UN Special Envoy on Financing the 2030 Agenda for Sustainable Development and IMF executive director Mahmoud Mohieldin took to the stage on the first day of EFG Hermes’ One on One conference in Dubai to offer his macroeconomic outlook on the global and regional economies for the next couple of years. The conference, which welcomes some 670 investors and 250 global institutions to meet with senior execs from more than 215 companies from 29 nations, runs through to tomorrow.

“The center of economic gravity is shifting towards the East,” Mohieldin, who is also the UN Special Envoy on Financing the 2030 Agenda for Sustainable Development, told attendees, pointing to countries like China, India, Vietnam, and the Philippines. It’s up to emerging markets and countries in the Middle East — which are strategically located to benefit from that shift — to make the most of that transition, he added. Regional cooperation is important in the increasingly fragmented global economy that we currently live in, he said, adding that “better trade relations and FDI in the region” will allow these markets to grow without constraints.

Navigating a restricted and fragmented trade environment is the uphill battle emerging markets will have to reckon with over the next couple of years, Mohieldin said. “It’s a sad fact that last year, 3k trade restrictions is 3x more than what we had in 2019,” he said. “All emerging markets are dependent on a globalized economy with trade flows, FDI, and knowledge sharing — that is not the case anymore,” he added.

We’re not on track to achieve any of the sustainable development goals (SDGs): Of the 17 goals, we’re only on track to achieve 15%, and we’re deviating either slightly or significantly on 50% of the goals, Mohieldin said.

For Egypt, the long-term view is paramount: To achieve real sustainable growth that can help us reach milestones like celebrating the end of extreme poverty, we need to maintain growth of no less than 7% over two decades, Mohieldin said. The growth must be inclusive and based on continuous investment, which churns out more opportunities, he said. And while Egypt’s immediate economic hurdles “will be dealt with shortly,” the long-term view “should be about policies beyond transactions. What I hope to see is a full-fledged inflation targeting policy with monetary policy being just one tool of many,” he said. “The center of economic policy being the exchange rate is wrong,” and should be shifted to inflation targeting.

For GCC countries, expanding the non-oil sector is paramount: “There have been good attempts at diversification, and the name of the game is how to diversify better,” Mohieldin said. “Some have the ability to do that and have diversified into services and high tech and investments at home and abroad, [and] some have great ambitious infrastructure plans, like Saudi Arabia, and are benefiting from a well educated caliber of the young population,” he explained, referencing the UAE.

And EMs need to keep debt in check: “We’re not going to see a global debt crisis like the 1970s, ‘80s, and ‘90s. The kind of debt today and the limited exposure of financial institutions won’t make it a global crisis,” he said. “[But] we’ll see a development crisis; we’ll see scattered fires in different places,” Mohieldin added. “Many countries today in Africa and South Asia are paying on their debt service more than what they pay on education and health,” he noted, adding that the high cost of borrowing — along with muted FDI flows and inadequate domestic savings — are hampering investments and growth in emerging markets.

…which involves setting up a common resolution mechanism: “If you’re in debt trouble and you’re in an economy without significant spillovers to the rest of the world, you’re on your own with very little support from the global financial system,” Mohieldin said, adding that many countries in Africa and South Asia are paying more on debt service than on essential services like education and healthcare. “The world right now doesn’t have a good resolution mechanism; it’s too slow and doesn’t work,” he said.

Things could take a turn when interest rates go down: Anticipated rate cuts from the US Federal Reserve will be “good news” for capital flows and potential penetration in emerging markets’ capital markets, Mohieldin said.

But more needs to be done: “We need to learn from past mistakes [and] avoid excessive borrowing,” he said, adding that we need more equity-based financing. We also need to develop an encouraging business environment, and ensure good coordination between fiscal and monetary policy, while also capturing the potential of the green transition and big data and AI, he added.

And we must be mindful of the impacts of laws in the US and the EU on our part of the world, he added, referencing the US’ Inflation Reduction Act — which involves providing subsidies in the form of tax credits to renewable energy projects — and the EU’s carbon border adjustment mechanism (CBAM), which taxes imports of certain raw materials in a bid to reduce greenhouse gas emissions.

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