Health crisis from pandemic worsens economic issues in Middle East and Northern Africa, says Dr Kamiar Mohaddes.
The health crisis from the COVID-19 (coronavirus) pandemic exacerbates economic problems in the Middle East and North Africa caused by declining oil prices and a lack of diversification in the region, Kamiar Mohaddes of Cambridge Judge Business School told a World Bank – Economic Research Forum webinar.
Declining oil prices have partially been the result of the “shale oil revolution” in the past decade, which has created an upper bound on oil prices in the short and medium terms, Kamiar said, citing research by the Federal Reserve Board of Dallas that the break-even price for new wells is around $50 per barrel and between $23 and $36 for existing wells.
Oil prices are currently around where they were in 2015, at about $30 per barrel.
The impact of shale oil is a “big factor in the oil shock, so even when the health crisis is over this low oil price environment will stick around and will be pretty bad for the region,” Kamiar, University Senior Lecturer in Economics & Policy at Cambridge Judge, told the 12 May global webinar.
The effect of low oil prices is negative not only for resource-rich oil-exporting countries like Kuwait, Saudi Arabia and the United Arab Emirates, but also for countries such as Egypt and Jordan that are heavily reliant on the richer exporting countries for remittances, investment, tourism and grants.
Citing a book he co-edited last year – Institutions and Macroeconomic Policies in Resource-Rich Arab Economies – Kamiar highlighted that ineffective government policy in the region has “exacerbated the negative effects on economic growth” posed by the volatile oil prices and global uncertainties.
“We need to think about better fiscal and monetary policies, but diversification is the key,” he said, citing little action despite lots of talk about diversifying the region’s economies during past downturns. “The new oil order has already begun, and its effects have been exacerbated by the health crisis,” Kamiar said. The policy choices are not easy, but we do “need a new social contract based on transparency and accountability from the governments.”