## menap0518

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---

### 2017 growth outcomes (MENAP oil exporters)
- Overall growth in MENAP oil exporters: 2.6 percent in 2017.
- Country-level notes:
  - Iran: growth decelerated significantly relative to 2016. Oil GDP growth was much slower than in the previous year, more than offsetting the continued recovery in non-oil activity supported by public investment.
  - Algeria and Iraq: weaker growth in oil GDP (in the context of the OPEC+ agreement, and weaker-than-expected demand from Europe for Algerian-produced gas) was more than offset by a pickup in non-oil activity.
  - Libya: stronger-than-expected growth supported by increased oil production, more than offsetting lower public spending.
  - Yemen: economic contraction much more pronounced than anticipated in October as conflict effects continued.

### Recovery in 2018–19: projections and drivers (MENAP oil exporters)
- Overall projections:
  - Overall growth projected at 2.8 percent this year and 3.3 percent in 2019 (versus 3.0 and 2.7 projected in October).
  - Non-oil GDP growth expected at 3.2 percent this year and 3.4 percent next, 0.7 and 0.4 percentage point higher, respectively, relative to October.
- Key opposing forces shaping the outlook:
  - Upward revisions to non-oil GDP growth for 2018 and 2019 in several countries:
    - Bahrain: deceleration now expected to be more gradual (expected completion of investment projects).
    - Saudi Arabia: faster pickup partly from a slower pace of fiscal consolidation.
    - Algeria: mostly increased public capital spending.
    - Iraq: reconstruction.
  - Downward revisions to oil GDP growth in 2018 in most GCC countries and Iraq relative to October, driven by lower oil production consistent with the extension of the OPEC+ agreement.
  - 2019: deferred expiration of the OPEC+ agreement means oil GDP growth will pick up faster than anticipated in October, especially in GCC countries.

### Fiscal consolidation: adjustments and policy measures (MENAP oil exporters)
- Recent adjustments:
  - Saudi Arabia: fiscal adjustment in 2017 was less than initially indicated in the budget—higher expenditures supported by higher-than-expected non-oil revenues.
  - Qatar: availability of fiscal buffers allowed for more gradual fiscal consolidation than expected.
  - Outside the GCC: fiscal consolidation continued in 2017, especially in Iran and Iraq (in the context of the IMF-supported program).
- Expected path: MENAP oil exporters expected to continue fiscal consolidation efforts, although at a slower pace.
- Country-specific fiscal risks:
  - Algeria: large increases in expenditures expected to generate significantly larger fiscal deficits; consolidation expected to resume in 2019.
  - Iran: large increases in expenditures expected to generate significantly larger fiscal deficits.
- Revenue measures:
  - Introduction (January 2018) of a value-added tax (VAT) in Saudi Arabia and the United Arab Emirates; other GCC countries expected to introduce a VAT this year.
  - Iraq: expected to introduce sales and excise taxes on some goods and services in 2018.
  - Policy priority: implement VAT in the remaining GCC countries to mobilize non-oil revenues.
- Expenditure-side priorities:
  - Improve efficiency of public spending; public investment efficiency indicators suggest MENAP oil exporters perform better than emerging markets on average but lag advanced economies.
  - Contain large public wage bills that crowd out other critical public expenditure components; measures taken so far (including temporary hiring freezes) may be difficult to sustain without additional structural reforms.
  - Further reforms: steps toward full elimination of energy subsidies; changes to pension and social security systems (including revisions to retirement age and benefits).
  - Accompanying measures: enhanced targeted social protection mechanisms and improvements in delivery of and access to public services to mitigate impacts on the most vulnerable and make reforms equitable.

### Fiscal and financing risks (MENAP oil exporters)
- Rapid debt buildup is a concern: debt has increased by an average of 10 percentage points of GDP each year since 2013.
- Financing needs and vulnerabilities:
  - Cumulative overall fiscal deficits projected to be $294 billion in 2018–22.
  - Cumulative government debt amortizations amount to $71 billion for the same horizon.
  - An additional amount of $312 billion of non-government-issued international debt (of which almost 40 percent corresponds to state-owned enterprises) is coming due over the next five years.
  - Interest rate shock example: a 200 basis point increase in interest rates would add between 0.1 and 0.6 percent of GDP a year to interest payments in MENAP oil exporters, increasing existing fiscal challenges.
  - A sudden tightening of global financial conditions or a sudden stop in international market access could materialize fiscal contingent liabilities and substantially amplify fiscal impacts.
- Oil price sensitivity:
  - Each $10 reduction in the price of oil leads to an instantaneous deterioration of 3 percentage points of GDP in the fiscal balance of MENAP oil exporters (excluding Libya and Yemen).

### Financial sector, credit, and vulnerabilities (MENAP oil exporters)
- Financial-sector resilience: despite slowdown in 2016–17, financial sectors remained broadly resilient.
- Credit dynamics:
  - Credit growth remains subdued in most countries, reflecting weak consumer, government, and government-related enterprise spending, and reduced confidence.
  - Policy responses to ease financing access include introduction of credit registries (United Arab Emirates) and easing of capital market restrictions and mortgage loan-to-value ratios (Saudi Arabia).
  - Iran: rapid credit growth’s effect on non-oil activity has weakened as nonperforming loans (NPLs) continue to increase.
- Interest rates and market signals:
  - Interbank rates have continued to rise as monetary policy tightens in tandem with the United States.
  - Sovereign spreads have narrowed as government cash constraints eased with the higher oil price.
  - Deposit growth remains slow but broadly stable across the GCC.
  - Bank profitability has edged down due to compressed margins, but NPLs are not a significant concern in many countries; Algeria has higher NPLs from government arrears expected to decrease as arrears are cleared.
  - Iran and Iraq: banking systems face numerous challenges, with reforms expected to be implemented this year.
- Policy recommendations to support credit and confidence:
  - Strengthen legal rights of borrowers and lenders.
  - Increase availability of credit-related information.
  - Improve prudential regulation and oversight.

### Structural reform agenda and inclusive growth (MENAP oil exporters)
- Imperative: accelerate structural reforms to promote diversification and private sector development and to move to a new growth model that boosts productivity and creates jobs.
- Labor market and education reforms: critical to boost productivity and create opportunities for everyone.
- Examples of recent reforms:
  - United Arab Emirates: continued investment in education and innovation; new corporate bankruptcy law to improve business environment.
  - Iran: developing programs to foster job creation for young individuals and women.
  - Bahrain: introduced a wage protection system and measures to increase job flexibility for expatriates.
  - Qatar: visa-free entry program to stimulate tourism; new law to expand protection of expatriate labor.
- Underpinnings for reform success: increase transparency and accountability, and strengthen institutions and governance.
- Marrakesh Call for Action (summary of reform priorities agreed at the Opportunity for All Conference):
  - Accountability, Competition, Technology and Trade, No one left behind, Opportunity (improve social and investment spending and pursue fairer taxation), Workers (invest in people and reform education).

### Risks: balance and scenarios (MENAP oil exporters)
- Overall balance of risks remains skewed to the downside.
- Key risk factors:
  - High uncertainty surrounding oil prices.
  - Faster-than-expected tightening of financial conditions that could trigger abrupt financial market and asset price corrections, pressuring bank asset quality, affecting credit growth, and slowing activity.
  - Escalating import tariffs or inward-looking policies disrupting global trade and investment and lowering oil prices.
  - Regional conflicts and geopolitical risks.
  - Weakening political commitment to implement key fiscal measures and structural reforms, especially with higher oil prices.
- Counterfactual upside: continued commitment to fiscal consolidation, even at a slower pace, could boost investor confidence and result in stronger growth.

### Regional growth and MENAP oil importers: 2017–23
- Regional growth was 4.2 percent in 2017 and is projected to increase further to 4.7 percent this year and to 5 percent on average during 2019–23.
- External demand is supportive: exports, remittances, foreign direct investment, and tourism are channels through which a strengthening euro area supports activity.
- Headwinds: persistent conflicts and regional spillovers; security concerns; weaker-than-anticipated public investment (Afghanistan, Jordan); delays in implementation or completion of structural reforms (Jordan, Morocco, Pakistan, Tunisia); political and policy uncertainty (Lebanon, Pakistan).
- The outlook has softened slightly since the October 2017 Regional Economic Outlook.

### Country-specific projections and developments (MENAP oil importers)
- Egypt:
  - Growth projected to rise to 5.2 percent in FY2018 (from 4.2 percent last year).
  - Growth projected to accelerate to 5.5 percent in FY2019, aided by an increase in gas production.
- Pakistan:
  - Estimated growth of 5.6 percent in FY2018 (from 5.3 percent last year).
  - Growth projected to moderate to 4.7 percent in FY2019 due to increased macroeconomic vulnerabilities and domestic policy slippages.
- Sudan:
  - Growth expected to advance to 3.7 percent this year from 3.2 percent in 2017.
  - Growth anticipated to slow to 3.5 percent in 2019.
- Tunisia:
  - Growth expected to lift to 2.4 percent in 2018 (from 1.9 percent in 2017).
  - Growth set to increase further to 2.9 percent in 2019.
- Jordan:
  - Growth to increase from 2.3 percent in 2017 to 2.5 percent in 2018, and to 2.7 percent in 2019.
  - Constraints: delays in structural reforms, challenging regional environment, limited scope for public investment due to constrained fiscal position.
- Mauritania and Morocco:
  - Growth will soften in 2018 to 2.7 and 3.1 percent, respectively (down from 3.2 percent and 4.2 percent in 2017).
  - Growth anticipated to rebound in 2019 to 4.5 percent in Mauritania and 4 percent in Morocco.
- Lebanon:
  - Growth projected to tick up to 1.5 percent in 2018 (from 1.2 percent in 2017) and to rise to 1.8 percent in 2019.
- Somalia and Afghanistan:
  - Growth remains fragile due to drought and ongoing security challenges.

### Employment and inclusive growth (MENAP oil importers)
- Regional average growth over 2018–22 is projected at 4.9 percent—insufficient to effectively reduce unemployment, particularly among young people.
- Labor force is expected to expand 2.2 percent a year over the next five years in MENAP oil importers.
- MENAP oil importers need sustained growth of 6.2 percent annually just to maintain unemployment at its current level of 10 percent.
- Policy implication: achieving higher growth requires acceleration in structural reforms to enable the private sector to generate jobs; public sector cannot absorb new labor market entrants given fiscal vulnerabilities.

### External and fiscal positions (MENAP oil importers)
- Exports of MENAP oil-importing countries:
  - Grew by 6.4 percent in 2017.
  - Projected to accelerate by 8.4 percent in 2018 and 8.6 percent in 2019.
- Imports:
  - Projected to slow to 4.8 percent in 2018 (from 6.8 percent in 2017) and remain around 5.5 percent over the medium term.
- Current account deficit:
  - Projected to narrow from 6.5 percent of GDP in 2017 to 6.2 percent in 2018, and to 5.7 percent in 2019.
- Fiscal balances and adjustments:
  - Regional fiscal deficit improved from 6.8 percent of GDP in 2016 to 6.5 percent of GDP in 2017 and 5.9 percent of GDP in 2018.
  - Further fiscal adjustment expected through raising/unifying VAT rates (Egypt), eliminating/reducing exemptions (Jordan, Morocco), addressing loopholes, strengthening administration, and reforming income and corporate tax systems (Jordan, Morocco).
  - Under IMF-supported programs: Egypt expected to achieve more than 2 percentage points of GDP in growth-friendly and socially conscious adjustment; Tunisia expected to achieve 0.7 percentage points of GDP.
- Public debt:
  - Exceeds 80 percent of GDP in several countries (Egypt, Lebanon, Sudan).
  - Interest payments are, on average, between 5 and 10 percent of GDP for Egypt and Lebanon.
  - Rising global financing costs pose risks given large external debt shares and sizable short-term refinancing needs (notably Egypt).

### Inflation, financial sector, and reform needs (MENAP oil importers)
- Inflation:
  - Broadly stable at about 12 percent in the region, reflecting receding one-off factors (Egypt, Sudan), monetary tightening (Jordan, Tunisia), or declines in food prices (Morocco, Pakistan).
- Banking sectors:
  - Generally stable, liquid, and adequately capitalized, with declining but legacy high nonperforming loans.
  - Private credit growth remains relatively buoyant.
- Financial inclusion and fintech:
  - Several countries (Egypt, Lebanon, Jordan, Pakistan) are beginning to embrace fintech to increase financial inclusion.
- Policy priorities to enhance resilience:
  - Strengthen regulatory and supervisory frameworks (Djibouti, Mauritania).
  - Improve insolvency and bankruptcy regimes (Egypt, Jordan, Morocco, Tunisia).
  - Enhance deposit insurance arrangements where needed (Egypt, Pakistan).
  - Reinforce anti–money laundering and combating the financing of terrorism frameworks (Afghanistan, Somalia, Sudan).

### Risks and sensitivities (MENAP oil importers)
- Downside risks predominate:
  - Deterioration of regional conflicts or security conditions, intensification of domestic social tensions, or reform fatigue could derail policy implementation and weaken activity.
  - Oil price risks: baseline anticipates a rise to above $60 a barrel in 2018–19 (a 20 percent increase over 2017). A $10 increase in oil prices relative to the baseline would worsen the current account balance by 1 percentage point of GDP across MENAP oil importers.
  - Tighter and more volatile global financial conditions could increase borrowing costs and financing costs. Example: a 200 basis point increase in interest rates relative to the baseline would raise financing costs for Lebanon, Egypt, and Pakistan by 0.9, 0.8, and 0.7 percentage point of GDP, respectively.
  - Escalating import tariffs or inward-looking policies could reduce global trade or affect commodity prices, removing external demand support.
- Upside potential:
  - Countries that trade with stronger-than-expected trading partners could experience upside outcomes.

*Source: Middle East and Central Asia Department — REO Update, May 2018 (excerpt).*

### 2.6 percent in 2017. In Iran, growth

### menap0518 - 2.6 percent in 2017. In Iran, growth

### 2017 growth outcomes
- Overall growth in MENAP oil exporters: 2.6 percent in 2017.
- Country-level notes:
  - Iran: growth decelerated significantly relative to 2016. Oil GDP growth was much slower than in the previous year, more than offsetting the continued recovery in non-oil activity supported by public investment.
  - Algeria and Iraq: weaker growth in oil GDP (in the context of the OPEC+ agreement, and weaker-than-expected demand from Europe for Algerian-produced gas) was more than offset by a pickup in non-oil activity.
  - Libya: stronger-than-expected growth supported by increased oil production, more than offsetting lower public spending.
  - Yemen: economic contraction much more pronounced than anticipated in October as conflict effects continued.

### Recovery in 2018–19: projections and drivers
- Overall projections:
  - Overall growth projected at 2.8 percent this year and 3.3 percent in 2019 (versus 3.0 and 2.7 projected in October).
  - Non-oil GDP growth expected at 3.2 percent this year and 3.4 percent next, 0.7 and 0.4 percentage point higher, respectively, relative to October.
- Key opposing forces shaping the outlook:
  - Upward revisions to non-oil GDP growth for 2018 and 2019 in several countries:
    - Bahrain: deceleration now expected to be more gradual (expected completion of investment projects).
    - Saudi Arabia: faster pickup partly from a slower pace of fiscal consolidation.
    - Algeria: mostly increased public capital spending.
    - Iraq: reconstruction.
  - Downward revisions to oil GDP growth in 2018 in most GCC countries and Iraq relative to October, driven by lower oil production consistent with the extension of the OPEC+ agreement.
  - 2019: deferred expiration of the OPEC+ agreement means oil GDP growth will pick up faster than anticipated in October, especially in GCC countries.

### Fiscal consolidation: adjustments and policy measures
- Recent adjustments:
  - Saudi Arabia: fiscal adjustment in 2017 was less than initially indicated in the budget—higher expenditures supported by higher-than-expected non-oil revenues.
  - Qatar: availability of fiscal buffers allowed for more gradual fiscal consolidation than expected.
  - Outside the GCC: fiscal consolidation continued in 2017, especially in Iran and Iraq (in the context of the IMF-supported program).
- Expected path: MENAP oil exporters expected to continue fiscal consolidation efforts, although at a slower pace.
- Country-specific fiscal risks:
  - Algeria: large increases in expenditures expected to generate significantly larger fiscal deficits; consolidation expected to resume in 2019.
  - Iran: large increases in expenditures expected to generate significantly larger fiscal deficits.
- Revenue measures:
  - Introduction (January 2018) of a value-added tax (VAT) in Saudi Arabia and the United Arab Emirates; other GCC countries expected to introduce a VAT this year.
  - Iraq: expected to introduce sales and excise taxes on some goods and services in 2018.
  - Policy priority: implement VAT in the remaining GCC countries to mobilize non-oil revenues.
- Expenditure-side priorities:
  - Improve efficiency of public spending; public investment efficiency indicators suggest MENAP oil exporters perform better than emerging markets on average but lag advanced economies.
  - Contain large public wage bills that crowd out other critical public expenditure components; measures taken so far (including temporary hiring freezes) may be difficult to sustain without additional structural reforms.
  - Further reforms: steps toward full elimination of energy subsidies; changes to pension and social security systems (including revisions to retirement age and benefits).
  - Accompanying measures: enhanced targeted social protection mechanisms and improvements in delivery of and access to public services to mitigate impacts on the most vulnerable and make reforms equitable.

### Fiscal and financing risks
- Rapid debt buildup is a concern: debt has increased by an average of 10 percentage points of GDP each year since 2013.
- Financing needs and vulnerabilities:
  - Cumulative overall fiscal deficits projected to be $294 billion in 2018–22.
  - Cumulative government debt amortizations amount to $71 billion for the same horizon.
  - An additional amount of $312 billion of non-government-issued international debt (of which almost 40 percent corresponds to state-owned enterprises) is coming due over the next five years.
  - Interest rate shock example: a 200 basis point increase in interest rates would add between 0.1 and 0.6 percent of GDP a year to interest payments in MENAP oil exporters, increasing existing fiscal challenges.
  - A sudden tightening of global financial conditions or a sudden stop in international market access could materialize fiscal contingent liabilities and substantially amplify fiscal impacts.
- Oil price sensitivity:
  - Each $10 reduction in the price of oil leads to an instantaneous deterioration of 3 percentage points of GDP in the fiscal balance of MENAP oil exporters (excluding Libya and Yemen).

### Financial sector, credit, and vulnerabilities
- Financial-sector resilience: despite slowdown in 2016–17, financial sectors remained broadly resilient.
- Credit dynamics:
  - Credit growth remains subdued in most countries, reflecting weak consumer, government, and government-related enterprise spending, and reduced confidence.
  - Policy responses to ease financing access include introduction of credit registries (United Arab Emirates) and easing of capital market restrictions and mortgage loan-to-value ratios (Saudi Arabia).
  - Iran: rapid credit growth’s effect on non-oil activity has weakened as nonperforming loans (NPLs) continue to increase.
- Interest rates and market signals:
  - Interbank rates have continued to rise as monetary policy tightens in tandem with the United States.
  - Sovereign spreads have narrowed as government cash constraints eased with the higher oil price.
  - Deposit growth remains slow but broadly stable across the GCC.
  - Bank profitability has edged down due to compressed margins, but NPLs are not a significant concern in many countries; Algeria has higher NPLs from government arrears expected to decrease as arrears are cleared.
  - Iran and Iraq: banking systems face numerous challenges, with reforms expected to be implemented this year.
- Policy recommendations to support credit and confidence:
  - Strengthen legal rights of borrowers and lenders.
  - Increase availability of credit-related information.
  - Improve prudential regulation and oversight.

### Structural reform agenda and inclusive growth
- Imperative: accelerate structural reforms to promote diversification and private sector development and to move to a new growth model that boosts productivity and creates jobs.
- Labor market and education reforms: critical to boost productivity and create opportunities for everyone.
- Examples of recent reforms:
  - United Arab Emirates: continued investment in education and innovation; new corporate bankruptcy law to improve business environment.
  - Iran: developing programs to foster job creation for young individuals and women.
  - Bahrain: introduced a wage protection system and measures to increase job flexibility for expatriates.
  - Qatar: visa-free entry program to stimulate tourism; new law to expand protection of expatriate labor.
- Underpinnings for reform success: increase transparency and accountability, and strengthen institutions and governance.
- Marrakesh Call for Action (summary of reform priorities agreed at the Opportunity for All Conference):
  - Accountability, Competition, Technology and Trade, No one left behind, Opportunity (improve social and investment spending and pursue fairer taxation), Workers (invest in people and reform education).

### Risks: balance and scenarios
- Overall balance of risks remains skewed to the downside.
- Key risk factors:
  - High uncertainty surrounding oil prices.
  - Faster-than-expected tightening of financial conditions that could trigger abrupt financial market and asset price corrections, pressuring bank asset quality, affecting credit growth, and slowing activity.
  - Escalating import tariffs or inward-looking policies disrupting global trade and investment and lowering oil prices.
  - Regional conflicts and geopolitical risks.
  - Weakening political commitment to implement key fiscal measures and structural reforms, especially with higher oil prices.
- Counterfactual upside: continued commitment to fiscal consolidation, even at a slower pace, could boost investor confidence and result in stronger growth.

*Source: Middle East and Central Asia Department — REO Update, May 2018 (excerpt).*

### 4.2 percent in 2017. It is projected to increase

### menap0518 - 4.2 percent in 2017. It is projected to increase

### Growth Outlook and Drivers
- Regional growth was 4.2 percent in 2017 and is projected to increase further to 4.7 percent this year and to 5 percent on average during 2019–23.
- External demand is supportive: exports, remittances, foreign direct investment, and tourism are channels through which a strengthening euro area supports activity.
- Headwinds: persistent conflicts and regional spillovers; security concerns; weaker-than-anticipated public investment (Afghanistan, Jordan); delays in implementation or completion of structural reforms (Jordan, Morocco, Pakistan, Tunisia); political and policy uncertainty (Lebanon, Pakistan).
- The outlook has softened slightly since the October 2017 Regional Economic Outlook.

### Country-Specific Projections and Developments
- Egypt:
  - Growth projected to rise to 5.2 percent in FY2018 (from 4.2 percent last year).
  - Growth projected to accelerate to 5.5 percent in FY2019, aided by an increase in gas production.
- Pakistan:
  - Estimated growth of 5.6 percent in FY2018 (from 5.3 percent last year).
  - Growth projected to moderate to 4.7 percent in FY2019 due to increased macroeconomic vulnerabilities and domestic policy slippages.
- Sudan:
  - Growth expected to advance to 3.7 percent this year from 3.2 percent in 2017.
  - Growth anticipated to slow to 3.5 percent in 2019.
- Tunisia:
  - Growth expected to lift to 2.4 percent in 2018 (from 1.9 percent in 2017).
  - Growth set to increase further to 2.9 percent in 2019.
- Jordan:
  - Growth to increase from 2.3 percent in 2017 to 2.5 percent in 2018, and to 2.7 percent in 2019.
  - Constraints: delays in structural reforms, challenging regional environment, limited scope for public investment due to constrained fiscal position.
- Mauritania and Morocco:
  - Growth will soften in 2018 to 2.7 and 3.1 percent, respectively (down from 3.2 percent and 4.2 percent in 2017).
  - Growth anticipated to rebound in 2019 to 4.5 percent in Mauritania and 4 percent in Morocco.
- Lebanon:
  - Growth projected to tick up to 1.5 percent in 2018 (from 1.2 percent in 2017) and to rise to 1.8 percent in 2019.
- Somalia and Afghanistan:
  - Growth remains fragile due to drought and ongoing security challenges.

### Employment and Inclusive Growth
- Regional average growth over 2018–22 is projected at 4.9 percent—insufficient to effectively reduce unemployment, particularly among young people.
- Labor force is expected to expand 2.2 percent a year over the next five years in MENAP oil importers.
- MENAP oil importers need sustained growth of 6.2 percent annually just to maintain unemployment at its current level of 10 percent.
- Policy implication: achieving higher growth requires acceleration in structural reforms to enable the private sector to generate jobs; public sector cannot absorb new labor market entrants given fiscal vulnerabilities.

### External and Fiscal Positions
- Exports of MENAP oil-importing countries:
  - Grew by 6.4 percent in 2017.
  - Projected to accelerate by 8.4 percent in 2018 and 8.6 percent in 2019.
- Imports:
  - Projected to slow to 4.8 percent in 2018 (from 6.8 percent in 2017) and remain around 5.5 percent over the medium term.
- Current account deficit:
  - Projected to narrow from 6.5 percent of GDP in 2017 to 6.2 percent in 2018, and to 5.7 percent in 2019.
- Fiscal balances and adjustments:
  - Regional fiscal deficit improved from 6.8 percent of GDP in 2016 to 6.5 percent in 2017 and 5.9 percent in 2018.
  - Further fiscal adjustment expected through raising/unifying VAT rates (Egypt), eliminating/reducing exemptions (Jordan, Morocco), addressing loopholes, strengthening administration, and reforming income and corporate tax systems (Jordan, Morocco).
  - Under IMF-supported programs: Egypt expected to achieve more than 2 percentage points of GDP in growth-friendly and socially conscious adjustment; Tunisia expected to achieve 0.7 percentage points of GDP.
- Public debt:
  - Exceeds 80 percent of GDP in several countries (Egypt, Lebanon, Sudan).
  - Interest payments are, on average, between 5 and 10 percent of GDP for Egypt and Lebanon.
  - Rising global financing costs pose risks given large external debt shares and sizable short-term refinancing needs (notably Egypt).

### Inflation, Financial Sector, and Reform Needs
- Inflation:
  - Broadly stable at about 12 percent in the region, reflecting receding one-off factors (Egypt, Sudan), monetary tightening (Jordan, Tunisia), or declines in food prices (Morocco, Pakistan).
- Banking sectors:
  - Generally stable, liquid, and adequately capitalized, with declining but legacy high nonperforming loans.
  - Private credit growth remains relatively buoyant.
- Financial inclusion and fintech:
  - Several countries (Egypt, Lebanon, Jordan, Pakistan) are beginning to embrace fintech to increase financial inclusion.
- Policy priorities to enhance resilience:
  - Strengthen regulatory and supervisory frameworks (Djibouti, Mauritania).
  - Improve insolvency and bankruptcy regimes (Egypt, Jordan, Morocco, Tunisia).
  - Enhance deposit insurance arrangements where needed (Egypt, Pakistan).
  - Reinforce anti–money laundering and combating the financing of terrorism frameworks (Afghanistan, Somalia, Sudan).

### Risks and Sensitivities
- Downside risks predominate:
  - Deterioration of regional conflicts or security conditions, intensification of domestic social tensions, or reform fatigue could derail policy implementation and weaken activity.
  - Oil price risks: baseline anticipates a rise to above $60 a barrel in 2018–19 (a 20 percent increase over 2017). A $10 increase in oil prices relative to the baseline would worsen the current account balance by 1 percentage point of GDP across MENAP oil importers.
  - Tighter and more volatile global financial conditions could increase borrowing costs and financing costs. Example: a 200 basis point increase in interest rates relative to the baseline would raise financing costs for Lebanon, Egypt, and Pakistan by 0.9, 0.8, and 0.7 percentage point of GDP, respectively.
  - Escalating import tariffs or inward-looking policies could reduce global trade or affect commodity prices, removing external demand support.
- Upside potential:
  - Countries that trade with stronger-than-expected trading partners could experience upside outcomes.

*Source: REO Update, May 2018 (Middle East and Central Asia Department).*

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_Source: https://www.imf.org/-/media/files/publications/reo/mcd-cca/2018/may/english/menap0518.pdf_