Markets in the Middle East and Central Asia could lose more\nbecause of their high sensitivity to global risks compared to other developing\ncountries, according to a report by the International Monetary Fund (IMF),\nwhich highlighted the region’s increasing dependence on cash.<\/p>\n\n\n\n
Capital flows to the region have almost doubled in the past\ndecade, as governments suffering from low oil prices rushed to bond markets to\nfinance their budget and reduce the current account deficit. Long-term FDI fell\nby almost half.<\/p>\n\n\n\n
While funds have provided some governments with means to\nfill the deficit at \u201clower government and corporate transparency\u201d makes them\nmore sensitive to changes and risks from flows to other emerging markets, the\nIMF said.<\/p>\n\n\n\n
\u201cThe global outlook is that of lower growth and rising\nuncertainty, including due to unresolved trade tensions,\u201d the IMF said in the\nreport released in Dubai on Monday. \u201cSince inflows to the region are highly sensitive\nto changes in global uncertainty, there are risks of capital inflows falling or\neven reversing.\u201d<\/p>\n\n\n\n
These results increase the need to protect the region from\nglobal sales. The Washington-based IMF said efforts should focus on fiscal\nreform and support for foreign direct investment, whose decline was more\npronounced in the Middle East and Central Asia than in the rest of the world\nbecause of weak growth prospects and political tensions.<\/p>\n\n\n\n
The IMF said fiscal consolidation should continue. Interest\nrates should fall in countries where there is no inflationary pressure, and\ngovernments need to intervene to accumulate reserves, strengthen financial\noversight and regulation, use macro-prudential tools to ensure financial\nstability for countries where flows are pressuring real exchange rates, and\nconsider increasing exchange rate flexibility. According to the IMF, capital\nflows to the Middle East and Central Asia account for 20 per cent of the total\nin emerging markets, or 5 per cent before the global financial crisis. The Gulf\nstates have increased global debt sales and have been able to list their bonds\nin emerging market indices at JPMorgan Chase & Co.<\/p>\n\n\n\n
While these measures have helped to reduce borrowing costs,\nthey have become a highlight of the region. One of the recommendations in the\nreport is to focus on developing local financial markets, which vary widely in\nthe region. The Gulf’s domestic bond markets are among the most prolific\ninternational borrowers in the developing world since the collapse of oil\nprices. Meanwhile, Egypt’s local currency bonds have delivered returns to\ninvestors of nearly 40% this year, the highest in the Bloomberg Barclays index.<\/p>\n\n\n\n
Failure to act means the next crisis could hurt the entire\nregion, the IMF said. The outlook therefore raises the urgent need for a\ncomprehensive set of policies to stimulate FDI and mitigate the potential risks\nof disrupted capital flows.<\/p>\n","protected":false},"excerpt":{"rendered":"
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