Regional Economic Outlook: Middle East and Central Asia

World Economic and Financial Surveys

Regional Economic Outlook:
Middle East and Central Asia

October 2010

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The October 2010 Regional Economic Outlook: Middle East and Central Asia reports on the regional implications of the global economic recovery and presents key policy challenges and recommendations. With the rebound in crude oil prices and production, the oil-exporting countries of the Middle East and North Africa will see visible improvements in their fiscal and external balances in 2010–11. Going forward, further efforts at financial sector development and economic diversification top the agenda. The region’s oil-importing countries, which include Afghanistan and Pakistan, have weathered the global recession well. Pakistan, however, suffered from devastating floods in July/August, which will hold back growth this year. The overriding longer-term challenges for these countries are to raise growth and provide jobs for expanding populations. In the Caucasus and Central Asia, recovery has gained momentum in virtually all countries, aided by the lagged effect of fiscal stimulus and a favorable external environment. Exports are picking up, and remittances are rebounding, though at a slowing pace. Despite the broadly positive outlook, however, risks are largely on the downside. A priority is to resolve banking sector problems and, in some countries, to reduce external debt and current account deficits.

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Contents

Preface
Assumptions and Conventions
Country and Regional Groupings
 
Highlights
 
1. MENAP Oil Exporters: Well Placed to Focus on Medium-Term Challenges
  The Postcrisis Recovery Continues
  Less Pressure on Government Budgets
  Accommodative Monetary Policy May Soon Have to Shift Gears
  Refocusing Medium-Term Fiscal Policy
  Moving on Financial Sector Development
 
2. MENAP Oil Importers: Adjusting to New Global Growth Patterns
  Recovery Gathers Momentum
  Fiscal Consolidation Under Way
  Monetary Policy Can Remain Accommodative
  Current Growth Too Low to Address Unemployment
  Greater Competitiveness Key to Lifting Growth
 
Annex 2.1. 18 Million Jobs Needed: Raising Growth and Labor Market Responsiveness
 
3. The Caucasus and Central Asia: Challenges Beyond the Crisis
  Recovery Gains Traction
  Banking Sectors Are Not Out of the Woods, Yet
  Macroeconomic Policies as Recovery Gathers Momentum
  Fiscal Policy Should Aim for Consolidation in 2011
  Monetary Policy Can Remain Accommodative, Mostly
  Addressing External Vulnerabilities
 
Annex 3.1. Strengthening Monetary Transmission in the CCA
 
Boxes
1.1  Dependence on Oil: Cross-Country Comparison
1.2 Update on Dubai World’s Debt Restructuring
1.3 Recent Infl ation Dynamics in GCC Countries
1.4 Financial Sector Policy Responses to the Crisis Vary With Different Initial Conditions
2.1 Unprecedented Floods in Pakistan: The Social and Economic Impact
2.2 Why Is Infl ation High in Egypt and Pakistan?
2.3 Trade Patterns and Determinants in MENAP Oil-Importing Countries
3.1 Russia Recovers
3.2 Political and Ethnic Turmoil Leaves its Mark on the Kyrgyz Economy
3.3 Wheat Price Woes?
3.4 The Impact of the Belarus–Kazakhstan–Russian Federation Customs Union
2.4 Stock Markets Still Far from Peak
 
Figures
1.1 Oil Sector Leads the Way in Growth Recovery
1.2 Exports Outpace Imports
1.3 Current Account Balances Improve Across the Board
1.4 More Favorable Financing Conditions, for the Most Part
1.5 Recuperating Stock Markets
1.6 Some Signs of Infl ationary Pressures
1.7 Better Fiscal Balances
1.8 Fiscal Stances Vary Widely
1.9 Credit and Deposits
1.10 Break-Even Oil Prices in 2010
2.1 Output Mostly Picking Up
2.2 Local Debt Spreads Comparatively Steady
2.3 Equity Swings
2.4 Narrowing Fiscal Defi cits
2.5 Infl ation Holding Steady
2.6 Currencies Mostly Appreciating
2.7 Lagging Output and Export Growth
2.8 Growth Differentials Explained
2.9 Competitiveness and Doing Business Indicators
3.1 Exports and Remittances Pick Up
3.2 Growth Gains Ground, but Remains below Precrisis Levels
3.3 Disposable Income Has Not Yet Recovered in Many Countries
3.4 Private-Sector Credit Growth Remains Largely Subdued
3.5 High, and Mostly Rising Levels of Nonperforming Loans
3.6 Grants to Return to Precrisis Levels in Oil and Gas Importers
3.7 Public Debt Has Risen in Oil and Gas Importers
3.8 Trimming Down Defi cits in Oil and Gas Importers
3.9 Oil and Gas Exporters: Time for Fiscal Consolidation
3.10 High Current Account Defi cits in Oil and Gas Importers
3.11 Foreign Direct Investment Still in Short Supply in Oil and Gas Importers
3.12 Oil and Gas Importers’ External Debt Is High and Rising
3.13 High Levels of Dollarization
 
Table
2.1  Fiscal Consolidation Measures Planned for 2011
 
Statistical Appendix Tables
1 Real GDP Growth
2 Nominal GDP
3 Oil and Non-Oil Real GDP Growth
4 Crude Oil Production and Exports
5 Consumer Price Inflation
6 Broad Money Growth
7 Central Government Fiscal Balance
8 Central Government Total Revenue, Excluding Grants
9 Oil Exporters: Central Government Non-Oil Fiscal Balance
10 Oil Exporters: Central Government Non-Oil Revenue
11 General Government Total Expenditure and Net Lending
12 Total Government Debt
13 Exports of Goods and Services
14 Imports of Goods and Services
15 Current Account Balance (Billions of U.S. dollars)
16 Current Account Balance (Percent of GDP)
17 Gross Official Reserves
18 Total Gross External Debt
19 Capital Adequacy Ratios
20 Return on Assets
21 Nonperforming Loans