Di­ver­gent eco­nomic per­for­mance con­tin­ues across Mideast

The Pak Banker - - Front Page -


The eco­nomic out­look for the Mid­dle East and North Africa re­gion is mixed. Most of the re­gion’s oil­ex­port­ing coun­tries are grow­ing at healthy rates while the oil im­porters face sub­dued eco­nomic prospects, the IMF says in its lat­est as­sess­ment.

Ow­ing to higher oil prices and pro­duc­tion, the re­gion’s oil-ex­port­ing coun­tries Al­ge­ria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Ara­bia, the United Arab Emi­rates, and Ye­men are fore­cast to ex­pand by 6.6 per­cent in 2012 be­fore mod­er­at­ing in 2013.

But faced with a dif­fi­cult ex­ter­nal en­vi­ron­ment, growth among the re­gion’s oil im­porters Afghanistan, Dji­bouti, Egypt, Jor­dan, Le­banon, Mauritania, Morocco, Pak­istan, Su­dan, and Tu­nisia will reg­is­ter just above 2 per­cent in 2012. In the Arab coun­tries in tran­si­tion, con­tin­ued do­mes­tic dis­rup­tions are also hold­ing back growth.

“The big­gest chal­lenge fac­ing gov­ern­ments in the Arab coun­tries in tran­si­tion is how to man­age the ris­ing ex­pec­ta­tions of pop­u­la­tions that are be­com­ing in­creas­ingly im­pa­tient to see a tran­si­tion div­i­dend at a time when there are threats to near-term macroe­co­nomic sta­bil­ity and the mar­gin for pol­icy ma­neu­ver is lim­ited,” Masood Ahmed, Di­rec­tor of the IMF’s Mid­dle East and Cen­tral Asia Depart­ment, told a press con­fer­ence in Dubai.

Oil ex­porters’ economies are buoy­ant

The re­gion’s oil-ex­port­ing coun­tries are expected to post solid growth in 2012, largely on ac­count of Libya’s bet­ter-than-expected post­con­flict re­cov­ery. In the coun­tries of the Gulf Co­op­er­a­tion Coun­cil, growth re­mains ro­bust, sup­ported by ex­pan­sion­ary fis­cal poli­cies and ac­com­moda­tive mone­tary condi- tions, but is expected to slow from 7½ per­cent in 2011 to 3¾ per­cent in 2013 as oil pro­duc­tion reaches a plateau.

The price of oil is expected to re­main above $100 per bar­rel in 2012–13. As a re­sult, the oil ex­porters’ com­bined cur­rent ac­count sur­plus is an­tic­i­pated to re­main near its his­toric high of about $400 bil­lion in 2012. This has helped gov­ern­ments to re­spond to grow­ing so­cial de­mands by in­creas­ing ex­pen­di­ture on wages and salaries, which rose dra­mat­i­cally in most oil ex­porters in re­cent years.

Al­though many of the oil ex­porters have ac­cu­mu­lated re­serves to with­stand short-run oil price volatil­ity, a sus­tained drop in oil prices re­sult­ing from a fur­ther slow­down in global eco­nomic ac­tiv­ity re­mains a risk to guard against. For ex­am­ple, a 10 per­cent drop in oil prices would bring down the oil ex­porters’ com­bined cur­rent sur­plus by about $150 bil­lion. Stepped-up spend­ing has in­creased the vul­ner­a­bil­ity to oil price de­clines in case of fur­ther de­te­ri­o­ra­tion in the global econ­omy.

“Look­ing ahead, the main is­sue fac­ing Mid­dle East oil ex­porters is how to take ad­van­tage of their cur- rent pos­i­tive po­si­tion to strengthen their re­silience against oil price de­clines and di­ver­sify their economies to boost pri­vate-sec­tor job cre­ation,” Ahmed said. “Fis­cal pol­icy could grad­u­ally shift to bol­ster­ing na­tional sav­ings, and coun­tries could ease the pace of gov­ern­ment spend­ing, es­pe­cially on ex­pen­di­tures that are hard to re­verse, like pub­lic-sec­tor hir­ing,” he added.

The tepid growth wit­nessed in 2011 in the re­gion’s oil-im­port­ing coun­tries per­sists. A mod­er­ate eco­nomic re­cov­ery is expected in 2013, but is sub­ject to height­ened down­side risks. For the Arab coun­tries in tran- sition, on­go­ing po­lit­i­cal tran­si­tions also weigh on growth. With un­cer­tainty over the medium-term pol­icy agen­das in many coun­tries, in­vestors are hold­ing back.

At the same time, 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. In re­sponse to so­cial de­mands and ris­ing food and fuel prices, gov­ern­ments in the Arab coun­tries in tran­si­tion have sig­nif­i­cantly ex­panded spend­ing on sub­si­dies.

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