Regional Economic Outlook: Middle East and Central Asia

World Economic and Financial Surveys

Regional Economic Outlook:
Middle East and Central Asia

April 2011

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Ordering Information

  • Middle East, North Africa, Afghanistan and Pakistan (MENAP):
  • Caucasus and Central Asia (CCA):

The April 2011 Regional Economic Outlook: Middle East and Central Asia takes stock of recent developments and discusses key policy issues facing the region. Changes taking place in the Middle East and North Africa provide an opportunity for the region to lay the foundation for a socially inclusive growth agenda. In the near term, however, social unrest and surging commodity prices will weigh on growth in a number of countries. Governments are, understandably, stepping up spending to offset the impact of surging global food and fuel prices. While most oil exporters can accommodate this additional expenditure—given their projected increase in oil revenues—for many oil-importers, it is straining fiscal balances. Going forward, priorities include job creation to address chronic unemployment and, over the medium-term, more cost-effective social safety nets to replace subsidies. In the Caucasus and Central Asia, strong growth continues on the back of higher oil and gas exports and government spending. To sustain this recovery, policymakers need to address rising inflation, respond to social pressures arising from high food prices without threatening fiscal stability, and restore the health of banking systems. Looking ahead, these countries will need to diversify their sources of growth beyond mining, oil, and gas to help step up job creation and reduce poverty.

Contents

 Preface  
 Assumptions and Conventions  
 Country and Regional Groupings  
 
MIDDLE EAST, NORTH AFRICA, AFGHANISTAN, AND PAKISTAN
 
MENAP Highlights
 
 1. MENAP Oil Exporters: Opportunity to Pursue Fundamental Reforms  
 Increased Uncertainty, But Financial Windfalls  
 Despite the Windfalls, Near-Term Policy Challenges Remain  
 Medium Term: Outlook Good, But Deep Structural Reforms Needed  
 2. MENAP Oil Importers: Winds of Change  
 Before the Protests  
 Temporary Toll on Region’s Economies  
 Higher Commodity Prices Add to Challenges  
 Policy Responses Come at a Fiscal Cost…  
 …But Higher Spending Will Support Near-Term Growth  
 Economic Policy Space Is Tight  
 The Road Ahead  
 3. Policy Challenges  
 3.1. MENA Oil Importers: Creating Jobs for the Young Workforce  
 Unemployment: Largely a Youth Phenomenon  
 Quick Wins with Long-Term Benefits: Lessons from Elsewhere  
 Pillars of a Comprehensive Job Strategy  
 3.2. Moving from Subsidizing Products to Protecting People:  
 Strengthening Social Protection in MENAP  
 The Cost of Reliance on Subsidies for Social Protection  
 Why Is Price Subsidy Reform So Difficult?  
 Steps to Strengthen Social Protection in the Short Term  
 Advancing Subsidy Reform with Broad Ownership  
 3.3. The Impact of Financial Development on Economic Growth in the   Middle East and North Africa  
 Financial Depth Is Adequate Overall…  
 …But Banks Have Not Delivered  
 Policy Actions Going Forward  
 
 CAUCASUS AND CENTRAL ASIA  
 
CCA Highlights  
 
 4. Caucasus and Central Asia: Sustaining the Recovery  
 Growth Continued to Recover But Inflation Picked Up  
 Continuing Recovery at a Moderating Pace  
 Risks to the Outlook  
 Policy Challenges: Achieving Sustainable and Inclusive Growth
  Is Inflation a Concern?  
 Resisting Fiscal Pressures, Improving Expenditure Quality  
 Strengthening Bank Balance Sheets  
 Improving the Business Climate to Create Job Opportunities  
 
 Boxes  
1.1 Stabilizing Global Oil Markets  
1.2 Sudan: Economic Challenges for North and South Sudan  
1.3 Employment Creation in Oil Exporters  
1.4 Spillovers from the GCC  
2.1 Political Unrest Shakes Egyptian and Tunisian Economies  
2.2   Tourism Takes a Break  
2.3 Oil Prices and Intraregional Linkages  
2.4  Monetary Policy Response to MENAP Food Inflation  
3.2.1  Social Protection Instruments  
3.2.2  Examples of Successful Subsidy Reforms  
3.2.3  Replacing Subsidies with Cash Transfers: Subsidy Reform in the Islamic Republic of Iran
4.1 Poverty and Social Context in the CCA  
4.2 What Is Driving Inflation in the CCA?  
4.3 How Integrated Are CCA Countries?  
4.4 New Pipelines in the Caucasus and Central Asia Region  
 
 Figures  
1.1 Crude Oil Prices Rise Sharply  
1.2 Growth Is Progressing in MENAP Oil Exporters  
1.3 Non-Oil Sector Activity Remains Robust  
1.4 Stock Markets Have Fallen  
1.5 CDS Spreads Have Widened  
1.6 Current Accounts Improve Across the Board  
1.7 Current Accounts Under Alternative Price Scenarios  
1.8 Fiscal Balances Improve  
1.9 Non-Oil Fiscal Balances Expansionary  
1.10 Non-GCC Headline Inflation  
1.11 GCC Headline Inflation  
2.1 Real GDP Growth Largely Flat in 2010  
2.2 Income Growth Lagging Other Emerging Markets  
2.3 Stock Market Indices Lower  
2.4 Sovereign Bond Spreads Higher  
2.5 Real GDP Growth of Trading Partners Differs  
2.6 New Fiscal Costs  
2.7 Infl ationary Pressures  
2.8 Nominal Exchange Rates Have Depreciated  
3.1.1 Unemployment Rates by Region  
3.1.2 Employment-to-Working-Age Population Ratios and Labor Force Participation Rates by Region
3.2.1 Cost of Price Subsidies versus Cash Transfers  
3.2.2 Distribution of Subsidies Across Income Groups  
3.3.1 Private Credit by Deposit Money Banks/GDP  
3.3.2 Stock Market Depth by Region  
3.3.3 Financial Depth in MENA Countries  
3.3.4 Growth Impact of Raising Credit/GDP to Emerging Country Average 
4.1 Real GDP  
4.2a Exports of CCA Oil and Gas Exporters  
4.2b Exports and Net Remittances of CCA Oil and Gas Importers  
4.3a Aggregated Headline and Nonfood Inflation, CCA Oil and Gas Exporters
4.3b Aggregated Headline and Nonfood Inflation, CCA Oil and Gas Importers
4.4a Fiscal Balances in Oil and Gas Importers  
4.4b Non-Oil-Gas Fiscal Balances in Oil and Gas Exporters  
4.5 Adjustment in Policy Rates, 2010–11  
4.6 High and Mostly Rising Levels of Nonperforming Loans  
4.7 Public Spending Growth   
4.8 Governance Indicators   
 
 Tables  
1.1 Summary of Recent Fiscal Policy Measures
2.1 Impact of Higher Fuel and Food Prices
2.2 Fiscal Policy Measures Announced Since Late 2010  
 
 Statistical Appendix  
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. General Government Fiscal Balance  
8. General Government Total Revenue, Excluding Grants                     
9. Oil Exporters: General Government Non-Oil Fiscal Balance 
10. Oil Exporters: General Government Non-Oil Revenue 
11. General Government Total Expenditure and Net Lending 
12. Total Government Gross Debt  
 13.   Selected MENAP Countries: Total Government Net Debt  
14. Exports of Goods and Services 
15. Imports of Goods and Services 
16. Current Account Balance  
17. Current Account Balance  
18. Gross Offi cial Reserves  
19. Total Gross External Debt  
20. Capital Adequacy Ratios
21. Return on Assets  
22. Nonperforming Loans