On October 1, 2020, the Mosbacher Institute for Trade, Economics, and Public Policy hosted a talk with Daniel Lederman, Deputy Chief Economist for the Middle East and North Africa at the World Bank. Lederman gave an insightful presentation on the dual shock of COVID-19 and the oil price collapse in the Middle East and North Africa (MENA).
Lederman began his presentation by relating MENA’s regional preexisting development challenges, which contributed to the dual collapse. He attributed some of the most significant challenges to the deterioration of transparency and accountability, which contributed to a 7-14 percent loss in GDP. Lederman said he believed that a majority of the problems apparent before the crisis were linked to a lack of transparency, which reduced public trust for numerous reasons.
Lederman detailed how the lockdowns due to COVID-19 around the world quickly caused a collapse in demand for global energy. The massive decline in demand resulted in huge losses for oil importers and exporters of MENA countries. These losses would not have occurred otherwise. In response to the impacts of COVID-19, fiscal consequences should be expected, such as large increases in public debt (as percent of GDP). Lederman noted that the debt will have long lasting consequences. It will need to be rolled over and restructured at a time when developing countries will be experiencing extreme repercussions from the crisis, and financial institutions will have limited capital to leverage.
Lederman also described the large social costs of the dual shock and its toll on global poverty. Unfortunately, Lederman explained, current poverty estimations are conservative and underestimated, and GDP losses do not translate into an equal distribution of household consumption losses. In reality, he said, the most vulnerable, poorest communities will experience the greatest effects. One of those effects is food insecurity, a major concern in places like Djibouti, Lebanon, and Syria due to food price inflation.
The talk concluded with Lederman answering a question from a student about the role global leaders such as the United States can play in the recovery process of MENA countries. Lederman noted that international coordination and cooperation is needed in addition to medical equipment and established mechanisms to pull necessary resources such as future vaccines to areas that need it most. Lederman stressed that during a time of global turmoil, international cooperation is more important than ever.
The Dual Shock of COVID-19 and the Oil Price Collapse in the Middle East & North Africa can be viewed in its entirety on the Bush School YouTube channel.