Middle Eastern states must boost workforce productivity and ease off state-led fiscal stimulus, as the region looks to move on from the turmoil caused by the pandemic and wars, the head of the International Monetary Fund (IMF) has said.
Kristalina Georgieva said the digitalisation of services and AI could offer a major boost to workforces, using the UAE as an example of an early mover. Decision-makers must move away from state-led developments and allow the private sector to flourish, she said.
"Too often, countries use fiscal stimulus to boost short-term domestic demand. While this 'sugar rush' provides temporary growth, it often fuels inflation and financial turbulence," Ms Georgieva said at the Arab Fiscal Forum in Dubai, part of this week's World Governments Summit.
"Instead of merely stepping on the gas, we need a stronger engine." The Arab region has the lowest productivity in the world, according to the International Labour Organisation, with many nations' lack of a manufacturing or financial services base a major factor.
"Our research in the Arab region shows how to do it: accelerate digitalisation, reduce the state’s footprint in the economy, foster trade diversification, and encourage the free flow of capital to dynamic firms," she said. "Some countries are among the most developed in the world in this area. Digital innovation, with AI technologies, is expected to raise the UAE’s GDP significantly by 2030. More R&D spending will further enhance productivity."
Saudi Arabia's regulatory overhaul and Morocco's New Development Model were also strong examples of moving in the right direction, she said. Investment in battery technology and electric cars is already happening, particularly in the Gulf. Ms Georgieva also spoke of the need to strengthen the tax base, in a part of the world in which governments collect little from their populations.
The IMF has projected global growth to remain at 3.3 per cent this year and the next, before slowing to just above 3 per cent over the next five years, well below the historical average. Ms Georgieva said growth in the Middle East and North Africa is expected to rebound to about 3.6 per cent in 2025, driven by a recovery in oil production and an easing of conflicts.
Ms Georgieva said she hopes the Middle East can stabilise and move on from recent wars. "I pray that peace and stability can be delivered in Sudan and Yemen. I hope that the ceasefire in Gaza, along with political changes in Syria and Lebanon, can mark new beginnings," she said, adding that the international community’s reconstruction efforts provide a "unique opportunity to rebuild better and lay the foundations for stronger growth".
Jihad Azour, the IMF's top official in the Middle East, showed an audience the economic impact of wars in the Middle East, with a slump in tourism numbers in Jordan and Egypt just one of the knock-on effects. "And the situation in Sudan remains dire,” he said.
This week, the summit will hear about opportunities to change the world, embracing both new technologies and harnessing talent to create a stronger world. Hundreds of decision-makers, business leaders and technology figures will attend the three-day event at Madinat Dubai.
Elon Musk is listed to speak on the final day, probably via a live stream. The prime ministers of Pakistan, Kuwait and Georgia are among the global leaders who will speak. Other notable attendees will be Oracle boss Larry Ellison, in conversation with Sir Tony Blair, and Google chief executive Sundar Pichai.
Many sessions relate to the future of artificial intelligence, and there will be some discussion of the future of the Middle East and reconstruction efforts in warzones. The need to modernise the Middle East will also be a hot topic.
Dr Fahad Alturki, director general and chairman of the Arab Monetary Fund Board, also spoke on the opening day. “The resilience of the global economy has been affected in the last five years due to geopolitical crises and developments that had repercussions on growth rates, inflation and unemployment,” he said.
