The International Monetary Fund (IMF) Tuesday launched its Regional Economic Outlook Update for the Middle East North Africa, Afghanistan, and Pakistan region (MENAP).
The report was introduced at an event hosted by Dubai International Financial Centre (DIFC), the financial and business hub connecting the region’s emerging markets with the markets of Europe, Asia and the Americas.
According to the IMF’s Outlook, growth in the MENAP region is expected to decline to 2.25 percent by the end of the year, a 0.75 percentage point below its May 2013 projections. However, growth is likely to pick up in 2014 as global conditions improve and oil production recovers.
Once again, the report has been released at a time when difficult political transitions and increased regional uncertainties arising from the complex civil war in Syria and the ongoing developments in Egypt weigh on confidence in the oil importing countries. In this setting, the region risks being trapped in a vicious cycle of economic stagnation and persistent sociopolitical strife, underlining the urgent need for policy action that will enhance confidence, growth and jobs.
The report cites that most oil exporting countries in the region continue to enjoy steady growth in the nonoil sector, supported in part by high levels of public spending. Although headline growth has declined because of domestic oil supply disruptions and lower global demand, a recovery in oil production and a further strengthening of the nonoil economy will likely lift economic growth in 2014.
“However, there are challenges on the horizon. While these countries are running an aggregate fiscal surplus, already half of them, mostly outside of the GCC, cannot balance their budgets and have limited buffers against shocks. Policies should therefore focus on strengthening budgets while minimizing the impact on growth and enhancing equity. High on the agenda is also to continue to pursue structural reforms to bolster private sector growth, economic diversification, and job creation for nationals,” Masood Ahmed, director of the IMF’s Middle East and Central Asia Department, said at the launch conference of the report in Dubai.
In the oil importing countries, domestic and regional factors are the main sources of downside risks as many of them are Arab countries in transition, regional conflict, heightened political tensions, with delays in reforms continuing to weigh on growth. The immediate policy priority is to restore confidence and create jobs to help sustain the socio-political transitions.
“Most countries also need to start putting their fiscal house in order and embark, without delay, on a bold reform agenda that will improve the business climate and enhance equity, to create higher levels of sustainable growth and job creation over the medium term. It is important that reform be paced and sequenced in a way that maintains social cohesion while preserving macroeconomic stability and promoting growth. In this context, higher levels of financial support from the international community, provided as part of a credible fiscal framework and tangible reform agenda, are crucial,” Ahmed added.
Jeff Singer, CEO of DIFC Authority, said: “The report recognizes that the need for improving economic conditions and living standards in the region. Support from the international community through scale-up financing, enhanced trade access and technical assistance is essential to begin achieving the much awaited dividends from the recent economic and political transitions. We are once again delighted to host Masood and the IMF in DIFC, which we believe plays a crucial role in the economic development of the GCC.”