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Abdullah Al-Hassan, Imen Benmohamed, Aidyn Bibolov, Giovanni Ugazio, and Ms. Tian Zhang
The Gulf Cooperation Council region faced a significant economic toll from the COVID-19 pandemic and oil price shocks in 2020. Policymakers responded to the pandemic with decisive and broad measures to support households and businesses and mitigate the long-term impact on the economy. Financial vulnerabilities have been generally contained, reflecting ongoing policy support and the rebound in economic activity and oil prices, as well as banks entering the COVID-19 crisis with strong capital, liquidity, and profitability. The banking systems remained well-capitalized, but profitability and asset quality were adversely affected. Ongoing COVID-19 policy support could also obscure deterioration in asset quality. Policymakers need to continue to strike a balance between supporting recovery and mitigating risks to financial stability, including ensuring that banks’ buffers are adequate to withstand prolonged pandemic and withdrawal of COVID-related policy support measures. Addressing data gaps would help policymakers to further assess vulnerabilities and mitigate sectoral risks.
Abdullah Al-Hassan, Imen Benmohamed, Aidyn Bibolov, Giovanni Ugazio, and Ms. Tian Zhang

The Gulf Cooperation Council region faced a significant economic toll from the COVID-19 pandemic and oil price shocks in 2020. Policymakers responded to the pandemic with decisive and broad measures to support households and businesses and mitigate the long-term impact on the economy. Financial vulnerabilities have been generally contained, reflecting ongoing policy support and the rebound in economic activity and oil prices, as well as banks entering the COVID-19 crisis with strong capital, liquidity, and profitability. The banking systems remained well-capitalized, but profitability and asset quality were adversely affected. Ongoing COVID-19 policy support could also obscure deterioration in asset quality. Policymakers need to continue to strike a balance between supporting recovery and mitigating risks to financial stability, including ensuring that banks’ buffers are adequate to withstand prolonged pandemic and withdrawal of COVID-related policy support measures. Addressing data gaps would help policymakers to further assess vulnerabilities and mitigate sectoral risks.

International Monetary Fund
The program of budget restraint and reduction of the quasi-fiscal losses, supported by the IMF's Stand-By Arrangement, was successful in bringing domestic demand down to sustainable levels, lowering inflation, and narrowing the current account deficit. The stabilization effort was supported by the fiscal policy. A sensitivity analysis is used to assess banking sector vulnerabilities. The Deposit Guarantee Fund (DGF) is operating satisfactorily but will need to strengthen its resources considerably to provide a sufficient level of support. The insurance sector is small and underdeveloped.
International Monetary Fund

testing model captures both the direct effect on banks’ balance sheet and income statements and the indirect effect through the effect of the exchange rate and interest rate shocks on the quality of banks’ corporate exposure. The model is based on a link between companies’ financial performance and banks’ capital, implied by provisioning rules applied by banks, data from the NBR’s credit register, and a corporate sector database. 27. Sensitivity analysis used to assess banking sector vulnerabilities confirms banks’ relative resilience, although increases in NPLs will

Abdullah Al-Hassan, Imen Benmohamed, Aidyn Bibolov, Giovanni Ugazio, and Ms. Tian Zhang

Title Page INTERNATIONAL MONETARY FUND MIDDLE EAST AND CENTRAL ASIA DEPARTMENT DEPARTMENTAL PAPER Assessing Banking Sector Vulnerabilities in the Gulf Cooperation Council in the Wake of COVID-19 Prepared by an IMF staff team led by Abdullah AlHassan, and comprising Imen Benmohamed, Aidyn Bibolov, Giovanni Ugazio, and Tian Zhang Copyright Page Copyright ©2022 International Monetary Fund Cataloging-in-Publication Data IMF Library Names: AlHassan, Abdullah, author. | Benmohamed, Imen, author. | Bibolov, Aidyn, author. | Ugazio, Giovanni

International Monetary Fund. Middle East and Central Asia Dept.

mitigation of identified risks. Developing strategies for reducing and preventing the accumulation of tax arrears. Improving the annual national accounts methodology and assessing options to develop a compilation system for quarterly GDP. Continuing the establishment of a PPI and continuing to improve the CPI methodology. Developing a stress-test model to assess banking sector vulnerabilities. 2020 Ongoing Ongoing Ongoing Ongoing 2020 2020 2020 2020 2020 2. Bank Work Program Supporting Innovation in SMEs Project Greater Beirut Water Supply Roads and

International Monetary Fund. African Dept.

October 2014 June 2015 PFM Improvement Loan March 2015 June 2015 Board decision IMF work program in next 12 months ECF negotiation September 2014-February 2015 Board: April 2015 Safeguards Assessment mission January 2015 Technical assistance: Assessing Banking Sector Vulnerabilities to Macroeconomic Shocks and Crisis Preparedness November 2014 Public Financial Management February 2012-April 2015 Revenue Administration January 2015 Monetary and Foreign Exchange Operations June

International Monetary Fund
GCC policymakers moved quickly to mitigate the health and economic impacts of twin COVID-19 and oil price shocks. Infection rates have declined across the GCC to well below previous peaks, though countries have experienced successive waves of the virus, and economic recoveries have begun to take hold. Nevertheless, GCC policymakers must navigate a challenging and uncertain landscape. The pandemic continues to cloud the global outlook as countries are in different phases of recovery, with varied growth prospects and policy space
International Monetary Fund

issued additional capital bonds to strengthen capital adequacy even though banking sector NPLs fell in 2020 unlike all the other GCC banking sectors. 8 For in depth analysis see forthcoming IMF Departmental Paper “GCC: Assessing banking sector vulnerabilities in the wake of COVID-19,” by AlHassan et.al . 9 In Saudi Arabia, the mid-2020 VAT rate increase caused a jump in inflation, which was largely reversed in 2021 as the base effect disappeared. 10 See GCC Economic Prospects and Policy Challenges prepared for the GCC Annual Meeting of

International Monetary Fund. Middle East and Central Asia Dept.
This 2019 Article IV Consultation with Lebanon highlights that Lebanon’s economic position continues to be very difficult, with very low growth, high public debt and large twin deficits. While financial stability has been maintained, deposit inflows, critical to finance the budget and external deficits, slowed down during the past year, reducing the authorities’ room for manoeuvre. The new government has taken some important policy steps to start the needed policy adjustment, which could help raise confidence among investors and donors. The highest priority is the implementation of a sustainable fiscal adjustment that will bend down the path of the public debt-to-gross domestic product ratio through a combination of revenue and expenditure measures. This needs to be complemented by structural reforms and concessionally financed investment to raise Lebanon’s growth potential and help external adjustment, as well as policies to build further buffers in Lebanon’s financial sector. Structural reforms should prioritize reforming the electricity sector, removing impediments to and lowering the cost of doing business, as well as improving governance and reducing corruption.