Despite the air of uncertainty hovering over world markets, focusing on modernization and going forward with reform is the only route towards economic development in the region, experts said at a banking conference this week.
Over the course of two days, around 100 heads of regional banks met with senior public sector officials and leaders of global financial service firms with interests in the region.
Hosted by the Arab African International Bank (AAIB), the Institute of International Finance (IIF) held its 12th Annual Meeting of Middle Eastern and North African Bank Chief Executive Officers from Feb. 22 to 23 in Cairo.
“We have had a most productive exchange of views on the growth and modernization of the region’s banking systems, Hassan Abdallah, CEO of AAIB and IIF board member, said at a press conference Monday.
“We recognize the vital importance of continuing with ongoing banking reforms to enable our financial institutions to continue to play a key role in the economic development of the MENA region, and to strengthen their capacity to cope with the challenges of the current crisis, he added.
With the global economic crisis hindering growth in markets around the world, it’s important that regional financial institutions continue to make progress in reforming and modernizing the sector. Leaders also agreed that the Middle East and North Africa (MENA) region will remain relatively well-positioned to withstand the adverse affects of the credit crunch.
Abdallah stressed the need to form a coordination council that will adopt monetary systems with clear regulations and a unified set of rules.
Charles Dallara, IIF managing director, hailed Egypt’s economic progress over the past years, saying it is the fundamental strength that will aid the nation’s financial entities during these challenging time.
“The current challenges continue to provide new and important reform opportunities. We are seeing major efforts by governments and central banks at the global and regional levels to consult and seek internationally coordinated policy approaches, Dallara said.
“On the private sector level, we are seeing financial services firms across the world moving to address weaknesses revealed in the current crisis and to strengthen risk management, he said.
The economic crisis has triggered protectionism in the US and Europe; and Dallara cautioned that these policies have created disintegration and have had a negative affect on trade. If left unaddressed, he said, protectionist attitudes will further hinder world growth.
According to new forecasts by the IIF, 2009 will see real world GDP decline by more than 1.5 percent – the sharpest decline since the 1930s – after a modest growth of about 1.8 percent in 2008.
The leading industrial economies, which grew by just 0.7 percent in 2008, could see negative real growth this year of 2.7 percent. Many emerging market economies will also face significant declines in output.
Forecasts for growth levels in Egypt, though, were more optimistic. “The structural reforms undertaken in recent years have strengthened the resilience of the Egyptian economy and financial system to external shocks, George Abed, special advisor to the IIF managing director and director for Africa and the Middle East, said.
While growth would slow down in 2009, he said, it should remain comfortably in excess of the growth in labor force.
He expected Egypt’s current account to fall into a small deficit due to a decline in Suez Canal receipts, weaker tourism and a reduction in export demand, but that financing should not be an issue.
As the pressures of the global crisis recede, it is important to push ahead with fiscal reforms to help narrow the budget deficit and prevent an undue buildup of public debt.
The global crisis will have an adverse impact on the Middle East region due to the sharp decline in oil prices, slowing trade and remittance flows and the higher cost of external financing, Abed said. As a result, the overall outlook for North Africa and the Middle East has weakened and overall growth is expected to decline to 2.7 percent in 2009.
In oil producing countries, the large current account and budget surpluses will virtually disappear but moderate growth will be achieved, supported by an increase in public spending as governments draw on accumulated resources to simulate economic activity.
Abed put Egypt’s growth levels at an optimistic 4.1 percent, assuring everyone that “any crisis will end eventually.