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MIXED OUTLOOK FOR REGION

IMF managing director Christine Lagarde (L)
speaks with Lebanon's Central Bank governor
Riad Salameh in Tokyo.

Mena oil exporters to post 6.5pc growth: IMF

Tokyo, October 12, 2012

 

The IMF's economic outlook for the Middle East and North Africa region for 2013 is mixed. While oil exporting countries are expected to post robust growth, oil importing countries faced subdued economic prospects, the IMF said.
 
The region’s oil exporters are expected to post an aggregate 6.5 per cent growth rate for 2012, up from almost 4 per cent in 2011, on account of Libya’s better than expected postwar recovery and despite stagnation in Yemen. Growth is projected to return to around 4 percent in 2013, the IMF said in a report released in Tokyo at the annual IMF/World Bank meetings. 
 
In the countries of the Gulf Cooperation Council, growth remains robust, supported by expansionary fiscal policies and accommodative monetary conditions. For them, as for the region more broadly, the medium-term challenge is to generate enough jobs for a young and rapidly growing population.
 
The slowdown witnessed in 2011 in the region’s oil importers -- Afghanistan, Djibouti,
 Egypt, Jordan, Lebanon, Mauritania, Morocco, Pakistan, Sudan and Tunisia -- persists in 2012, with average growth forecast at just 2 percent (excluding Syria). A moderate economic recovery is expected for 2013, but this is subject to heightened downside risks,
 including lackluster external demand, high food and fuel commodity prices, and escalating regional tensions, the IMF said annual reveiw. 
 
For the Arab countries in transition (excluding Libya) -- Egypt, Jordan, Morocco, Tunisia, and Yemen -- social pressures and ongoing political transitions also weigh on growth and make it harder to implement policy reforms. With policy buffers largely eroded, the need for action on these reforms is becoming increasingly urgent, it said.
 
Among most Arab countries in transition --  barring Syria, where the conflict is leading to a serious humanitarian crisis with significant regional spillovers -- political uncertainty has receded in recent months. However, with transitions still under way and uncertainty on the medium-term policy agendas, investors are still holding back.
 
Meanwhile, international food and fuel prices have continued to rise, and economic activity in trading partners -- most notably in Europe, with which many oil importers have important economic links -- has
 deteriorated.
 
As a result, the region’s oil importers have witnessed a marked decline in exports in 2012 while their import bills continue to grow. In addition, tourism arrivals are recovering only slowly from the large decline in 2011, and foreign direct investment inflows remain subdued, the report said0
 
Consequently, these countries continue to face an economic slowdown in 2012. For 2013, a weak recovery of around 3¼ percent growth is foreseen -- a rate far
 below that required to address chronic and growing unemployment.
 
In response to growing social demands, governments have significantly expanded
 spending, with the result that fiscal balances across the region have deteriorated by a cumulative 2¼ percent of GDP over the past two years. Although expansionary fiscal policies have helped mitigate the downturn, they have had only a modest impact on economic activity: a large increase in generalized subsidies and wages has been partially offset by a decrease in public investment, thereby reducing the positive impact of stimulus.
 
In addition, government reliance on domestic bank financing has reduced the availability of private-sector credit. With average public debt at more than 70 percent of GDP, fiscal
 vulnerabilities are high, and any significant fiscal slippages, slower-than-projected growth, or higher interest rates could put debt on an unsustainable path.
 
At the same time, widening external current account deficits and weak capital inflows have resulted in a sharp decline in official international reserves, raising concerns about their adequacy and leaving diminished buffers and limited policy space. Large adverse terms-of-trade shocks arising from high and rising food and fuel prices in recent years call for greater exchange rate flexibility to restore and maintain competitiveness, it said.
 
In the near term, macroeconomic stabilization is becoming increasingly urgent and is likely to call for concerted efforts to rein in government deficits. At the same time, growth is needed to spur job creation and provide the population with tangible benefits. To that end, it is important that governments embark on a program of structural reforms aimed at improving competitiveness and raising long-term growth rates. This effort will need to be supported by the international community through finance, technical support, and better access to export markets.
 
The region’s oil-exporting countries have been able to use the proceeds from booming oil prices to sustain growth in a weak global environment. For the group as a whole -- Algeria, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the UAE and Yemen -- economic activity in the non-oil sector is forecast to expand by close to 5 percent in 2012 and 2013, up from around 4 percent in 2011, helped by high levels of government spending and accommodative monetary conditions, the IMF said.
 
Growth in the oil sector is forecast to continue to decelerate from 2½ percent in 2011 to 1¼ percent in 2012, with the recovery of oil production capacity in Libya partially offset by reduced oil output in Iran.
 
In 2013, growth in the region’s oil sector is expected to turn negative on account of a continued decline in oil production in Iran, much slower oil sector growth in Libya as the effects of its 2012 recovery begin to unwind, and stable oil production in the GCC, it said. -TradeArabia News Service



Tags: Mena | economy | growth | IMF |

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