Divergent economic performance continues across Mideast
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.