## Global Developments: Implications for the Middle East and Central Asia Regions

## Source details

**Canonical URL:** [Global Developments: Implications for the Middle East and Central Asia Regions](https://www.imf.org/-/media/files/publications/reo/mcd-cca/2019/april/english/global-development.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/reo/mcd-cca/2019/april/english/global-development.pdf.md)
- [Structured JSON version](/-/media/files/publications/reo/mcd-cca/2019/april/english/global-development.pdf.json)

---

### Global outlook and growth projections
- Global growth is projected to slow this year to 3.3 percent, followed by a precarious recovery in 2020.
- The forecast for 2019 is over half a percentage point lower than projected one year ago.
- Country- and region-specific drivers of the slowdown include:
  - Europe: disruption to automobile production in Germany, fiscal concerns, protests, and uncertainty about Brexit.
  - China: trade tensions and needed regulatory tightening to rein in shadow banking.
  - Russia: lower oil prices and uncertainties from sanctions.
- Real GDP Growth (selected series, exact values preserved):
  - World: 2017 = 3.8; 2018 = 3.6; 2019 = 3.3; 2020 = 3.6; 2021 = 3.6
  - Euro Area: 2017 = 2.4; 2018 = 1.8; 2019 = 1.3; 2020 = 1.5; 2021 = 1.4
  - United States: 2017 = 2.2; 2018 = 2.9; 2019 = 2.3; 2020 = 1.9; 2021 = 1.6
  - China: 2017 = 6.8; 2018 = 6.6; 2019 = 6.3; 2020 = 6.1; 2021 = 5.7
  - Russia: 2017 = 1.6; 2018 = 2.3; 2019 = 1.6; 2020 = 1.7; 2021 = 1.6
  - MENAP: 2017 = 2.2; 2018 = 1.8; 2019 = 1.5; 2020 = 3.2; 2021 = 2.8
  - MENAP oil exporters: 2017 = 1.3; 2018 = 0.6; 2019 = 0.4; 2020 = 2.8; 2021 = 2.0
  - MENAP: non-oil GDP growth (of which): 2017 = 2.5; 2018 = 1.2; 2019 = 2.1; 2020 = 2.9; 2021 = 2.6
  - MENAP oil importers: 2017 = 4.1; 2018 = 4.2; 2019 = 3.6; 2020 = 4.0; 2021 = 4.3
  - CCA: 2017 = 4.9; 2018 = 4.2; 2019 = 4.1; 2020 = 4.1; 2021 = 4.3
  - CCA oil and gas exporters: 2017 = 4.8; 2018 = 4.1; 2019 = 4.0; 2020 = 4.1; 2021 = 4.3
  - CCA: non-oil GDP growth (of which): 2017 = 2.9; 2018 = 3.9; 2019 = 3.9; 2020 = 3.9; 2021 = 4.1
  - CCA oil and gas importers: 2017 = 6.0; 2018 = 5.1; 2019 = 4.5; 2020 = 4.5; 2021 = 4.5
- Sources for the table: National authorities; and IMF staff calculations.

### Oil prices and implications for the region
- Recent oil price path and volatility:
  - Prices peaked in October at over $80 a barrel.
  - Prices fell as low as $50 a barrel in January.
  - Prices recovered recently to nearer $65 a barrel.
- Drivers of recent decline: weaker global growth, strong production in the United States, and temporary sanctions waivers for some Iranian oil exports.
- APSP definition preserved: "APSP = average petroleum spot price. APSP is the average of UK Brent, Dubai Fateh, and West Texas Intermediate crude oil prices."
- Implications:
  - Lower oil prices and heightened volatility will weigh on output and fiscal positions, particularly for some oil exporters (Algeria, Bahrain, Oman).
  - Oil importers may be hurt through increased regional uncertainty and reduced and more variable remittances (Armenia, Tajikistan).

### Key global risks and transmission channels to the region
- Trade tensions:
  - Trade tensions between the United States and China may continue at length but could as easily come to a swift resolution.
  - Ongoing disputes will likely impact the region via supply chain disruptions and reduced investment.
- Oil price volatility:
  - Elevated oil price volatility may continue in an uncertain global environment, weighing on fiscal and external balances of oil exporters.
- Global financial conditions:
  - Conditions have eased recently but are likely to remain volatile; abrupt changes in market sentiment could sharply increase spreads and raise risks.
  - Vulnerabilities mentioned:
    - Higher interest burdens (Bahrain, Egypt, Lebanon).
    - Revaluation of foreign debt (Kyrgyz Republic, Tajikistan).
    - Financial sector stresses (Azerbaijan, Kazakhstan, Kyrgyz Republic).
- Geopolitical risks:
  - High regional geopolitical risks, including tensions between India and Pakistan, demonstrations and political uncertainty in Algeria, possible peace in Afghanistan, and sanctions on Iran.
  - Such uncertainty may increase investors’ perception of risk for the whole region, leading to capital outflows and exchange rate pressure, which can feed back into oil price volatility and regional uncertainty.

### Regional implications and policy recommendations
- Overarching policy message: High uncertainty and weakening external demand amplify the urgency for policymakers to act now to deliver higher and more inclusive growth.
- MENAP oil exporters:
  - Problem: Procyclical fiscal policies, high fiscal break-even oil prices, slower projected pace of fiscal consolidation.
  - Policy recommendations:
    - Anchor fiscal policy in a medium-term framework to insulate economies from oil price volatility and rebuild fiscal space.
    - Tackle corruption, improve small and medium enterprises’ access to financing, and strengthen social safety nets to diversify economies and promote higher and more inclusive growth.
- MENAP oil importers:
  - Problem: Public debt burdens have increased significantly over the past decade, raising near-term vulnerabilities and limiting policy options.
  - Policy recommendations:
    - Intensified growth-friendly fiscal consolidation to rebuild resilience and create space for structural reforms.
    - Structural reforms to improve the business environment and governance, enhance labor market flexibility, boost regional integration, and strengthen market competition.
- Caucasus and Central Asia (CCA):
  - Situation: Growth outlook stable after recoveries from 2014–16 shocks, but legacy challenges remain.
  - Problems: Weaknesses in some banking systems and incomplete structural reforms keep growth below long-term potential.
  - Policy recommendations:
    - Complete financial sector repair.
    - Fully modernize monetary policy frameworks.
    - Enhance the business environment, including by improving governance.
- Broader opportunities:
  - Low oil prices increase urgency for diversification.
  - Increased female labor force participation can revitalize labor markets.
  - Improved governance and reduced corruption could revive investment and allow more social-protection spending.

### Reported Social Unrest Index (RSU): findings and policy implications (Box 1)
- RSU overview and coverage:
  - The RSU has hit multiyear highs in some countries in the Middle East and North Africa over the past 18 months.
  - The index covers January 2005 to February 2019.
  - Current version includes Algeria, Egypt, Jordan, Lebanon, Morocco, Tunisia, and Sudan and will be expanded further in the future.
  - The index uses English-language media for the headline series; results hold using Arabic and French sources. Social media are excluded.
  - Methodology note (preserved): "The RSU—prepared by the authors—calculates the share of articles in major news sources that include key terms relating to protests, demonstrations, and other forms of social unrest."
- Key empirical observations:
  - The RSU increased recently following a steady decline during 2015–16 and has hit multiyear highs in nearly all covered countries.
  - February 2019 is the highest on record for Sudan (since January 2005).
  - Intervals between RSU peaks: Figure 2 plots the interval between the RSU peak over the past 18 months and the last time the index was higher; longer intervals mean reported protests are high relative to the recent past.
- Economic correlates and interpretation:
  - Reports often highlight discontent over economic conditions and management: joblessness, limited opportunities, corruption, and poor public services.
  - Constraining factors noted: constrained access to credit, large and inefficient public sectors, low social spending on health and education relative to peers, weak indicators of a business-friendly legal system (time to resolve insolvency or enforce contracts).
  - Progress on higher and more inclusive growth has been limited: unemployment has remained stubbornly high—particularly in oil importers—and control of corruption has barely changed.
  - Recent RSU highs are largest relative to the past in countries with the lowest rates of per capita GDP growth in the past few years (Figure 3). The report notes this association is not evidence of causality but signals the potential role of economic forces in social unrest.
- Policy implications highlighted:
  - Urgent need for structural reforms to create inclusive and job-rich growth: improve infrastructure and access to health care and education, strengthen governance and public services, tackle corruption, expand access to credit, foster private-sector-led growth, create jobs, and strengthen social safety nets.
  - Trade-off: policymakers face difficult trade-offs between rebuilding fiscal buffers and addressing medium-term growth challenges; delay in reforms risks less favorable medium-term outcomes.
- Prepared by: Philip Barrett and Jorge de León Miranda.
- Methodological footnote preserved: "The index, which covers January 2005 to February 2019, increases sharply during major episodes of social unrest. Although data availability means that the headline index uses English-language media, the results hold using Arabic and French sources. Key patterns are also robust to different search terms and sources. Trends in usage, data constraints, and concerns about bias mean social media are excluded. See the online annex for details on the methodology."

*Middle East and Central Asia Department — REO Update, April 2019*

---


_Source: https://www.imf.org/-/media/files/publications/reo/mcd-cca/2019/april/english/global-development.pdf_