The Macroeconomic Outlook for the Arab Region: Navigating Fiscal Distress during COVID-19 Crisis

23 Jul 2020

The impact of the outbreak of COVID-19 and the resulting lockdown measures on the economies of the whole world—including those of Arab countries— is devastating. The level of fiscal distress the pandemic has been causing for governments around the globe is unprecedented. In the Arab region, the channels that traditionally cause such effect are additionally overwhelmed by exogenous and endogenous variables that exacerbate the situation.


The first fiscal channel is associated with the decline in government revenues arising from the slowdown of the world economy and subsequently the Arab economies. The International Monetary Fund (IMF) has been revising the prospects of growth for the world economy. In its April 2020 publication, IMF’s growth projections for all Arab countries have been revised downwards with negative growth expected for all the countries, with the exception of Egypt. According to the World Bank (2020a), the pandemic effect is likely to cost Arab countries around 3.7 percent of their collective GDP, the equivalent of around US$ 42 billion. Moreover, the effect is expected to result in the loss of 1.7 million jobs in the Arab region and the fall of 8.3 million new persons in poverty (ESCWA, 2020a).


Annual inflows of foreign direct investment (FDI) are expected to slow down immensely in Arab countries with an expected decline of 45 percent in 2020 compared to 2019 worth of US $ 17.8 billion (ECSWA, 2020b) with conservative estimates ranging from 14 percent in Kuwait to 45 percent in Iraq (Chemingui and Ben Jelili, 2020). The significant weight of tourism in a number of Arab economies intensifies the impact, with tourism representing around 4.5 percent of collective Arab GDP and providing more than 4.5 million jobs (Ghoneim, 2020). Those symptoms of economic slowdown in Arab countries compounded by the collapse in oil prices, and subsequently remittances (expected to decline by 19.3 percent in 2020 compared to 2019 as per the World Bank predictions for the Arab region (World bank, 2020b)), represent a huge fall in government revenues for Arab countries, whether directly given the inability of the government to collect taxes, or indirectly following the repercussions of such slow down which can last for years.


The second channel is associated with the relative increase in government spending as part of the “stimulus package” and measures adopted by Arab governments to contain the negative impacts of the pandemic. The amounts of financial resources devoted by these governments varied widely and are subject to the economic status and fiscal capabilities. The interventions adopted so far by the Arab governments ranged from the provision of financial assistance to economic enterprises, to ensuring that payment of salaries and wages of immigrant workers are being paid by their employers, to direct financial assistance and food stamps to poor households. Moreover, some governments reduced or waived taxes for specific periods of time for certain economic activities or specific income groups, in addition to other monetary measures undertaken by Central Banks (IMF, 2020). It is estimated that the amount of fiscal measures adopted by the ministries of finance in Arab countries represents 3 percent of collective Arab GDP, reaching 3.8 percent in Gulf Cooperation Council (GCC) countries (IMF, 2020).


The outcome of the first two channels has been a “fiscal squeeze”, with a significant fall in revenues and a steep increase in short term and current expenditures. Budget deficits as percentage of GDP consequently increased, with expectations ranging from 2 percentage points in Egypt to around 7 percentage points for GCC countries, and 11 percentage points for Algeria. In addition, countries that used to enjoy budget surpluses, such as Kuwait and Libya, are expected to suffer from budget deficits (IMF, 2020), with the latter due to ongoing violent conflict.


These estimates are considered highly conservative and are expected to be revised upwards. Moreover, the debt to GDP ratio is likely to increase dramatically worldwide (United Nations, 2020) and for Arab countries in specific following the outbreak of COVID-19, the sharp decline in oil prices and the ongoing conflict in some countries. Hence, it is highly expected that Arab countries will run short of finding other means to finance their budgets, especially with the deteriorating conditions of oil prices, tourism, and other major Arab economic activities as transport and logistics.


The outbreak of COVID-19 has also revealed the weakness in the ability of several Arab countries to contain health pandemics, like many other countries in the World. In fact, the ranking of several Arab countries according to the Global Health Security Index shows humble figures[1], with a number of Arab countries ranking worst in the world namely Syria, Yemen, Sudan, Djibouti, and Mauritania. As a result, it is expected that Arab governments will devote extra financial resources to improve their health systems in the medium and long run whether enhancing their health infrastructure, handling alike pandemics, or improving health insurance systems. This is likely to put an additional pressure on the scarce financial resources available for the Arab governments. The “bail out” packages expected to be provided in the aftermath of the COVID-19 crisis to allow the Arab economies to re-adjust are expected to be substantial. The political instability and violent conflicts in several Arab countries whether arising from domestic tensions or external threats are likely to further squeeze the fiscal policy space available for the Arab governments.


To sum up, the picture on the fiscal front is worrisome. The uncertainty associated with whether the COVID-19 crisis will wither away is likely to worsen the situation. The ability of the Arab countries to contain the negative impact of the crisis on their citizens is made more difficult due to the limited fiscal resilience. The fragility of the fiscal situation of Arab governments is likely to continue hence affecting negatively the macroeconomic balances.



[1] ESCWA (2020a), “Regional Emergency Response to Mitigate the Impact of COVID-19”, available at
[2] ESCWA (2020b), “The Impact of COVID-19 on Arab Economies: Trade and Foreign Direct Investment”, E/ESCWA/2020/Policy Brief 6, [ONLINE] Available at:
[3] Ghoneim, Ahmed Farouk (2020), “Exploring the Potential Impact of COVID-19 on Trade in the Arab Region”, UNDP Arab Developmental Portal , available at

[4] International Monetary Fund (IMF). 2020. Regional Economic Outlook, Middle East and Central Asia. [ONLINE] Available at:
[5] John Hopkins, Bloomberg School of Public Health in collaboration with Economic Intelligence Unit (2019), Global health Security Index. [ONLINE[ Available at:
[6] United Nations. 2020. “Debt and Covid-19: A Global Response in Solidarity” [ONLINE] Available at:
[7] The World Bank. 2020a. How Transparency Can Help the Middle East and North Africa, MENA  Economic Update. [ONLINE] Available at:
[8] The World Bank. 2020b. World Bank predicts sharpest decline in remittances in recent history. [ONLINE] Available at:


[1] For ranking visit John Hopkins, Bloomberg School of Public Health in collaboration with Economic Intelligence Unit (2019), Global Health Security Index, available at


Ahmed Ghoneim is a professor of economics in the Faculty of Economics and Political Science at Cairo University. He is a research fellow at the Economic Research Forum for Arab Countries (ERF) in Egypt, and at the Center for Social and Economic Research (CASE) in Poland.


The views expressed here are solely those of the author in his/her private capacity and do not in any way represent the views of neither the Arab Development Portal nor the United Nations Development Programme.

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