IMF Executive Director Mahmoud Mohieldin took to the stage at the EFG Hermes One on One conference in Dubai to offer his outlook on the global and regional economies for the next couple of years. The conference, which welcomed this year some 670 investors and 250 global institutions, runs thought tomorrow. Executives from some 215 companies in 29 countries are in Dubai to meet face-to-face with global investors.

“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 including 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.

Expanding the non-oil sector is paramount for GCC countries: “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, but “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.

GCC economies will want to keep a eye on how well their peg to the USD suits them as they transition away from oil-based economies — and countries such as Egypt will do well to not make FX policy the center of their economic policies. Instead, Mohieldin said, Egypt needs to move to an inflation-targeting policy regime that uses multiple tools to bring inflation to manageable levels.

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.

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