The widespread impacts of the raging conflict between Israel and Palestine are already apparent and are battering the economies of nearby countries, the managing director of the International Monetary Fund (IMF) said Wednesday.
Addressing a Saudi investor forum, Kristalina Georgieva said the conflict was another cloud on the horizon with plenty of them, warning that the global economic outlook could worsen.
Israel's neighbors are feeling the effects, especially those that rely on tourism, Georgieva said at the Future Investment Initiative (FII) in the Saudi capital Riyadh.
"You look at the neighboring countries – Egypt, Lebanon, Jordan – where the channels of impact are already visible," she told an audience that included global banking elites.
Over 5,790 Palestinians, mainly civilians and mostly children, have been killed across the Gaza Strip in massive Israeli bombardments after the Palestinian resistance group Hamas launched a surprise attack against Israel on Oct. 7. Some 1,400 people are said to have been killed in Israel.
Georgieva spoke one day after Wall Street titans told the forum that the war could deal a heavy blow to the global economy, especially if it draws in other countries.
"What we see is more jitters in what has already been an anxious world," she said. "And on a horizon that had plenty of clouds, one more – and it can get deeper."
Georgieva said the IMF's first concern was "the tragic loss of life" at the war's epicenter.
Long-term consequences included children being forced out of school and the impact on neighboring countries' tourism sectors.
"You have tourism-dependent countries – uncertainty is a killer for tourist inflows," she said, describing the potential economic cost for countries in the region before listing specific risks.
"Investors are going to be shy to go to that place. Cost of insurance – if you want to move goods, they go up. Risks of even more refugees in countries that are already accepting more."
The annual FII event, dubbed "Davos in the Desert," has typically served as a chance for Saudi Arabia to showcase domestic economic reforms whose success Saudi officials say partly hinges on regional stability.
This year, Saudi Arabia has restored ties with Iran and Syria, pushed for a durable ceasefire in Yemen and was in talks towards recognizing Israel before the violence erupted on Oct. 7.
An official familiar with the discussions on possible normalization told Agence France-Presse (AFP) this month they are paused for now. However, analysts say they could resume depending on how the conflict plays out.
"Before Oct. 7, a lot of de-escalation (had) happened, which brought a lot of hope for the region, and we don't want recent events to derail that," Saudi Finance Minister Mohammed al-Jadaan told an FII panel on Wednesday.
His counterpart from Bahrain, recognizing Israel as part of the U.S.-brokered 2020 Abraham Accords, also preached regional integration.
"The traditional lines that have existed, that have been lines of previous generations I like to call them – those could be ethnic lines, those could be religious lines – are all now lines that we have to not look at," Shaikh Salman bin Khalifa Al Khalifa said.
He added that those "who are looking to destroy" should not be "part of writing that future."
On Tuesday, JPMorgan Chase boss Jamie Dimon encouraged Saudi Arabia not to abandon the initiative to establish official relations with Israel.
While several high-profile speakers have addressed the current regional turmoil, FII attendees have highlighted the capacity of Saudi Arabia, the world's biggest oil exporter, to withstand shocks and finance reforms using its deep-pocketed sovereign wealth fund, the Public Investment Fund.
The Vision 2030 agenda of the kingdom's de facto ruler, Crown Prince Mohammed bin Salman, aims to transition the economy away from fossil fuels by turning Saudi Arabia into a tourism and business hub marked by so-called giga-projects, including a $500 billion futuristic megacity known as NEOM.
"In Saudi Arabia itself, everything will go ahead and the companies in Western countries and India and China will not miss out on the Saudi market," said Naser al-Tamimi, Middle East analyst at the Italian Institute for International Political Studies.
"You're talking about the biggest economy in the Middle East, the biggest construction market in the Middle East."
Commenting on the sharp rise in interest rates, Georgieva said the world had lived in the "fantasy lane" for nearly 20 years.
"We are not thrilled with going from zero to five so quickly, but we are there," she said, referring to the U.S. Federal Reserve's main policy rate.
"So now... our call to everybody is: buckle up. Make sure that you understand interest rates are here to stay for longer."
