49%
-42%
-28%
-27%
-23%
-1
-0.9
-0.8
-0.7
-0.6
-0.5
-0.4
-0.3
Dubai
Pakistan
Egypt
Saudi Arabia
Abu Dhabi
Qatar
Oman
Kuwait
S&P 500
Bahrain
Jordan
Lebanon
Morocco
Tunisia
-0.2
-0.1
2%
0
0.1
Key Policy Messages

Oil producers: Maintain fiscal spending

Emerging markets:


Exploit fiscal space if available

Apply some monetary stimulus, if possible
Enhance financial supervision and monitoring