## 2. MENAP Oil Importers: Securing Resilience and Inclusive Growth

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### Real GDP Growth and Near-Term Outlook
- Aggregate projection highlights:
  - Medium term: projected to reach 4.4 percent in 2018 and average 5.3 percent during 2019–22.
  - Real GDP growth recovers but remains below historical average.
- Country-specific near-term projections and notes:
  - Djibouti: projects and transshipment activity expected to lift growth to 7.0 percent.
  - Tunisia: growth will pick up gradually to 2.3 percent.
  - Sudan: growth will edge up to 3.7 percent in 2017.
  - Pakistan: increase in growth to 5.3 percent underpinned by China-Pakistan Economic Corridor investment and strengthening credit growth.
  - Egypt: growth remained broadly unchanged at 4.3 percent in FY2017.
  - Afghanistan: near-term growth prospects weakened relative to May.
  - Lebanon: sluggish growth weaker than anticipated in May.
  - Somalia: growth will weaken to 2.4 percent in 2017, down from 3.2 percent in 2016.
- Tabulated projections (selected, annual change, percent):
  - Average 2000–13: 4.5; 2014: 3.2; 2015: 3.9; 2016: 3.6; 2017: 4.3; 2018: 4.4
  - Afghanistan: 2.7; 2014: 1.3; 2015: 2.4; 2016: 2.5; 2017: 3.0
  - Djibouti: 3.8; 2014: 6.0; 2015: 6.5; 2016: 6.5; 2017: 7.0; 2018: 7.0
  - Egypt: 4.4; 2014: 2.9; 2015: 4.4; 2016: 4.3; 2017: 4.1; 2018: 4.5
  - Jordan: 5.4; 2014: 3.1; 2015: 2.4; 2016: 2.0; 2017: 2.3; 2018: 2.5
  - Lebanon: 4.5; 2014: 2.0; 2015: 0.8; 2016: 1.0; 2017: 1.5; 2018: 2.0
  - Mauritania: 4.7; 2014: 5.6; 2015: 0.9; 2016: 1.7; 2017: 3.8; 2018: 3.0
  - Morocco: 4.6; 2014: 2.7; 2015: 4.5; 2016: 1.2; 2017: 4.8; 2018: 3.0
  - Pakistan: 4.3; 2014: 4.1; 2015: 4.1; 2016: 4.5; 2017: 5.3; 2018: 5.6
  - Somalia: 2.0; 2014: 3.6; 2015: 3.6; 2016: 3.2; 2017: 2.4; 2018: 3.5
  - Sudan1: 4.7; 2014: 1.6; 2015: 4.9; 2016: 3.0; 2017: 3.7; 2018: 3.6
  - Tunisia: 3.8; 2014: 2.3; 2015: 1.1; 2016: 1.0; 2017: 2.3; 2018: 3.0
  - West Bank and Gaza3: 4.1; 2014: –0.2; 2015: 3.4; 2016: 4.1; 2017: 3.1; 2018: 3.0

### External Sector and External Vulnerabilities
- Recent and projected balances:
  - 2016 current account deficit for MENAP oil importers widened by about 1 percentage point of GDP to 5.3 percent.
  - Current account deficit projected to remain stable at 5.3 percent of GDP in 2017; expected to narrow to 4.8 percent of GDP in 2018.
- Country-level external deficits and examples:
  - Djibouti and Mauritania posted current account deficits above 10 percent of GDP in 2016.
  - Selected country current account balances (percent of GDP):
    - Average 2000–13: –2.4; 2014: –4.2; 2015: –4.4; 2016: –5.3; 2017: –5.3; 2018: –4.8
    - Djibouti: –8.0; 2014: –25.1; 2015: –31.8; 2016: –30.4; 2017: –21.0; 2018: –18.2
    - Egypt: –0.5; 2014: –0.8; 2015: –3.6; 2016: –6.0; 2017: –5.9; 2018: –3.8
    - Pakistan: –1.3; 2014: –1.3; 2015: –1.0; 2016: –1.7; 2017: –4.0; 2018: –4.9
    - Somalia: –4.8; 2014: –6.3; 2015: –7.2; 2016: –10.1; 2017: –11.1; 2018: –10.7
    - Sudan1: –5.5; 2014: –7.1; 2015: –8.0; 2016: –5.6; 2017: –1.9; 2018: –2.0
    - Tunisia: –4.1; 2014: –9.1; 2015: –8.9; 2016: –9.0; 2017: –8.7; 2018: –8.4
- Positive contributors to the external outlook:
  - Positive spillovers from stronger global economy, including tourist arrivals and remittances.
  - Commodity price pickup: iron ore (Mauritania), gold (Mauritania, Sudan), phosphates (Jordan, Morocco), cotton (Pakistan).
  - Foreign reserve reinforcement from international bond issuance (Egypt), capital inflows (Djibouti, Egypt, Morocco, Tunisia), uptick in exports and remittances, and IMF program disbursements.
- Country-specific supportive factors:
  - Egypt: floating of the exchange rate, lifting of foreign currency restrictions, and implementation of industrial licensing and investment laws expected to attract FDI and promote exports.
  - Jordan: exports to benefit from higher mining output, improved price of phosphates, and re-opening of the border with Iraq.
  - Afghanistan: exports boosted by start of direct flights to India and completion of the railway line to Chabahar Port.
- Cautionary factors:
  - Appreciation of real effective exchange rates could pose challenges; need for well-calibrated policy mix.

### Fiscal Positions and Debt Dynamics
- Aggregate fiscal trajectory:
  - 2016: 6.8 percent of GDP (fiscal deficit).
  - 2017: expected to edge down to 6.6 percent of GDP.
  - 2018: expected to dip to 5.6 percent of GDP.
- Drivers of fiscal consolidation (country examples):
  - Measures to contain costly energy subsidies (Egypt, Tunisia).
  - Limiting nonpriority current expenditures (Morocco, Tunisia).
  - Strengthening public financial management at local level as part of fiscal decentralization.
  - Reducing special tax regimes in free zones (Djibouti).
  - Removing exemptions from general sales tax and customs duties; tackling tax evasion and broadening tax base (Egypt, Jordan, Sudan, Tunisia).
  - Wage restraint (Djibouti, Egypt).
- Debt vulnerabilities and factors:
  - For most countries, legacies of weak domestic revenue mobilization and high current expenditures have pushed public debt to more than 50 percent of GDP.
  - At the end of 2016, average gross public debt stood at about 80 percent of GDP; Lebanon’s debt close to 149 percent of GDP.
  - Other risk factors: valuation changes from currency depreciation, rising interest payments, buildup of arrears (Somalia, Sudan), state guarantees (Pakistan), large infrastructure projects funded by external borrowing (Djibouti, Mauritania, Pakistan).
- Policy priorities:
  - Sustained fiscal consolidation and reforms to address debt vulnerabilities.
  - Boost domestic revenue mobilization.
  - Strengthen public financial management, transparency, and accountability.
  - Improve efficiency of public investment to mitigate contractionary effect on growth.
  - Protect social spending while targeting consolidation.

### Inflation and Monetary Policy
- Inflation trajectory and forecasts:
  - 2016: overall inflation 7.7 percent.
  - 2017: expected to peak at 15.0 percent.
  - 2018: expected to recede to 8.3 percent.
- Country drivers of the 2017 spike:
  - Egypt: pass-through of large exchange rate depreciation, reducing fuel subsidies, introduction of VAT, increase in price of utilities — overall inflation close to 30 percent (table: 2017: 29.9).
  - Sudan: steep depreciation of the parallel exchange rate and monetization of the fiscal deficit — overall inflation expected above 25 percent (table: 2017: 26.9).
  - Afghanistan and Somalia: inflation increased reflecting higher imported food prices and drought, respectively.
  - Tunisia: reapplication of fuel price adjustment mechanism and slight depreciation of the dinar expected to nudge up prices.
  - Benign inflation examples: Lebanon (lagged effects of nominal effective exchange rate appreciation), Morocco and Pakistan (easing international food prices), Jordan (receding one-off effects of price liberalization).
- Forecast rationale:
  - Inflation expected to return to moderate levels during 2018–22 due to monetary policy responses, dissipating effects from prior depreciations, and easing domestic supply constraints.
- Policy recommendations:
  - Strengthen and modernize monetary policy frameworks to bolster transmission mechanisms, improve communication and transparency, and enhance analytical tools.
  - For countries recently transitioning to floating exchange rates (Egypt, Tunisia), adoption of full-fledged inflation-targeting regimes over time would be desirable.
  - Strengthen central bank independence to establish credibility and anchor inflation expectations.
  - Pay attention to challenges posed by financial dollarization.
- Selected consumer price inflation (year average, percent, table):
  - Average 2000–13: 6.0; 2014: 9.4; 2015: 6.7; 2016: 7.7; 2017: 15.0; 2018: 8.3
  - Egypt: 3.8; 2014: 10.1; 2015: 10.4; 2016: 13.8; 2017: 29.9; 2018: 13.0
  - Pakistan: 8.8; 2014: 8.6; 2015: 4.5; 2016: 2.9; 2017: 4.1; 2018: 4.8
  - Sudan1: 13.6; 2014: 36.9; 2015: 16.9; 2016: 17.8; 2017: 26.9; 2018: 19.0
  - Tunisia: 3.3; 2014: 4.9; 2015: 4.9; 2016: 3.7; 2017: 4.5; 2018: 4.4

### Financial Sector and Credit
- Soundness and performance as of end-2016:
  - Financial sector broadly sound: banks generally well capitalized, liquid, and relatively profitable.
- Nonperforming loans (NPLs) and trends:
  - NPLs continue to decline from high levels in Pakistan and Sudan, but trending up in Morocco.
- Reforms and institutional measures:
  - Progress on regulatory reforms, strengthening resolution frameworks, and introduction of deposit insurance (Pakistan).
- Correspondent banking and remittances:
  - Correspondent banking constraints continue to weigh on remittances, impacting deposits and credit expansion (Djibouti, Somalia, Sudan).
- Private sector credit developments since early 2017:
  - Risen in Morocco and Pakistan due to accommodative monetary policy.
  - Edged lower in Jordan following monetary tightening.
  - Egypt’s credit growth in local currency boosted in part by large exchange rate depreciation in late 2016.
- Policy recommendations:
  - Continued monitoring of financial system soundness and robust supervision of individual institutions.
  - Implementation of appropriately targeted macroprudential policies.
  - Mindful management of opportunities and challenges from rapid expansion of financial sector technological innovations.

### Structural Reforms for Job Creation and Inclusive Growth
- Need and objectives:
  - Bold structural reforms required to enhance private sector activity and foster a dynamic, competitive, and inclusive economy.
- Key reform areas and measures:
  - Improve business environment to boost private-sector investment and growth; enhance governance, transparency, accountability, and government efficiency.
  - Address insufficient and low-quality infrastructure, especially in energy and transportation; leverage opportunities such as the Compact with Africa to promote private investment and infrastructure development.
  - Pursue innovative public-private partnerships to fund infrastructure while remaining cognizant of fiscal risks.
  - Labor market reforms: increase labor market flexibility, reduce reliance on government jobs, improve education systems to reduce skill mismatches, and remove gender gaps in education to increase labor supply and build higher-skilled labor.
  - Agriculture reforms: raise agricultural productivity through increased access to irrigation, training on better farming methods, high-yield crop varieties, and improved market access; encourage diversification into labor-intensive agribusiness and value-added agricultural production.
  - Expand access to finance for small and medium enterprises to broaden financial inclusion and lower borrowing costs.
  - Develop domestic capital markets; regular issuance of government debt to establish a yield curve to diversify financing channels and facilitate bank liquidity management.
- Rationale:
  - Improving productivity and unleashing labor potential will reinforce resilience and inclusiveness of growth.

### Risks to the Outlook
- Overall risk balance remains tilted to the downside.
- Key regional risks and channels:
  - Regional conflicts and security risks that could become more protracted or escalate, causing human loss, infrastructure destruction, outward migration, disruption of regional trade routes and cross-border investments, and shrinking tourism (including in neighboring countries).
  - The risk of social tensions and reform fatigue may increase if growth remains subdued and unemployment high, undermining the impetus for fiscal and structural reforms.
  - Agricultural vulnerability: agricultural activity remains vulnerable to weather and price developments (Morocco, Pakistan, Somalia); a decline in commodity prices would lower government revenues and export receipts and widen current account deficits in Mauritania (iron ore, gold, copper), Morocco (phosphates, wheat, vegetables), Pakistan (cotton), and Sudan (oil, gold).
  - Global environment risks: a more rapid tightening of global financial conditions could push up financing costs, increase fiscal pressures, and reduce private investment; US monetary policy normalization could lead to a stronger US dollar, amplifying debt vulnerabilities in countries with a significant share of debt in foreign currency (Pakistan, Tunisia).
  - Advanced economies pursuing inward-looking policies could hurt export prospects; upside risk is a stronger-than-expected pickup in activity in the euro area and other trading partners.

### The Belt and Road Initiative (BRI): Opportunities and Considerations
- Overview and scale:
  - China launched the BRI in 2013 to strengthen connections with Europe and Africa via Central and Southwest Asia and the Middle East.
  - Nearly 70 countries are engaged in the BRI; the number may reach 100 or more.
  - Focus areas: infrastructure development and trade facilitation, financial connectivity and integration, policy coordination, joint research, and people-to-people exchange.
  - Six BRI corridors plus the Twenty-First Century Maritime Silk Road Economic Belt.
  - Cumulative investment in the corridors could reach $1 trillion over 10 years.
  - Financing largely on market terms through the Asian Infrastructure Investment Bank, China Development Bank, Export-Import Bank of China, and Silk Road Fund; complementary investments from other official and private sources may emerge.
- Potential benefits:
  - Close infrastructure gaps, increase regional economic and financial integration, and support diversification and employment.
  - Positive effects from construction, increased energy supply, improved connectivity, technology transfer, and greater trade.
  - Support diversification and boost exports and employment; utility projects should reduce or eliminate energy shortages.
- Major project examples:
  - Investments in Pakistan in the energy sector and rail, road, and port infrastructure totaling $55 billion over the next decade.
  - Railway, highway, and port projects across Kazakhstan to Europe via Russia, and to Iran and Turkey via Kazakhstan and Turkmenistan.
  - Railway to Uzbekistan via the Kyrgyz Republic; railway to Afghanistan via Uzbekistan; railway from an upgraded port in Djibouti to Ethiopia and South Sudan.
  - Oil and gas pipelines connecting China with Central Asia and Azerbaijan, and with Europe via the Black Sea and Turkey.
  - Power, natural resources and mining, manufacturing, and agriculture and agro-processing projects across the region.
- Challenges and policy guidance:
  - Project implementation and management across multiple jurisdictions and complex settings present challenges.
  - BRI projects likely to exert pressure on fiscal, debt, and external positions, especially in MENAP and CCA economies with limited fiscal space.
  - Potential crowding out of other development spending; financial flows may pressure exchange rates.
  - Future budgetary claims include operational and maintenance costs, loan repayments, interest payments, profit repatriation, and fuel imports; tax exemptions lower gains to national budgets.
- Recommended country actions:
  - Strengthen medium-term fiscal and budgetary frameworks.
  - Enhance capacity to assess and manage project costs, financial terms, and risks (including from tax incentives).
  - Ensure projects are well designed, commercially viable, effectively executed, and closely monitored.
  - Transactions should be as concessional as possible in low-income countries, transparent, and target spillovers to local employment and inputs (equipment, materials, machinery).
  - Favor joint projects with international financial institutions to leverage established assessment and monitoring mechanisms and additional concessional financing.
  - Improve business climates to be open and competitive to facilitate spillovers to noncommodity sectors; ensure local transport, utility enterprises, and banks are sufficiently strong and that tariffs enable cost recovery.
- IMF role:
  - The IMF provides policy advice, technical assistance, and training to help countries assess and manage investment projects under the BRI.
  - The Infrastructure Policy Support Initiative aims to support member countries with tools such as public investment management assessments, public-private partnership fiscal risk assessments, debt-investment-growth assessments, debt-sustainability assessments, and guidance on medium-term debt-management strategies.

### Somalia: Rebuilding After Decades-Long Civil War
- Context and achievements:
  - End of the civil war provides an opportunity to rebuild Somalia’s economy.
  - International partners, including the IMF, are providing technical assistance yielding tangible results.
  - The staff-monitored program (SMP) with the IMF will facilitate future financial support by establishing a track record of policy and reform implementation.
  - Somalia’s economy is currently sustained by donor grants, remittances, and foreign direct investment (mostly from the Somali diaspora).
  - Since recognition of the Federal Government of Somalia in 2012, Somalia has received intensive technical assistance and is one of the largest beneficiaries of IMF technical assistance delivered through a multi donor trust fund.
  - Achievements include progress in economic management, macroeconomic and financial data reporting, rebuilding institutional capacity to prepare and monitor an annual budget, implementing national currency reform, and strengthening central bank governance.
  - IMF engagement: two Article IV consultations since resuming engagement in 2013; a 12-month SMP with the IMF began in May 2016 and has been completed; a new SMP covering May 2017–April 2018 has been approved by IMF management.
- Remaining challenges:
  - Fragile security situation, aggravated by high youth unemployment and a drought severely affecting economic activity and humanitarian conditions.
  - Weak fiscal position due to poor fiscal management, weak tax collection, and heavy external debt burden with no capacity to repay.
  - Nascent central bank and financial sector; widespread counterfeiting has diminished confidence in the national currency.
  - Need for sustained, broad-based reform efforts to reconstitute institutions and improve economic, financial, and social data for policymaking.
- Selected economic and social indicators, 2014–16 (average) (table entries preserved):
  - Population, Total (million): 13.9642.0
  - GDP per Capita (current US$): 426.0632.3
  - Net ODA Received (% of GNI): 22.28.7
  - Life Expectancy at Birth, Total (years): 55.561.5
  - Labor Force Participation Rate, Total (% of total population ages 151)²: 54.376.2
  - Labor Force Participation Rate, Female (% of female population ages 151)²: 33.270.0
  - Labor Force Participation Rate, Male (% of male population ages 151)²: 75.982.6
  - Time Required to Register Property (days): 188.0 78.8
  - Note: GNI = gross national income; ODA = official development assistance.
  - 1 Low-income countries.
  - 2 International Labour Organization modeled estimate.

### The G20 Compact with Africa: Boosting Private Investment
- Objective and mechanism:
  - The G20 Compact with Africa aims to help countries seize potential for sustained and inclusive growth by promoting investment and improving infrastructure in Africa.
  - The initiative promotes private investment through compacts between African governments, international organizations, and development partners, focusing on increasing infrastructure development.
  - Launched by G20 finance ministers and central bank governors in March 2017 under the German presidency.
- Commitments and actions:
  - Participating African countries will identify reforms to create a more enabling environment for private investment, improve domestic revenue and finance mobilization, and create space to scale up public investment in infrastructure while ensuring debt sustainability.
  - The G20 and partner countries will promote the initiative and encourage their business sectors to invest in participating African countries, including through investor roundtables and high-level events, and support related technical assistance.
  - International organizations will provide technical assistance, policy advice, and financial support to ensure sound macroeconomic, business, and financing frameworks.
  - The G20, partner countries, and international organizations will coordinate more closely, provide greater support for early-stage project preparation for infrastructure, and increase investment by private arms of multilateral and bilateral development institutions.
- Participation and IMF support:
  - Participating African countries: Côte d’Ivoire, Ethiopia, Ghana, Morocco, Rwanda, Senegal, and Tunisia are in the process of completing their compacts.
  - Others expressing interest or considering joining include Algeria and Egypt.
  - The IMF supports the initiative by increasing capacity development, providing policy advice, and incorporating related reforms in IMF-supported programs with participating countries.
  - The IMF is stepping up capacity-development efforts through the Africa Regional Technical Assistance Centers and the Middle East Technical Assistance Center.
  - A G20 investment finance group will help carry forward and oversee the Compact with Africa work program over the medium term; the program will be monitored through in-country dialogue and biannual reports to the G20.

*Source: International Monetary Fund | October 2017*

### 3.8 percent, while increased port infrastructure

### 2. MENAP Oil Importers: Securing Resilience and Inclusive Growth

### Real GDP Growth and Near-Term Outlook
- Real GDP growth recovers but remains below historical average; growth projections:
  - 2017: various country outcomes described (examples in text).
  - Medium term: projected to reach 4.4 percent in 2018 and average 5.3 percent during 2019–22.
- Country-specific near-term notes:
  - Djibouti: projects and transshipment activity expected to lift growth to 7.0 percent.
  - Tunisia: growth will pick up gradually to 2.3 percent.
  - Sudan: growth will edge up to 3.7 percent in 2017.
  - Pakistan: increase in growth to 5.3 percent underpinned by China-Pakistan Economic Corridor investment and strengthening credit growth.
  - Egypt: growth remained broadly unchanged at 4.3 percent in FY2017.
  - Afghanistan: near-term growth prospects weakened relative to May.
  - Lebanon: sluggish growth weaker than anticipated in May.
  - Somalia: growth will weaken to 2.4 percent in 2017, down from 3.2 percent in 2016.

### External Sector and External Vulnerabilities
- 2016 current account deficit for MENAP oil importers widened by about 1 percentage point of GDP to 5.3 percent.
- Country-level external deficits:
  - Djibouti and Mauritania posted current account deficits above 10 percent of GDP in 2016.
- Outlook:
  - Current account deficit projected to remain stable at 5.3 percent of GDP in 2017; expected to narrow to 4.8 percent of GDP in 2018.
- Positive contributors to external outlook:
  - Positive spillovers from stronger global economy, including tourist arrivals and remittances.
  - Commodity price pickup: iron ore (Mauritania), gold (Mauritania, Sudan), phosphates (Jordan, Morocco), cotton (Pakistan).
  - Foreign reserve reinforcement from international bond issuance (Egypt), capital inflows (Djibouti, Egypt, Morocco, Tunisia), uptick in exports and remittances, and IMF program disbursements.
- Country-specific supportive factors:
  - Egypt: floating of the exchange rate, lifting of foreign currency restrictions, and implementation of industrial licensing and investment laws expected to attract FDI and promote exports.
  - Jordan: exports to benefit from higher mining output, improved price of phosphates, and re-opening of the border with Iraq.
  - Afghanistan: exports boosted by start of direct flights to India and completion of the railway line to Chabahar Port.
- Caution:
  - Appreciation of real effective exchange rates could pose challenges; need for well-calibrated policy mix.

### Fiscal Positions and Debt Dynamics
- Average fiscal deficit trajectory:
  - 2016: 6.8 percent of GDP.
  - 2017: expected to edge down to 6.6 percent of GDP.
  - 2018: expected to dip to 5.6 percent of GDP.
- Drivers of fiscal consolidation:
  - Measures to contain costly energy subsidies (Egypt, Tunisia).
  - Limiting nonpriority current expenditures (Morocco, Tunisia).
  - Strengthening public financial management at local level as part of fiscal decentralization.
  - Reducing special tax regimes in free zones (Djibouti).
  - Removing exemptions from general sales tax and customs duties; tackling tax evasion and broadening tax base (Egypt, Jordan, Sudan, Tunisia).
  - Wage restraint (Djibouti, Egypt).
- Debt vulnerabilities and factors:
  - For most countries, legacies of weak domestic revenue mobilization and high current expenditures have pushed public debt to more than 50 percent of GDP.
  - At the end of 2016, average gross public debt stood at about 80 percent of GDP; Lebanon’s debt close to 149 percent of GDP.
  - Other risk factors: valuation changes from currency depreciation, rising interest payments, buildup of arrears (Somalia, Sudan), state guarantees (Pakistan), large infrastructure projects funded by external borrowing (Djibouti, Mauritania, Pakistan).
- Policy priorities:
  - Sustained fiscal consolidation and reforms to address debt vulnerabilities.
  - Boost domestic revenue mobilization.
  - Strengthen public financial management, transparency, and accountability.
  - Improve efficiency of public investment to mitigate contractionary effect on growth.
  - Protect social spending while targeting consolidation.

### Inflation and Monetary Policy
- Inflation trajectory:
  - 2016: overall inflation 7.7 percent.
  - 2017: expected to peak at 15.0 percent.
  - 2018: expected to recede to 8.3 percent.
- Country drivers of 2017 spike:
  - Egypt: pass-through of large exchange rate depreciation, reducing fuel subsidies, introduction of VAT, increase in price of utilities — overall inflation close to 30 percent.
  - Sudan: steep depreciation of the parallel exchange rate and monetization of the fiscal deficit — overall inflation expected above 25 percent.
  - Afghanistan and Somalia: inflation increased reflecting higher imported food prices and drought, respectively.
  - Tunisia: reapplication of fuel price adjustment mechanism and slight depreciation of the dinar expected to nudge up prices.
  - Some countries with benign inflation: Lebanon (lagged effects of nominal effective exchange rate appreciation), Morocco and Pakistan (easing international food prices), Jordan (receding one-off effects of price liberalization).
- Forecast: inflation expected to return to moderate levels during 2018–22 due to monetary policy responses, dissipating effects from prior depreciations, and easing domestic supply constraints.
- Policy recommendations:
  - Strengthen and modernize monetary policy frameworks to bolster transmission mechanisms, improve communication and transparency, and enhance analytical tools.
  - For countries recently transitioning to floating exchange rates (Egypt, Tunisia), adoption of full-fledged inflation-targeting regimes over time would be desirable.
  - Strengthen central bank independence to establish credibility and anchor inflation expectations.
  - Pay attention to challenges posed by financial dollarization.

### Financial Sector and Credit
- Financial sector broadly sound as of end-2016: banks generally well capitalized, liquid, and relatively profitable.
- Nonperforming loans (NPLs) dynamics:
  - NPLs continue to decline from high levels in Pakistan and Sudan, but trending up in Morocco.
- Banking reforms:
  - Progress on regulatory reforms, strengthening resolution frameworks, and introduction of deposit insurance (Pakistan).
- Correspondent banking constraints continue to weigh on remittances, impacting deposits and credit expansion (Djibouti, Somalia, Sudan).
- Private sector credit growth since early 2017:
  - Risen in Morocco and Pakistan due to accommodative monetary policy.
  - Edged lower in Jordan following monetary tightening.
  - Egypt’s credit growth in local currency boosted in part by large exchange rate depreciation in late 2016.
- Policy recommendations:
  - Continued monitoring of financial system soundness and robust supervision of individual institutions.
  - Implementation of appropriately targeted macroprudential policies.
  - Mindful management of opportunities and challenges from rapid expansion of financial sector technological innovations.

### Structural Reforms for Job Creation and Inclusive Growth
- Need for bold structural reforms to enhance private sector activity and foster a dynamic, competitive, and inclusive economy.
- Key reform areas highlighted:
  - Improve business environment to boost private-sector investment and growth; enhance governance, transparency, accountability, and government efficiency.
  - Address insufficient and low-quality infrastructure, especially in energy and transportation; leverage opportunities such as the Compact with Africa to promote private investment and infrastructure development.
  - Pursue innovative public-private partnerships to fund infrastructure while remaining cognizant of fiscal risks.
  - Labor market reforms: increase labor market flexibility, reduce reliance on government jobs, improve education systems to reduce skill mismatches, and remove gender gaps in education to increase labor supply and build higher-skilled labor.
  - Agriculture reforms: raise agricultural productivity through increased access to irrigation, training on better farming methods, high-yield crop varieties, and improved market access; encourage diversification into labor-intensive agribusiness and value-added agricultural production.
  - Expand access to finance for small and medium enterprises to broaden financial inclusion and lower borrowing costs.
  - Develop domestic capital markets; regular issuance of government debt to establish a yield curve to diversify financing channels and facilitate bank liquidity management.
- Rationale: Improving productivity and unleashing labor potential will reinforce resilience and inclusiveness of growth.

### Risks to the Outlook
- Overall risk balance remains tilted to the downside.
- Key regional risks:
  - Regional conflicts and security risks that could become more protracted or escalate, causing human loss, infrastructure destruction, outward migration, disruption of regional trade routes and cross-border investments, and shrinking tourism (including in neighboring countries).

*Source: International Monetary Fund | October 2017*

### 2. MENAP OIL IMPORTERs: sECURING REsILIENCE ANd INCLUsIvE GROwTh

### 2. MENAP OIL IMPORTERS: SECURING RESILIENCE AND INCLUSIVE GROWTH

### Risks and vulnerabilities affecting MENAP oil importers
- The risk of social tensions and reform fatigue may increase if growth remains subdued and unemployment high, undermining the impetus for much-needed fiscal and structural reforms.
- Agricultural vulnerability:
  - Agricultural activity remains vulnerable to weather and price developments (Morocco, Pakistan, Somalia).
  - A decline in commodity prices would lower government revenues and export receipts and widen current account deficits in Mauritania (iron ore, gold, copper), Morocco (phosphates, wheat, vegetables), Pakistan (cotton), and Sudan (oil, gold).
- Global environment risks:
  - A more rapid tightening of global financial conditions (including due to faster-than-anticipated normalization of monetary policy in the United States) could push up financing costs (including domestic financing costs), increase fiscal pressures, and reduce private investment.
  - US monetary policy normalization could lead to a stronger US dollar, amplifying debt vulnerabilities in countries with a significant share of debt in foreign currency (Pakistan, Tunisia).
  - Advanced economies pursuing inward-looking policies could hurt export prospects for the broader MENAP region.
  - Upside risk: a stronger-than-expected pickup in activity in the euro area and other trading partners would help lift regional growth.

### The Belt and Road Initiative (BRI): opportunities and considerations
- Overview:
  - China launched the BRI in 2013 to strengthen connections with Europe and Africa via Central and Southwest Asia and the Middle East.
  - Nearly 70 countries are engaged in the BRI; the number may reach 100 or more.
  - Focus areas: infrastructure development and trade facilitation, financial connectivity and integration, policy coordination, joint research, and people-to-people exchange.
  - Six BRI corridors plus the Twenty-First Century Maritime Silk Road Economic Belt.
  - Cumulative investment in the corridors could reach $1 trillion over 10 years.
  - Financing largely on market terms through the Asian Infrastructure Investment Bank, China Development Bank, Export-Import Bank of China, and Silk Road Fund; complementary investments from other official and private sources may emerge.
- Potential benefits for Central and Southwest Asia and the Middle East:
  - Close infrastructure gaps, increase regional economic and financial integration, and support diversification and employment.
  - Positive effects from construction, increased energy supply, improved connectivity, technology transfer, and greater trade.
  - Support diversification and boost exports and employment; utility projects should reduce or eliminate energy shortages.
  - Financial connectivity, trade integration, and research/exchange programs can catalyze private investment, production, exports, value added, and employment.
- Major project examples:
  - Investments in Pakistan in the energy sector and rail, road, and port infrastructure totaling $55 billion over the next decade.
  - Railway, highway, and port projects across Kazakhstan to Europe via Russia, and to Iran and Turkey via Kazakhstan and Turkmenistan.
  - A railway to Uzbekistan via the Kyrgyz Republic, a railway to Afghanistan via Uzbekistan, and a railway from an upgraded port in Djibouti to Ethiopia and South Sudan.
  - Oil and gas pipelines connecting China with Central Asia and Azerbaijan, and with Europe via the Black Sea and Turkey.
  - Power, natural resources and mining, manufacturing, and agriculture and agro-processing projects across the region.
- Challenges and policy guidance:
  - Project implementation and management across multiple jurisdictions and complex settings present challenges.
  - BRI projects are likely to exert pressure on fiscal, debt, and external positions, especially in MENAP and CCA economies with limited fiscal space.
  - Potential crowding out of other development spending; financial flows may pressure exchange rates.
  - Future budgetary claims include operational and maintenance costs, loan repayments, interest payments, profit repatriation, and fuel imports; tax exemptions lower gains to national budgets.
  - Recommendations:
    - Strengthen medium-term fiscal and budgetary frameworks.
    - Enhance capacity to assess and manage project costs, financial terms, and risks (including from tax incentives).
    - Ensure projects are well designed, commercially viable, effectively executed, and closely monitored.
    - Transactions should be as concessional as possible in low-income countries, transparent, and target spillovers to local employment and inputs (equipment, materials, machinery).
    - Favor joint projects with international financial institutions to leverage established assessment and monitoring mechanisms and additional concessional financing.
    - Improve business climates to be open and competitive to facilitate spillovers to noncommodity sectors; ensure local transport, utility enterprises, and banks are sufficiently strong and that tariffs enable cost recovery.
- IMF role:
  - The IMF provides policy advice, technical assistance, and training to help countries assess and manage investment projects under the BRI.
  - The Infrastructure Policy Support Initiative aims to support member countries with tools such as public investment management assessments, public-private partnership fiscal risk assessments, debt-investment-growth assessments, debt-sustainability assessments, and guidance on medium-term debt-management strategies.

### Somalia: rebuilding after decades-long civil war
- Context and progress:
  - The end of the civil war provides an important opportunity to rebuild Somalia’s economy.
  - International partners, including the IMF, are providing technical assistance yielding tangible results.
  - The staff-monitored program (SMP) with the IMF will facilitate future financial support by establishing a track record of policy and reform implementation.
  - Somalia’s economy is currently sustained by donor grants, remittances, and foreign direct investment (mostly from the Somali diaspora).
  - Since recognition of the Federal Government of Somalia in 2012, Somalia has received intensive technical assistance and is one of the largest beneficiaries of IMF technical assistance delivered through a multi donor trust fund.
  - Achievements include progress in economic management, macroeconomic and financial data reporting, rebuilding institutional capacity to prepare and monitor an annual budget, implementing national currency reform, and strengthening central bank governance.
  - IMF engagement: two Article IV consultations since resuming engagement in 2013; a 12-month SMP with the IMF began in May 2016 and has been completed; a new SMP covering May 2017–April 2018 has been approved by IMF management.
  - Although arrears currently prevent Somalia from benefiting from IMF financial support, continued successful completion of SMPs will help pave the way for eventual future debt relief.
- Remaining challenges:
  - Fragile security situation, aggravated by high youth unemployment and a drought severely affecting economic activity and humanitarian conditions.
  - Weak fiscal position due to poor fiscal management, weak tax collection, and heavy external debt burden with no capacity to repay.
  - Nascent central bank and financial sector; widespread counterfeiting has diminished confidence in the national currency.
  - Need for sustained, broad-based reform efforts to reconstitute institutions and improve economic, financial, and social data for policymaking.
- Selected economic and social indicators, 2014–16 (average)
  - Table 2.2.1. Selected Economic and Social Indicators, 2014–16 (Average)
  - SomaliaLIC
  - 2014–16 (average)
  - Population, Total (million)13.9642.0
  - GDP per Capita (current US$)426.0632.3
  - Net ODA Received (% of GNI)22.28.7
  - Life Expectancy at Birth, Total (years)55.561.5
  - Labor Force Participation Rate, Rotal (% of total population ages 151)²54.376.2
  - Labor Force Participation Rate, Female (% of female population ages 151)²33.270.0
  - Labor Force Participation Rate, Male (% of male population ages 151)²75.982.6
  - Time Required to Register Property (days)188.0 78.8
  - Note: GNI = gross national income; ODA = official development assistance.
  - 1 Low-income countries.
  - 2 International Labour Organization modeled estimate.

### The G20 Compact with Africa: boosting private investment
- Objective and mechanism:
  - The G20 Compact with Africa aims to help countries seize potential for sustained and inclusive growth by promoting investment and improving infrastructure in Africa.
  - The initiative promotes private investment through compacts between African governments, international organizations, and development partners, focusing on increasing infrastructure development.
  - Launched by G20 finance ministers and central bank governors in March 2017 under the German presidency.
- Commitments and actions:
  - Participating African countries will identify reforms to create a more enabling environment for private investment, improve domestic revenue and finance mobilization, and create space to scale up public investment in infrastructure while ensuring debt sustainability.
  - The G20 and partner countries will promote the initiative and encourage their business sectors to invest in participating African countries, including through investor roundtables and high-level events, and support related technical assistance.
  - International organizations will provide technical assistance, policy advice, and financial support to ensure sound macroeconomic, business, and financing frameworks.
  - The G20, partner countries, and international organizations will coordinate more closely, provide greater support for early-stage project preparation for infrastructure, and increase investment by private arms of multilateral and bilateral development institutions.
- Participation and IMF support:
  - Participating African countries: Côte d’Ivoire, Ethiopia, Ghana, Morocco, Rwanda, Senegal, and Tunisia are in the process of completing their compacts.
  - Others expressing interest or considering joining include Algeria and Egypt.
  - The IMF supports the initiative by increasing capacity development, providing policy advice, and incorporating related reforms in IMF-supported programs with participating countries.
  - The IMF is stepping up capacity-development efforts through the Africa Regional Technical Assistance Centers and the Middle East Technical Assistance Center.
  - A G20 investment finance group will help carry forward and oversee the Compact with Africa work program over the medium term; the program will be monitored through in-country dialogue and biannual reports to the G20.

*International Monetary Fund | October 2017*

### 2. MENAP OIL IMPORTERs: sECURING REsILIENCE ANd INCLUsIvE GROwTh

### 2. MENAP OIL IMPORTERs: sECURING REsILIENCE ANd INCLUsIvE GROwTh

### Selected Economic Indicators — Projections: Real GDP Growth (Annual change, percent)
- Average 2000–13: 4.5; 2014: 3.2; 2015: 3.9; 2016: 3.6; 2017: 4.3; 2018: 4.4
- Afghanistan: 2.7; 2014: 1.3; 2015: 2.4; 2016: 2.5; 2017: 3.0
- djibouti: 3.8; 2014: 6.0; 2015: 6.5; 2016: 6.5; 2017: 7.0; 2018: 7.0
- Egypt: 4.4; 2014: 2.9; 2015: 4.4; 2016: 4.3; 2017: 4.1; 2018: 4.5
- Jordan: 5.4; 2014: 3.1; 2015: 2.4; 2016: 2.0; 2017: 2.3; 2018: 2.5
- Lebanon: 4.5; 2014: 2.0; 2015: 0.8; 2016: 1.0; 2017: 1.5; 2018: 2.0
- Mauritania: 4.7; 2014: 5.6; 2015: 0.9; 2016: 1.7; 2017: 3.8; 2018: 3.0
- Morocco: 4.6; 2014: 2.7; 2015: 4.5; 2016: 1.2; 2017: 4.8; 2018: 3.0
- Pakistan: 4.3; 2014: 4.1; 2015: 4.1; 2016: 4.5; 2017: 5.3; 2018: 5.6
- somalia: 2.0; 2014: 3.6; 2015: 3.6; 2016: 3.2; 2017: 2.4; 2018: 3.5
- sudan1: 4.7; 2014: 1.6; 2015: 4.9; 2016: 3.0; 2017: 3.7; 2018: 3.6
- syria2: 4.3; 2014: . . .; 2015: . . .; 2016: . . .; 2017: . . .
- Tunisia: 3.8; 2014: 2.3; 2015: 1.1; 2016: 1.0; 2017: 2.3; 2018: 3.0
- west Bank and Gaza3: 4.1; 2014: –0.2; 2015: 3.4; 2016: 4.1; 2017: 3.1; 2018: 3.0

### Selected Economic Indicators — Projections: Consumer Price Inflation (Year average, percent)
- Average 2000–13: 6.0; 2014: 9.4; 2015: 6.7; 2016: 7.7; 2017: 15.0; 2018: 8.3
- Afghanistan: . . .; 2014: 4.7; 2015: –0.7; 2016: 4.4; 2017: 6.0; 2018: 6.0
- djibouti: 3.6; 2014: 2.9; 2015: 2.1; 2016: 2.7; 2017: 3.0; 2018: 3.0
- Egypt: 3.8; 2014: 10.1; 2015: 10.4; 2016: 13.8; 2017: 29.9; 2018: 13.0
- Jordan: 4.0; 2014: 2.9; 2015: –0.9; 2016: –0.8; 2017: 3.3; 2018: 1.5
- Lebanon: 3.2; 2014: 1.9; 2015: –3.7; 2016: –0.8; 2017: 3.1; 2018: 2.5
- Mauritania: 6.0; 2014: 3.8; 2015: 0.5; 2016: 1.5; 2017: 2.1; 2018: 3.7
- Morocco: 1.7; 2014: 0.4; 2015: 1.5; 2016: 1.6; 2017: 0.9; 2018: 1.6
- Pakistan: 8.8; 2014: 8.6; 2015: 4.5; 2016: 2.9; 2017: 4.1; 2018: 4.8
- somalia: . . .; 2014: . . .; 2015: . . .; 2016: . . .; 2017: . . .; 2018: . . .
- sudan1: 13.6; 2014: 36.9; 2015: 16.9; 2016: 17.8; 2017: 26.9; 2018: 19.0
- syria2: 4.9; 2014: . . .; 2015: . . .; 2016: . . .; 2017: . . .
- Tunisia: 3.3; 2014: 4.9; 2015: 4.9; 2016: 3.7; 2017: 4.5; 2018: 4.4
- west Bank and Gaza3: 3.6; 2014: 1.7; 2015: 1.4; 2016: -0.2; 2017: 0.5; 2018: 1.6

### Selected Economic Indicators — Projections: General Gov. Overall Fiscal Balance (Percent of GDP)
- Average 2000–13: –5.5; 2014: –7.3; 2015: –7.3; 2016: –6.8; 2017: –6.6; 2018: –5.6
- Afghanistan4: . . .; 2014: –1.7; 2015: –1.4; 2016: 0.1; 2017: 0.4; 2018: 0.2
- djibouti: –2.1; 2014: –9.6; 2015: –21.7; 2016: –18.2; 2017: –1.6; 2018: –0.7
- Egypt: –7.8; 2014: –11.8; 2015: –11.4; 2016: –10.9; 2017: –9.5; 2018: –7.3
- Jordan5: –5.2; 2014: –10.3; 2015: –5.3; 2016: –3.2; 2017: –2.5; 2018: –0.4
- Lebanon4: –11.6; 2014: –6.3; 2015: –7.6; 2016: –9.3; 2017: –9.9; 2018: –10.3
- Mauritania4,6: –2.4; 2014: –4.5; 2015: –3.4; 2016: –0.3; 2017: –0.6; 2018: –1.8
- Morocco4: –4.1; 2014: –4.8; 2015: –4.2; 2016: –4.1; 2017: –3.5; 2018: –3.0
- Pakistan7: –4.7; 2014: –4.9; 2015: –5.3; 2016: –4.4; 2017: –5.7; 2018: –5.4
- somalia: . . .; 2014: . . .; 2015: . . .; 2016: . . .; 2017: . . .; 2018: . . .
- sudan1: –1.3; 2014: –1.4; 2015: –1.9; 2016: –1.8; 2017: –2.4; 2018: –2.6
- syria2: . . .; 2014: . . .; 2015: . . .; 2016: . . .; 2017: . . .
- Tunisia8: –3.2; 2014: –3.7; 2015: –5.3; 2016: –5.9; 2017: –5.9; 2018: –5.3
- west Bank and Gaza3: –22.8; 2014: –12.5; 2015: –11.4; 2016: –8.0; 2017: –8.4; 2018: –7.8

Notes (from source table):
- Variables reported on a fiscal year basis for Afghanistan (March 21–March 20) until 2011, and December 21–December 20 thereafter, and Egypt and Pakistan (July–June), except inflation.
- 1 data for 2011 exclude south sudan after July 9. data for 2012 and onward pertain to the current sudan.
- 2 2011–17 data exclude syria.
- 3 west Bank and Gaza is not a member of the IMF and is not included in any of the aggregates.
- 4 Central government. For Jordan, includes transfers to electricity company.
- 5 Overall fiscal balance includes transfers to the electricity company NEPCO until the end of 2014. In 2015 transfers were stopped.
- 6 Includes oil revenue transferred to the oil fund.
- 7 Includes grants.
- 8 Includes bank recapitalization costs and arrears payments.

### Selected Economic Indicators — Projections: Current Account Balance (Percent of GDP)
- Average 2000–13: –2.4; 2014: –4.2; 2015: –4.4; 2016: –5.3; 2017: –5.3; 2018: –4.8
- Afghanistan: . . .; 2014: 5.7; 2015: 3.0; 2016: 7.1; 2017: 4.7; 2018: 1.6
- djibouti: –8.0; 2014: –25.1; 2015: –31.8; 2016: –30.4; 2017: –21.0; 2018: –18.2
- Egypt: –0.5; 2014: –0.8; 2015: –3.6; 2016: –6.0; 2017: –5.9; 2018: –3.8
- Jordan: –6.1; 2014: –7.3; 2015: –9.1; 2016: –9.3; 2017: –8.4; 2018: –8.3
- Lebanon: –15.6; 2014: –26.4; 2015: –18.7; 2016: –18.6; 2017: –18.0; 2018: –16.8
- Mauritania: –13.4; 2014: –27.3; 2015: –19.7; 2016: –14.9; 2017: –14.2; 2018: –9.6
- Morocco: –3.3; 2014: –5.9; 2015: –2.1; 2016: –4.4; 2017: –4.0; 2018: –2.9
- Pakistan: –1.3; 2014: –1.3; 2015: –1.0; 2016: –1.7; 2017: –4.0; 2018: –4.9
- somalia: –4.8; 2014: –6.3; 2015: –7.2; 2016: –10.1; 2017: –11.1; 2018: –10.7
- sudan1: –5.5; 2014: –7.1; 2015: –8.0; 2016: –5.6; 2017: –1.9; 2018: –2.0
- syria2: –0.4; 2014: . . .; 2015: . . .; 2016: . . .; 2017: . . .
- Tunisia: –4.1; 2014: –9.1; 2015: –8.9; 2016: –9.0; 2017: –8.7; 2018: –8.4
- west Bank and Gaza3: –17.4; 2014: –16.9; 2015: –16.3; 2016: –9.9; 2017: –13.1; 2018: –13.2

*Sources: National authorities; and IMF staff estimates and projections.*

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_Source: https://www.imf.org/-/media/files/publications/reo/mcd-cca/2017/october/menap/7-chapter-2.pdf_