Why Vaccine Strategy is Key for Middle East Economies

Global Challenges Covid-19

Why Vaccine Strategy is Key for Middle East Economies

Commentary
Posted on: 23rd April 2021
Daniel Rey
Researcher

The Middle Eastern economy is beginning to emerge from the global Covid-19 pandemic. The recovery is driven by a bounce back in economic activity in the final quarter of 2020, rising oil prices, and relatively robust fiscal packages that softened the impact of the pandemic. Above all, early vaccine rollout campaigns in some countries have pushed up growth predictions for the region and laid the roots for a sustained revival. However, the recovery is set to be dramatically uneven, with some countries reaching herd immunity this year while others are not expected to achieve this landmark until 2023 at the earliest. At the same time, existing inequalities, such as high youth unemployment and low female labour force participation have been exacerbated by the global pandemic. In the recently published Annual Threat Assessment, the US intelligence community has warned that the fallout of the pandemic will drive popular discontent and socioeconomic grievances, adding to the risk of destabilisation and even state collapse. In addition, rising government debt and overreliance on contact-intensive sectors such as tourism will weigh on prospects and policy options going forward. To avert worsening instability and secure a strong recovery, the global community needs to support regional leaders in distributing the vaccine across the Middle East.

There are reasons to be optimistic. In a recently published Regional Economic Outlook, the IMF revised up its growth projections for 2021 to four percent, an increase of 0.9 percentage points from October 2020. This growth will be driven by countries that have been quick to vaccinate their populations. The UAE, Bahrain, and Israel have been global leaders in rolling out the vaccine, having begun inoculations at the end of last year. Israel has delivered at least one dose to over 60 percent of its population, while in the UAE and Bahrain the figure is over a third. The UAE is also positioning itself as a regional leader in vaccine production, following the announcement last month that the Abu Dhabi-based technology company, Group 42 (G42) will begin manufacturing the Chinese Sinopharm Covid-19 vaccine in the Emirates. Regional leaders should focus efforts on fully vaccinating populations across the Middle East to ensure a sustained and shared economic recovery.

Nevertheless, success and capacity to respond to the global pandemic have varied widely. This inequity is obvious in the vaccine rollout across the Middle East. Such a divergence risks a two-speed regional recovery, perpetuating structural imbalances and political instability. While most Gulf countries, and Morocco, have successfully vaccinated more than 10 percent of their population, the rest of the Middle East is lagging far behind. In Lebanon and Palestine, the latest figures report less than 2.5 percent of the population as having had a single dose of the vaccine, while in war-torn Syria it is mere 0.01 percent of people. In Sudan, even doctors have struggled to access vaccines, with reports that more than 200 Sudanese doctors, nurses and medical workers have died from Covid-19. Sudan’s health system is particularly ill-equipped to deal with the pandemic, with only 80 ICU beds for its 43 million population. In March, Sudan was the first Middle Eastern country to receive vaccine doses through the World Health Organisation-backed COVAX facility to deliver vaccinations to low-income countries at a reduced cost. Eight other countries in the Middle East are eligible for vaccines under the COVAX scheme, however, this only supplies enough doses for 20 percent of a country’s population. Even this is at risk of underdelivering, after the ACT Accelerator coalition, which provides vaccines through COVAX, reported a $30 billion shortfall in its funding that has yet to be met. Beyond the obvious humanitarian imperative for ensuring equitable distribution of the vaccine across the Middle East, filling the financing gap for Covid-19 vaccines will also be critical for ensuring the region’s economic recovery.

The IMF forecasts that the countries that vaccinate their populations sooner will return to 2019 GDP levels in 2022, while those without adequate vaccination programmes will not reach 2019 levels until sometime between 2022-2023. Across the region, there have been some notable steps towards increasing distribution of vaccines, such as the UAE’s Hope Consortium that has distributed more than 20 million doses globally. However, these efforts have been stymied by policies elsewhere that have worsened the vaccine inequity. Governments refusing to provide vaccines to those who are either undocumented migrants or living under occupation are examples of decision that may impact the overall post-covid economic recovery. Success will depend on global and regional leaders collectively acknowledging that a post-pandemic future will not be realised until people everywhere can access a Covid-19 vaccine.

The necessity of getting the virus under control is compounded by the financial and social costs of the pandemic in the Middle East. The fiscal response to the pandemic has added to mounting debt burdens. Nine Middle Eastern countries have a debt to GDP ratio above 70 percent while eight have public financing needs for 2020 of more than 20 percent of GDP. Debt has ballooned across the region since oil prices began a downward turn in 2014. The IMF warns that the region’s debt position is particularly vulnerable given the possibility of sudden capital outflows and the heavy reliance on domestic banks to finance public borrowing. Crucially, these debt burdens have limited the policy space for governments to support economic recovery through further spending – Arab states delivered fiscal packages that averaged two percent of GDP, in contrast to three per cent for emerging markets overall. The challenges posed by rising debt in the region limit options for further fiscal stimulus and economic recovery will depend primarily on the rapid distribution of vaccines across the region.

In addition, key sectors of the Middle Eastern economy have been battered by lockdowns and the collapse in global travel, and rely on a return to normal for a robust recovery. Tourism in the region is not expected to recover until sometime between 2022-2023 and tourism-dependent countries are forecasted to witness the most economic scarring from the pandemic. Jordan and Tunisia, where the tourism sector accounts for 14 and 8 percent of GDP respectively, are projected to grow by at least one percent less than the regional average in 2022.

A further obstacle that the Middle Eastern economy faces in its post-Covid recovery is its large informal labour market. The informal economy is concentrated in contact-intensive sectors, such as tourism and retail, where distancing and lockdown measures have had the biggest impact on activity. Informal employment accounts on average for 68 percent of the workforce in the Middle East, with a significant proportion of those being outside the remit of welfare systems and support schemes set up during the crisis.

Lastly, the pandemic has worsened existing inequalities that risk creating a highly uneven recovery within countries and preventing robust growth. Surveys conducted by the Arab Barometer reveal that women’s labour force participation in the Middle East (already low at 21 percent) fell disproportionately. For example, the difference in job losses between women and men in Morocco was eight percent while in Algeria and Tunisia this difference was four percent. In Jordan, 86 percent of women are absent from the workforce, which is the highest rate for a country not at war. The pandemic has also deepened inter-generational inequalities with already high levels of youth unemployment persistently rising through 2020. In Tunisia, youth unemployment reached 36.5 percent while in Jordan it was 55 percent in the fourth quarter of 2020. Providing opportunities and unlocking the potential of marginalised parts of society will be key for economic recovery. Survey results suggest that young people in the Middle East are prepared for a new social contract and shifting gender roles, with 43 percent saying they would prefer to work for the government in 2020, compared with 49 percent in 2019, while the majority of young people agree that a woman can benefit her family most if she works. The Middle East region is among the world’s most unequal and the Covid-19 pandemic has shone a light on these deep inequalities and structural imbalances. While the vaccine will alleviate some of these immediate tensions, the need for major structural change will remain.

There are important positives to take from how Middle Eastern nations have handled the Covid-19 crisis. Some, such as Morocco, implemented swift and effective lockdowns, while others were among the first to begin vaccinating their populations. Some economies fared surprisingly well during the pandemic, such as Egypt which grew by 3.6 percent in 2020 despite a reliance on a large tourism sector. The pandemic response has been buoyed by fiscal support packages and expanded welfare systems. Yet, a robust recovery in the medium term will depend on the universal distribution of covid vaccines. Middle Eastern leaders must address unequal access to vaccines in their countries, while richer Arab nations and international partners should ensure access to vaccines in low-income and conflict-affected countries in the Middle East. Beyond this, regional leaders will need to begin the harder task of tackling the deep inequalities and imbalances exposed by the crisis and building a shared post-pandemic future.

 

Leading Image: Getty Images

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