Christine Lagarde, MD, IMF spoke at the World Government Summit in Dubai, UAE about doing more in Arab countries to increase growth and job opportunities for all. She noted that SMEs help create jobs, diversify economies, and support growth.
"In the Arab region, SMEs represent 96% of registered companies. They also employ half of the labour force. Yet their access to finance is the lowest in the world: lending to SMEs in the region is only 7% of total bank lending.
"We found that closing this financial inclusion gap – with respect to the average of emerging and developing countries – would yield multiple economic benefits:
"- It could boost annual economic growth by up to 1%o, potentially leading to about 15 million new jobs by 2025 in the Arab region.
"- It could also increase the effectiveness of fiscal and monetary policies, by improving domestic revenue mobilisation and monetary policy transmission.
It is clear then, that supporting and enabling SMEs is a key component of any inclusive growth agenda," she said.
IMF research has found that promoting SME financial inclusion requires a holistic approach. "To achieve meaningful, safe and sustainable SME access to finance, there is no magic bullet. And partial approaches are unlikely to suffice," she said.
Three success factors, Lagarde said, are sound economic fundamentals and financial sectors, institutional factors, and alternative channels for SME finance.
This translates into levelling the playing field for SMEs, maintaining a competitive economy and a banking sector that facilitates market entry for SMEs; good governance and financial supervisory capacity, availability of credit information, as well as strong legal frameworks; tapping capital markets and supporting the development of SME capital market segments.
"Fintech is also a potential game changer for SMEs: it can increase competition among credit providers and expand credit information," she said.
A departmental paper on how SME financial inclusion is at the core of the economic diversification, growth, and addressing job creation challenges many countries are facing was launched on February 12.
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| Source: IMF website. Infographic on boosting economic growth and job creation in the Middle East and Central Asia. |
In other announcements the IMF said:
Jordan
Exports in Jordan increased in 2018, supported by the re-opening of the border with Iraq. Tourism has grown strongly, and credit to the private sector has grown at solid rates for the third consecutive year, according to an IMF team who visited Amman from January 27-February 7, to discuss the country’s recent economic developments; economic policies and reforms under Jordan’s reform programme supported by a three-year IMF extended fund facility (EFF) arrangement.
Team leader Martin Cerisola said economic growth remained at about 2% and inflation remained relatively steady, falling below 4% by year-end. "Weak growth and investment remain insufficient to generate more jobs, with unemployment at around 18%, presenting difficult conditions for the population," he said.
“The outlook for the Jordanian economy brings renewed momentum. The re-opening of the border with Iraq and associated trade and investment agreements; the extension and broadening of the trade agreement with the European Union; as well as other efforts to lower the cost of generating energy, all bode well for a steady recovery in investment, exports, competitiveness, and growth. However, challenges still remain, particularly from tighter and more volatile global financing conditions and elevated vulnerabilities."
UAE
The UAE economy is starting to recover from the 2015–16 slowdown caused by a decline in oil prices, the IMF said. Growth momentum is expected to strengthen in the next few years with increased investment and private sector credit, improved prospects in trading partners, and a boost to tourism from Expo 2020.
Non-oil growth is projected to rise to 3.9% in 2019 and 4.2% in 2020. The oil sector’s prospects have also improved with higher oil prices and output. Overall real GDP growth is projected at around 3.7% for 2019–20. Inflation is expected to remain low, notwithstanding the introduction of the value-added tax (VAT) earlier in 2018.
IMF directors agreed that creating a vibrant, diversified, and knowledge-based economy will require continued reforms to boost the role of the private sector and promote talent and inclusiveness. They welcomed recent reforms, including the liberalisation of foreign investment, and encouraged the authorities to swiftly implement them, while broadening and deepening policy initiatives to improve productivity and competitiveness.
Timor-Leste
Government spending is expected to regain momentum in 2019, with non-oil GDP growth projected at 5%. "Inflation rose in 2018 and is expected to reach around 3% by end-2019, below the government’s target of 4%," said Niklas Westelius of the IMF, who visited Timor-Leste from January 14-25 to conduct the 2019 Article IV Consultation discussions.
Westelius added, “Political uncertainty constitutes the main downside risk to the near-term outlook, with the potential to reduce public spending and slow reform efforts. Over the medium-term, insufficient progress to diversify the economy and create private-sector jobs could worsen labour market outcomes.
"Moreover, with oil revenue from active fields expected to end in 2022, continued drawdowns of the Petroleum Fund could pose risks to long-run fiscal sustainability. Beyond the medium-term, the development of the Greater Sunrise fields represents an upside risk, provided that the project is technically and economically viable and that proper safeguards are taken to minimise funding risks.'
Hong Kong
The Hong Kong SAR’s economy is expected to grow 3.5% in 2018 and 2.9% in 2019 according to IMF projections. The organisation said private consumption aided by a tight labour market and investment are expected to continue to support growth, with headwinds coming from the increased trade tensions, tighter global financial conditions, and slower growth in mainland China.
Risks to the outlook include the further escalation of global trade tensions, possible disorderly tightening of global financial conditions, slower-than-expected growth in mainland China, and a sharp housing market correction.
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Read the Financial Inclusion of Small and Medium-Sized Enterprises in the Middle East and Central Asia report
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