From reaction to recovery
G20 Issue

From reaction to recovery

As COVID-19 swept across the globe, the Arab Monetary Fund scaled up its support to members. Now, it is providing financial assistance to help members get back on their feet and support a swift, sustained economic recovery

COVID-19 has profoundly affected Arab economies, which are expected to contract by about 4% in 2020. It hit hard major domestic liquidity sources, including oil revenues, export receipts, tourism and remittances, affecting public and private deposits. The central banks and finance ministries of Arab countries acted to contain the negative economic and social effects of the pandemic, ensure sufficient liquidity and support credit to the private sector, with stimulus packages surpassing $231 billion by July 2020.

The Arab Monetary Fund has developed an emergency plan to respond to the financing needs of members, working at several levels. First, it enhanced communication and consultation with members’ authorities to assess the assistance required. Second, it mobilised its resources to respond with the maximum lending capacity. Third, it activated its Rapid Lending Procedures Framework to urgently assist. Fourth, it consolidated its engagement with development partners to ensure coordinated and effective support.

Since 2020 began, the AMF has approved more than $1.3 billion in new loans and withdrawals of tranches of existing loans. It is studying further requests and finalising procedures for disbursing funds in response.

Recognising the importance of peer-to-peer dialogue and exchange of experiences among financial sector policymakers on the implications of COVID-19, the AMF has organised many high-level meetings on financial stability and banking supervision, financial inclusion, digital payments, fintech and digital transformation. The objectives are to strengthen a regionally consistent approach and to discuss a range of interventions, including quantitative easing, cash injections, policy rate cuts and adjustments to reserve requirements. Other policy measures aim at protecting people from mass defaults, financial institutions from drying up, and micro, small and medium-sized enterprises from financial exclusion, thereby safeguarding Arab financial systems. Two main topics have been the need to speed up the digital transformation in financial services and the importance of financial technology.

Supporting trade finance

The AMF is keen to support trade finance through the Arab Trade Financing Program. From January until July 2020, ATFP provided trade finance of about $668 million to national agencies, focusing on expanding exposure to sovereign national agencies to mitigate tightening liquidity conditions and secure funds to finance Arab trade.

The AMF also supports Arab capital markets through investing in issuances that meet the guidelines of its investment policy. Allocations to Arab governments and Arab non-government bonds rose by more than 60% year over year to reach about 1.3 billion in special drawing rights as of 30 June 2020.

AMF financial support has been crucial. Assistance has included emergency support, through automatic loans that provide rapid financing to balance-of-payment deficits, helping alleviate pressures in external financial positions and contain the negative economic and financial effects of the pandemic. Through its Structural Adjustment Facility in the public finance and the financial and banking sectors, the AMF has supported essential measures during the pandemic, including reforms on consolidating social safety nets, assisting MSMEs, and promoting fintech and e-payments.

The AMF stands ready to scale up its support, as the challenges from financing needs are expected to increase. Its financial assistance can help members safely exit the recent fiscal and financial stimulus and support a swift and sustained economic recovery, while strengthening economic and financial resilience.

The high-level meetings have produced toolkits and guiding principles on several issues. The pandemic has also encouraged the AMF Training and Capacity Building Institute to set the foundation and guidelines for distance training, which is part of the AMF 2020–2025 strategy. It is expected to deliver more than 12 distance courses by the end of 2020.

As the ATFP has succeeded in reaching reasonable financing for eligible trade transactions in the public and private sectors, the significant challenge of balancing fulfilling members’ needs while maintaining stakeholders’ interests remains.

During these unprecedented and turbulent times, the world is waiting for the G20 to lead the global recovery. It can do so as follows:

Support private-sector engagement and action in fostering a gradual recovery.

Maintain G20-sustained support of the economic recovery in the least developed countries based on the G20 Debt Service Suspension Initiative.

Enhance cooperation with regional financing arrangements to mobilise sufficient resources and provide the required support for a fast global recovery.

Improve access to opportunities for all through supporting MSMEs, leveraging digital financial inclusion, and embedding youth and women empowerment in all public policies.

Support the Sustainable Development Goals by developing new and innovative financing modes through socially responsible and impact investing.

Address the most pressing economic structural challenges, including declining productivity, through enriching labour skills, enhancing capital accumulation, and encouraging research and development.

Advance the reform of the international trading system to support economic growth and job creation and to avoid disrupting global value chains, thus ensuring mutual economic gains for both developed and developing countries.

Ensure the efficient and fast allocation of resources among economic sectors to cope with the dynamic structural transformation imposed by the virus.