Economic impacts of covid-19

Introduction 

The COVID-19 pandemic has greatly impacted economies across the globe, not least those in the Middle East. The collapse of global oil prices, in addition to country-wide shutdowns and border closures in response to the COVID-19 pandemic, have exacerbated dire economic conditions in a number of countries already experiencing political and economic crises, mass displacement, and conflict. These factors are driving political, institutional, and economic fragmentation across Lebanon, Syria, Iraq and Yemen in particular, and ultimately pushing millions of the region's inhabitants into a further dependence on humanitarian assistance.

This paper examines four particularly vulnerable humanitarian contexts: Syria, Yemen, Lebanon, and Iraq. While focusing on these countries, it also tackles the role regional states play in their economies, notably Turkey, Iran, and countries in the Gulf. This paper examines how the economic impact of COVID-19 intersects with other, similarly devastating crises in the region to worsen the impact on Yemeni, Syrian, Lebanese, and Iraqi societies.

While there are many differences between the four states on which this report focuses, the reasoning for adopting a regional perspective is multifaceted. Firstly, all of these countries are experiencing major humanitarian crises and are host to some of the largest and most complex aid responses globally. Secondly, all of these countries exhibit a relatively similar set of economic characteristics, notably inflated, ineffective and hard to sustain public sectors, a predominance of service sectors in employment, and dependence on international trade to provide a majority of goods and services. Thirdly, all of the states are disproportionately affected by the significant decline in oil prices – largely due to COVID-19 – either through their own export receipts, or from a major dependence on remittances and investment from oil-exporting countries in the Gulf. Fourthly, all of these states are experiencing severe macroeconomic shocks, with most experiencing severe currency volatility largely driven by falling domestic output and large trade imbalances. Fifthly, many of these states are linked by both informal and formal finance and trade networks, with crises in one country often affecting another. Finally, all of the states addressed in this report have been unable to implement robust and meaningful supportive interventions to counter the impact of COVID-19 related shutdowns.

Furthermore, this paper’s regional focus is intended to highlight the economic entanglement and interdependence of Middle Eastern economies. While in many ways the Middle East is poorly integrated economically – there are some major interdependencies, largely driven by the role of regional formal and informal financial systems, the importance of oil production and export directly and indirectly throughout the region, and the role that transnational political and military conflicts have continued to impact the entire region, rather than being focused on any one state. Specifically, the region is rife with interlinked financial and capital systems, natural resource transfers, and labor market and remittances transfers – making each economy dependent on others, and consequently any economic shock affecting one, also plays a major part for the region as a whole.

All of these themes have implications for humanitarian and development actors seeking to respond to rising needs in these countries. Despite being driven by often systemic issues and conflict, requiring long-term development sensitive approaches, humanitarian need is also increasing exponentially across the region, with little end in sight amid shrinking global aid budgets. In addition, the complexity surrounding the economic crises being experienced in these countries presents major programmatic challenges to aid efforts, some of which pre-date COVID-19, but have and will be exacerbated by it. Within the context of rising need and limited resources, aid organizations will need to better understand and effectively respond to these challenges going forward.

OBJECTIVES AND AUDIENCE

This paper is aimed at audiences linked to the humanitarian and development sector in the countries addressed, primarily with the goal of promoting the benefits of a more regionally sensitive understanding of the many issues faced in the countries of focus. Ultimately the report aims to enhance the implementation of policies and guide responses that understand the importance of regional and transnational dynamics in the contexts within which many state focused programs operate. While several institutions are heavily focused on the economies of the region, Mercy Corps sees a gap between the broader needs of time sensitive conflict and political analysis and the more in depth understanding of how these interact with an in depth understanding of political economies and economic trends more broadly.

Many of the key informants interviewed for this paper, especially those who have worked in multiple regional contexts, highlighted that a number of the issues being faced in each country reflect broader regional issues. However, these tend to be viewed systematically within the silos of each state’s response. While there is a strong understanding of how COVID-19 is impacting the globe more broadly, this tends to be applied to regional contexts on a case by case basis, rather than understanding how it interacts with complex transnational economic dynamics. Specifically in the case of the Middle East, within a region highly interconnected through political, conflict and economic systems.

Repeatedly, issues in one country’s context have had a major flow on impact in others, with the response to understanding this being reactive and country specific. Analysis ecosystems within different countries continue to struggle to talk with one another. Mercy Corps see this broader regional perspective as an opportunity for donors, policymakers and implementers alike to think about how interventions can be designed and implemented in a manner more appropriate to the interlocking political, security, cultural and economic trends witnessed across many of the states addressed. This also includes a more nuanced understanding by humanitarian, peace and development actors to better understand how to further the potential complementarities between sectors which unfortunately continue to be isolated and poorly coordinated. This study also highlights the importance of understanding regional dynamics when seeking to integrate governance and market system support strategies, and when seeking to design and implement interventions that are able to foster diversification, connectedness and inclusion in economic systems, that can sit awkwardly within a specific country focus.