## Regional Developments and Outlook: From Crisis Management to Transformational Recovery

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### Global backdrop and commodity assumptions
- Multispeed global recovery amid resurgent pandemic; vaccine and policy differences drive divergent paths (October 2021 World Economic Outlook).
- Assumed oil and financial parameters used for projections:
  - Price of oil will average US$65.68 a barrel in 2021 and US$64.52 a barrel in 2022.
  - Six-month LIBOR on US dollar deposits will average 0.2 percent in 2021 and 0.4 percent in 2022.
- Commodity and price developments:
  - Average petroleum spot prices expected to be $65.7 in 2021, before declining to $56.3 in the medium term.
  - 2020 petroleum average: $41.3.
  - 2019 petroleum average: $61.4.
  - OPEC+ agreed to gradually phase out 5.8 million barrels per day of production curbs by September 2022.
  - Food prices expected increase: 27.8 percent in 2021 (compared to 13.9 percent in April) and an expected increase of 1.9 percent in 2022.
- Global conditions:
  - Global financial conditions have remained supportive.
  - Global inflation is rising, partly due to pandemic-related supply shortages.
  - Employment remains subdued.

### Pandemic status, vaccination, and short-term priorities
- Pandemic in ME&CA:
  - About two thirds of the region’s countries are facing a new pandemic outbreak.
  - Infection and death rates are relatively contained in countries that achieved early vaccination progress.
- Vaccination rollout categories (as of September 21 / vaccines administered as of 09/21/2021):
  - Five countries where more than 60 percent of the total population has received at least one dose.
  - 17 countries follow with important progress, including 13 with coverage higher than 20 percent.
  - Remaining 10 countries have vaccinated less than 10 percent of their population.
- Distributional pattern:
  - More affluent countries—some oil exporters and EM&MI—procured vaccines from more diverse sources and had more successful rollouts than LICs.
  - Recent donations—covering sufficient doses to inoculate 7 percent of the region’s LICs’ population on average—have tripled the number of average daily doses administered in LICs since August.
- Short-term priority and targets:
  - Swift vaccination to save lives and support recovery.
  - Targets: vaccinate at least 40 percent of the population by the end of this year and 70 percent by the first half of 2022.
  - Region has secured 576 million vaccines, with 52 percent committed by COVAX and the African Vaccine Acquisition Trust.
  - Estimated shortfall: short by about 66 million vaccines:
    - 24 million for the MENA region
    - 7 million for Afghanistan
    - 21 million for Pakistan
    - 14 million for the CCA region
  - Note: Secured doses do not represent doses delivered; shortfalls were estimated before the revision of the 70 percent target.

### Policy responses: fiscal, monetary, and macro‑financial measures
- Fiscal policy:
  - Many countries extended emergency measures in line with fiscal space (examples: Algeria, Bahrain, Georgia, Kazakhstan, Morocco, and the UAE).
  - New measures in 2021 in some countries (examples: SME and household support in Oman; new cash transfers in Sudan).
  - Some measures were kept, reduced, or allowed to expire; below-the-line liquidity supports remained in some countries (examples: Egypt and Pakistan kept some tax relief).
  - Guidance:
    - Countries where vaccination is slow and infections rising should continue targeted support to vulnerable groups.
    - Countries with fiscal space should clearly communicate and make gradual any withdrawal of support.
    - Countries without fiscal space must reallocate spending, eliminate subsidies that benefit the rich, contain high wage bills, and mobilize revenue (October 2021 Fiscal Monitor).
- Monetary and macro‑financial:
  - Asia (CCA) region and Pakistan have begun to tighten monetary policy.
  - Some 2020 macro‑financial measures expired (example: loan guarantee program and waivers for electronic transaction fees in Saudi Arabia).
  - Other measures extended (examples: delayed recognition of loan impairments and reduced capital buffers in Kazakhstan; credit subsidies and guarantees in GCC).
  - New policies introduced in some countries (example: government guarantee program for bank loans and SMEs in Kuwait).
  - Central banks face the task of curbing rising inflation without choking fragile recovery; if inflation persists, rate hikes may be required; in pegged-exchange-rate countries, monetary accommodation is expected to decline as advanced-country policies normalize.
- Macro‑financial flows and issuance:
  - Brief episode of capital outflows in early 2021 due to U.S. inflation concerns; flows reversed in May.
  - Cumulative net capital inflows of $2.9 billion up to the end of August.
  - 19 Eurobond issuances totaling $19.8 billion since the beginning of the year; total value about half of same period in 2020.

### Outlook: growth, inflation, public debt, and financing needs (regional aggregates and groups)
- MENA region:
  - Real GDP: contracted by 3.2 percent in 2020; projected to expand by 4.1 percent in both 2021 and 2022 (upward revisions of 0.1 and 0.4 percentage points since April, respectively).
  - Inflation: projected to increase to 12.9 percent in 2021, then subside to 8.8 percent in 2022.
  - Government gross debt for MENA oil importers projected at more than 100 percent of GDP in 2021.
  - Public gross financing needs projected to rise close to 50 percent during 2021–22 (to $390 billion) compared to 2018–19.
- CCA region:
  - Real GDP projected to expand by 4.3 percent in 2021 (an upward revision of 0.7 percentage points) and 4.1 percent in 2022, following a contraction of 2.2 percent in 2020.
  - Inflation expected to accelerate to 8.5 percent in 2021 (an upward revision of 1.6 percentage points), before gradually declining from 2022 onwards.
- Oil exporters (aggregate):
  - Real GDP projected to expand by 4.5 percent in 2021 (2.8 percent excluding Libya) and 4.0 percent in 2022.
  - Oil activity expected to expand by 5.3 percent in 2021 and 4.4 percent in 2022.
  - Non-oil sector projected to expand by 3.9 percent in 2021 and 3.4 percent in 2022.
  - Inflation projected to rise to 10.5 percent in 2021 and moderate to 8.0 percent in 2022 (an upward revision of 0.3 percentage points in both years).
  - Current account: deficit of 1.9 percent of GDP in 2020 moving to a surplus of 3.6 percent of GDP in 2021.
  - Gross official reserves expected to increase by $95 billion to almost $1 trillion in 2021 (an upward revision of more than $100 billion since April).
  - Public gross financing needs projected at $473 billion overall during 2021–22, compared to $310 billion during 2018–19.
- Emerging market and middle‑income countries (EM&MIs):
  - Vaccination coverage on average expected to reach about 40 percent of populations by mid-2022 and 70 percent by the end of 2022 at current pace.
  - Real GDP projected to expand by 3.6 percent in 2021 and 4.2 percent in 2022.
  - These growth rates are below projections for global EM&MIs in 2021 and 2022 (6.7 percent and 5.1 percent).
  - Inflation expected to remain above 7.5 percent in 2021–22, before declining to 6.0 percent over the medium term; Pakistan noted as an exception where inflation is not projected to increase.
  - Aggregate debt projected to rise from 86.8 percent of GDP in 2020 to 91.7 percent of GDP in 2021, then gradually decline to return to the precrisis level in 2023.
  - Public gross financing needs projected to hit $564 billion overall during 2021–22, about a 20‑percent increase compared to 2018–19.
  - Aggregate current account deficit projected to widen from 3.4 percent of GDP in 2020 to 3.9 percent of GDP in 2022.
- Low‑income countries (LICs) and fragile and conflict‑affected states (FCS):
  - Vaccination rates low; without strengthened multilateral action, 70 percent vaccination not expected until 2024.
  - Activity projected to expand by 3.4 percent in 2021 and 4.4 percent in 2022.
  - Real GDP expected to remain below precrisis projections by 4.8 percent over the medium term.
  - Country notes:
    - Afghanistan faces an acute crisis with falling output, paralyzed banks, and rising poverty.
    - Lebanon facing a very severe economic crisis exacerbated by the pandemic.
    - Sudan reached the HIPC Decision Point with an immediate reduction in external public debt of $28 billion that will eventually decrease to $6 billion (14 percent of GDP) at the HIPC Completion Point.

### Labor market developments, informality, and Okun’s law
- Pre‑pandemic labor metrics:
  - Average unemployment rate in 2018–19: 9.4 percent.
  - Labor force participation rate in 2018–19: 55 percent.
  - Female labor force participation in 2018–19: about 33 percent.
  - Informal employment (proxy: self‑employment) at 35 percent of total employment in 2018–19 and almost 50 percent in ME&CA LICs.
- Pandemic impacts:
  - Average unemployment rate increased from 9.4 percent (2018–19) to 10.7 percent in 2020.
  - Employment in the region fell by an estimated 8 million persons or by 2.2 percentage points of the working‑age population.
  - Women’s employment fell by 6.1 percent in 2020; men’s employment fell by 3.9 percent.
  - Private employment: −2.5 percent (regionwide average); public employment: −1.1 percent.
  - Contact‑intensive sectors’ employment decline in 2020 was about three times that of noncontact‑intensive sectors.
  - Youth unemployment increase about two and a half times that of adults.
- Okun’s coefficients (estimated average values):
  - ME&CA average Okun’s coefficient: −0.035.
  - MENAP average Okun’s coefficient: −0.013.
  - MENAP excluding high‑income countries: −0.031.
  - CCA average Okun’s coefficient: −0.075.
- Implications:
  - Labor markets in ME&CA historically not very responsive to GDP growth; MENAP responds less than CCA (low responsiveness in MENAP mainly due to GCC countries).
  - Very high growth rates would be required in some countries to stabilize or reduce unemployment without reforms (examples: close to 10 percent in some MENAP economies; above 8 percent in some CCA countries).
- Policy priorities for labor and social protection:
  - Shift from employment retention to facilitating reallocation as recovery gains momentum.
  - Use carefully designed, temporary, and targeted hiring subsidies where fiscal space exists.
  - Expand active labor market policies, vocational training, and public employment services.
  - Reorient social contracts toward health and education, expand safety nets, and reexamine subsidies.
  - Promote formalization and revisit labor market regulations to improve responsiveness.

### Corporate sector outlook, firm heterogeneity, and digital resilience
- Firm performance patterns:
  - Revenues in oil exporters contracted by about half of the decline in oil importers during H1 2020.
  - HCI sectors: revenues contracted −11 percent year over year in H1 2020; LCI sectors: −7 percent.
  - By Q1 2021: LCI sector revenues recovered to 18 percent year over year; HCI sector revenue growth continued to decline.
- Firm heterogeneity:
  - Worse‑performing firms: revenue decline continued at −30 percent year over year in Q1 2021.
  - Better‑performing firms: 16 percent revenue growth year over year by Q1 2021.
  - Small publicly listed firms: revenues contracted almost twice those of large peers in H1 2020; by Q1 2021 small firms still contracting −11 percent while large firms grew 14 percent.
  - SMEs in service/hospitality/tourism: revenue plummeted by 40–45 percent; SME jobs declined by 32 percent in those sectors versus 20 percent in large firms.
  - SOEs: revenues declined −6 percent in H1 2020 versus −19 percent for the median private firm; by Q1 2021 SOE revenues still contracting −3.5 percent; privately owned firms recovered 10 percent.
- Digital connectivity:
  - Firms investing in digital technologies experienced about a 4 percentage point lower decline in sales at the pandemic peak versus non‑digital firms.
  - About 35 percent of reporting firms increased or started digital activities during the pandemic.
- Policy support to firms:
  - Common measures: tax deferrals, furlough programs, wage subsidies, policy rate cuts, liquidity support, loan guarantees.
  - 34 percent of firms in a sample received at least one type of policy support; SMEs 33 percent; large firms 48 percent.
  - Contribution of support to median MENAP firm in 2020:
    - Income tax payments contracted by 12 percent; effective tax rates declined by 2 percentage points in 2020.
    - Firms’ interest expenses decreased by 10 percent overall (oil exporters −13 percent; oil importers −8 percent).
    - Net borrowing during 2020 increased by 3 percentage points of 2019 assets (MENAP median).
    - Nonwage outlays curtailed by 10 percent by end‑2020; wage bills broadly unchanged overall (oil exporters −5 percent; oil importers +3 percent).
- Liquidity, solvency, and zombification risks:
  - Leverage rose from 51 to 57 percent by Q1 2021 (region‑wide median).
  - Pre‑pandemic worse‑performing firms had negative interest‑coverage ratios and high debt burdens; zombification, liquidity, and solvency risks have risen for these firms.
  - Stress‑test projections (small firms):
    - About 38 and 42 percent of small firms would face cash shortages and have to borrow under the baseline and adverse scenarios, respectively, compared with 25 percent pre‑pandemic.
    - Nearly 31 (baseline) and 37 (adverse) percent of small firms’ debt would be at risk of default by 2023 if liquidity risks materialize.
  - Contact‑intensive sectors: share of firms facing liquidity needs could rise to 21 percent (baseline) and 25 percent (adverse) by 2023 from a pre‑pandemic 6 percent.
  - Solvency: share of insolvent small firms (equity < 0) projected to rise from 7 percent pre‑pandemic to 8 percent (baseline) and 11 percent (adverse) in 2023.
- Triage and restructuring needs:
  - Firms classified by ICR:
    - Sound: pre‑ and post‑pandemic ICR above 1.
    - Viable (distressed but recoverable): pre ICR >1, post ICR <1.
    - Zombie: pre‑ and post‑pandemic ICR below 1.
  - Triage results:
    - 85 percent of firms sound in baseline for both oil importers and exporters (about 10 percentage points less under adverse).
    - 15 percent of firms (up to 25 percent under adverse) would require restructuring or liquidation.
    - Viable firms represent 9 and 6 percent of firms in oil‑importing and oil‑exporting countries, respectively, in baseline; 14 and 13 percent under adverse.
    - Zombie firms represent 6 and 9 percent (baseline) and 9 and 12 percent (adverse) in oil‑importing and oil‑exporting countries.
- Financial sector resilience:
  - Swift macro‑financial policy and liquidity support helped banks withstand the shock to date.
  - NPLs averaged about 7½ percent of total loans and remained broadly stable.
  - Loan‑loss provisioning in 2020 was higher than in 2019; banks building buffers ahead of potential asset‑quality deterioration.
  - Banks with higher corporate exposure have higher NPLs, lower capital adequacy and liquidity; vulnerabilities uneven across banks.

### Debt stabilization, risks, and scenarios
- Debt outlook:
  - COVID‑19 raised fiscal deficits and public debt‑to‑GDP ratios across ME&CA.
  - Most ME&CA countries face a higher probability than pre‑COVID‑19 that debt would not stabilize over a three‑year horizon.
  - Pre‑COVID‑19, probability of debt non‑stabilization was 44 percent on average across ME&CA in the sample; this probability increased post‑COVID‑19.
  - Reducing debt to pre‑COVID‑19 levels would require much stronger fiscal adjustment for over a decade.
- Baseline versus adverse scenario (2022–26) assumptions used in debt fan‑chart toolkit:
  - Higher real effective interest rates by 150 basis points.
  - Cap on yearly projected growth at average real growth during 2001–19.
  - Lower primary balances by 1 percent of GDP for EMs and oil exporters, and 0.5 percent for LICs.
  - Additional 1 percent of GDP in contingent liability materializations every year.
- Under the alternative scenario, probability of debt non‑stabilization increases markedly, particularly for EMs and LICs.
- Policy implications:
  - Continued vigilance; credible medium‑term fiscal plans and stronger institutions to anchor expectations.
  - Carefully budget risks from SOEs and contingent liabilities.
  - Expedite structural reforms to boost growth; implement debt management strategies; seek additional grant and concessional financing.

### Key risks and transformational opportunities
- Major downside risks:
  - Rapid spread of Delta and potential more virulent variants; vaccine delays and further outbreaks.
  - Tighter global financial conditions: rise in global bond yields could trigger capital outflows, higher sovereign spreads, higher interest rates, financing and rollover risks, and worsening bank‑sovereign linkages.
  - Persistent inflation from global supply constraints and food price increases; de‑anchoring inflation expectations in countries with weak monetary frameworks.
  - Social unrest, geopolitical and security risks (examples: Iraq, Lebanon, Libya, Tunisia, Yemen), and the crisis in Afghanistan with refugee and spillover risks.
  - Crisis legacies: about 7 million more people estimated to have entered extreme poverty during 2020–21 in the region relative to pre‑crisis projections.
  - Climate shocks: more frequent/intense weather disasters; adaptation needs and hydrocarbon dependence.
- Transformational recovery opportunities:
  - If domestic policies are comprehensive and exploit synergies, recovery can be transformational—toward more resilient, inclusive, and greener economies.
  - Leverage digitalization: invest in digital technologies and infrastructure to identify vulnerable groups, deliver support, promote financial inclusion, and catalyze growth and employment (examples: Morocco centralized digital registration; Egypt digital outreach to informal workers).
  - Pursue climate adaptation and mitigation: accelerate national adaptation plans, regional cooperation, green investments, and strengthen climate‑risk disclosure frameworks.
  - Fiscal priorities for oil exporters: use higher oil revenues to rebuild policy space, avoid procyclical spending, and focus on long‑term transformational challenges.

### IMF support and multilateral coordination
- IMF support since the pandemic began: $20 billion in financing to members in the region.
- IMF facilitated Debt Service Suspension Initiative and supported the Common Framework for debt treatment.
- IMF revamped strategy for FCS engagements.
- 2021 general allocation of SDR—largest in IMF history—became effective in August, increasing the region’s reserve assets by $49.3 billion.
- Guidance: SDR use should be prudent, well‑informed, and consistent with macroeconomic sustainability and transparency.

*Italic: Source: IMF Regional Economic Outlook: Middle East and Central Asia, October 2021 (Chapters 1–3).*

### 1. Regional Developments and Outlook: From Crisis Management to Transformational

### 1. Regional Developments and Outlook: From Crisis Management to Transformational Recovery

### Global Backdrop: A Dichotomy between the Haves and Have Nots
- A multispeed global recovery continues amid a resurgent pandemic, with differing vaccine rates and policy support driving divergent recovery paths (October 2021 World Economic Outlook).
- Assumed oil and financial parameters used for projections:
  - Price of oil will average US$65.68 a barrel in 2021 and US$64.52 a barrel in 2022.
  - Six-month LIBOR on US dollar deposits will average 0.2 percent in 2021 and 0.4 percent in 2022.
- Commodity price developments:
  - Average petroleum spot prices expected to be $65.7 in 2021, before declining to $56.3 in the medium term.
  - 2020 petroleum average: $41.3.
  - 2019 petroleum average: $61.4.
  - OPEC+ agreed to gradually phase out 5.8 million barrels per day of production curbs by September 2022.
  - Food prices expected increase: 27.8 percent in 2021 (compared to 13.9 percent in April) and an expected increase of 1.9 percent in 2022.
- Global conditions:
  - Global financial conditions have remained supportive.
  - Global inflation is rising, partly due to pandemic-related supply shortages.
  - Employment remains subdued.

### Not Out of the Woods
- Pandemic status in ME&CA:
  - About two thirds of the region’s countries are facing a new pandemic outbreak.
  - Infection and death rates are relatively contained in countries that achieved early vaccination progress (Figure 1.1).
- Vaccination rollout categories (as of September 21 / vaccines administered as of 09/21/2021):
  - Five countries where more than 60 percent of the total population has received at least one dose.
  - 17 countries follow with important progress, including 13 with coverage higher than 20 percent.
  - Remaining 10 countries have vaccinated less than 10 percent of their population.
- Distributional pattern:
  - More affluent countries in the region—some oil exporters and EM&MI—have procured vaccines from a more diverse number of sources and had more successful rollouts than LICs, which faced delayed and uneven delivery.
  - Recent donations—covering sufficient doses to inoculate 7 percent of the region’s LICs’ population on average—have tripled the number of average daily doses administered in LICs since August.

### Policy Support and Responses
- Fiscal policy:
  - Most countries that experienced a resurgence during 2021 extended emergency measures in line with their fiscal space (examples listed: Algeria, Bahrain, Georgia, Kazakhstan, Morocco, and the UAE).
  - Some countries introduced new measures in 2021 (examples listed: support for small and medium enterprises and vulnerable households in Oman; new cash transfers in Sudan).
  - In other countries, emergency spending measures were kept the same, reduced, or allowed to expire; some below-the-line liquidity support measures without a direct budgetary cost have remained in place (examples listed: Egypt and Pakistan have kept some tax relief measures in place).
- Monetary and macro-financial:
  - Policy interest rates remain low for many countries, though some countries in the Caucasus and Central ... (section continues in source).

### Emerging Challenges and Outlook Signals
- Recovery characteristics:
  - The recovery in ME&CA is expected to be multispeed and fragile; the ongoing subdued recovery is expected to solidify in 2022 as vaccine rollouts progress.
- New challenges:
  - Rising inflation due to pandemic-related supply shortages and higher commodity prices.
  - Increased headwinds to the outlook and greater uncertainty about how quickly the pandemic can be overcome.
  - Potential for extensive economic scarring given weak employment, increased inequities and poverty, corporate sector vulnerabilities, and debt sustainability risks.
- Policy trade-offs and transformation:
  - Near-term policy trade-offs have become more acute, with fiscal space already eroded, declining monetary policy space, and increasing geopolitical and social unrest risks.
  - The crisis presents opportunities for a transformational recovery—toward more resilient, inclusive, and greener economies—if domestic policies are comprehensive and exploit synergies.
  - Global and regional cooperation is crucial for vaccine deployment and leveraging digitalization, adaptation to climate change, and transition to lower carbon dependence to strengthen medium-term growth prospects.

*Source: IMF Regional Economic Outlook: Middle East and Central Asia, October 2021 (Chapter 1).*

### 1. REGIONAL DEvELOpMENTS AND OUTLOOK: FROM CRISIS MANAGEMENT TO TRANSFORMATIONAL RECOvERy

### 1. REGIONAL DEvELOpMENTS AND OUTLOOK: FROM CRISIS MANAGEMENT TO TRANSFORMATIONAL RECOvERy

### Monetary policy and macro-financial measures
- Asia (CCA) region and Pakistan have begun to tighten monetary policy.
- Some 2020 macro-financial measures have expired (for example, the loan guarantee program and waivers for electronic transaction fees in Saudi Arabia).
- Other measures have been extended (for example, delayed recognition of loan impairments and reduced capital buffer and risk weights in Kazakhstan; credit subsidies, credit guarantees and loan repayment deferrals in Gulf Cooperation Council (GCC) countries).
- New policies introduced in some countries (for example, the government guarantee program for bank loans and small and medium enterprises in Kuwait).

### Uneven recovery and rising inflation
- Recovery status:
  - GDP growth in the first half of 2021 has increased, with purchasing managers’ indices pointing to a continued recovery in business activity but at a somewhat moderated pace since July.
  - Merchandise trade has recovered to its pre-pandemic level; hotel demand has increased but remains below pre-pandemic levels in almost all countries.
  - Remittances continue to provide crucial support for some countries (for example, Georgia, Kyrgyz Republic, and Tajikistan).
  - Current account balances of oil exporters have started to recover with higher oil prices and global recovery after large deficits in 2020.
- Global financial conditions:
  - Region experienced a brief episode of capital outflows in early 2021 due to U.S. inflation concerns; flows reversed in May.
  - Cumulative net capital inflows of $2.9 billion up to the end of August.
  - 19 Eurobond issuances totaling $19.8 billion since the beginning of this year; total value of issuances about half of same period in 2020 due to reduced issuances in Qatar, Saudi Arabia, and the UAE more than offsetting increases in Armenia, Georgia, and Oman.
- Inflation dynamics:
  - Headline inflation increasing due to higher global food and energy prices and shipping costs, pass-through from earlier depreciations, domestic recovery in some countries, and monetary financing in others.
  - Food inflation feeding into headline inflation particularly in LICs (for example, Kyrgyz Republic and Tajikistan) and in countries with high shares of imported food (for example, Algeria and Armenia).
  - Core inflation (excluding food and energy) picking up in Jordan, Morocco, Qatar (from a low base), Iraq, and Pakistan.
- Labor market and inequality:
  - Employment in most countries remains below pre-pandemic levels (for example, Armenia, Bahrain, Iran, Saudi Arabia, and Tunisia).
  - Employment of women declined in 2020 by 6 percent; youth employment declined by 10 percent; employment for men and total adults declined by about 4 percent each.
  - Informal workers and high contact-sensitive service sector workers were significantly affected; firms with greater digital connectivity partly mitigated impacts.
- Banking sector:
  - Profitability has declined, nonperforming loans broadly stable, banks increased buffers against credit and liquidity risks.
  - Banks with higher corporate-sector exposure have lower capital adequacy ratios, lower liquidity, and higher nonperforming loans.
  - Higher loan-loss provisions, partly due to regulatory requirements, indicate banks are building buffers ahead of potential asset-quality deterioration.

### Outlook: aggregate projections and financing needs
- MENA region:
  - Real GDP: contracted by 3.2 percent in 2020; projected to expand by 4.1 percent in both 2021 and 2022 (upward revisions of 0.1 and 0.4 percentage points since April, respectively).
  - Inflation: projected to increase to 12.9 percent in 2021, then subside to 8.8 percent in 2022.
  - Government gross debt for MENA oil importers projected at more than 100 percent of GDP in 2021.
  - Public gross financing needs projected to rise close to 50 percent during 2021–22 (to $390 billion) compared to 2018–19.
- CCA region:
  - Real GDP projected to expand by 4.3 percent in 2021 (an upward revision of 0.7 percentage points) and 4.1 percent in 2022, following a contraction of 2.2 percent in 2020.
  - Inflation expected to accelerate to 8.5 percent in 2021 (an upward revision of 1.6 percentage points), before gradually declining from 2022 onwards.
- Regional medium-term projection context:
  - Output losses relative to precrisis projections persist for many countries (Figure 1.6 context).
  - Public debt trajectories differ across countries (Figure 1.7 context).

### Forces shaping the outlook
- Five defining factors for the recovery:
  1. Vaccination rollouts: countries with faster vaccination (GCC countries and some EM&MIs) will be more resilient to new variants.
  2. Policy space: only a handful of countries have macro policy space with low debt and inflation (some oil exporters and a few CCA countries).
  3. Tourism dependence: tourism-reliant countries will face headwinds.
  4. Oil market developments: higher oil prices and declining OPEC+ production curbs support oil exporters but can drag growth and raise inflation in oil importers.
  5. Political and humanitarian challenges: growth in fragile and conflict-affected countries depends on conflict resolution and political stability.
- Figure 1.5 indicators (legend definitions preserved in source): vaccination rollouts, fiscal policy space, monetary policy space, tourism dependence, oil producers, FCS.

### Oil exporters
- Aggregate projections:
  - Real GDP projected to expand by 4.5 percent in 2021 (2.8 percent excluding Libya) and 4.0 percent in 2022.
  - Oil activity expected to expand by 5.3 percent in 2021 and 4.4 percent in 2022.
  - Non-oil sector projected to expand by 3.9 percent in 2021 and 3.4 percent in 2022.
- Inflation:
  - Projected to rise to 10.5 percent in 2021 and moderate to 8.0 percent in 2022 (an upward revision of 0.3 percentage points in both years).
  - Inflation in GCC countries peaking at 2.8 percent in 2021.
- External positions and reserves:
  - Current account balance projected to move from a deficit of 1.9 percent of GDP in 2020 to a surplus of 3.6 percent of GDP in 2021.
  - Gross official reserves expected to increase by $95 billion to almost $1 trillion in 2021 (an upward revision of more than $100 billion since April).
- Fiscal and financing:
  - Fiscal deficits projected to decline starting in 2021 due to recovery, higher oil prices, expiring measures, and consolidation.
  - Public gross financing needs projected to remain elevated at $473 billion overall during 2021–22, compared to $310 billion during 2018–19.

### Emerging market and middle-income countries (EM&MIs)
- Recovery and vaccination:
  - Vaccination coverage on average expected to reach about 40 percent of populations by mid-2022 and 70 percent by the end of 2022 at current pace.
- Growth and inflation:
  - Real GDP projected to expand by 3.6 percent in 2021 and 4.2 percent in 2022.
  - These growth rates remain below projections for global EM&MIs in 2021 and 2022 (6.7 percent and 5.1 percent, respectively).
  - Inflation for this group expected to remain above 7.5 percent in 2021–22, before gradually declining to 6.0 percent over the medium term.
  - Pakistan is noted as an exception where inflation is not projected to increase.
- Public debt and financing:
  - Aggregate debt projected to rise from 86.8 percent of GDP in 2020 to 91.7 percent of GDP in 2021, then gradually decline between 2022 and 2026, returning to the precrisis level in 2023.
  - Divergent country dynamics: debt ratios projected to be higher than pre-pandemic levels in Armenia, Georgia, and Tunisia and lower in Egypt, Jordan, and Pakistan.
  - Public gross financing needs projected to hit $564 billion overall during 2021–22, about a 20-percent increase compared to 2018–19.
- Current account:
  - Aggregate current account deficit projected to widen from 3.4 percent of GDP in 2020 to 3.9 percent of GDP in 2022, reflecting interactions of exports, imports, and travel/tourism recovery.

### Low-income countries (LICs) and fragile and conflict-affected states (FCS)
- Vaccination and health capacity:
  - LICs and many FCS have relatively low vaccination rates and heavy reliance on multilateral initiatives for vaccine procurement.
  - Without strengthened multilateral action, vaccination rates are not expected to reach 70 percent until 2024.
- Growth outlook:
  - Activity projected to expand by 3.4 percent in 2021 and 4.4 percent in 2022.
  - Real GDP expected to remain below precrisis projections by 4.8 percent over the medium term.
- Country-specific notes:
  - Persistent conflict, humanitarian emergencies, and political instability continue to impair recoveries in Libya, Syria, West Bank and Gaza, Yemen, Afghanistan, Somalia, and others.
  - Lebanon facing a very severe economic crisis exacerbated by the pandemic.
  - Afghanistan’s economy faces an acute crisis with falling output, paralyzed banks, and rising poverty.
  - Sudan made policy changes toward a market-determined exchange rate and other reforms; reached the HIPC Decision Point with an immediate reduction in external public debt of $28 billion that will eventually decrease to $6 billion (14 percent of GDP) at the HIPC Completion Point.

### Rising risks and vulnerabilities
- Pandemic and variants:
  - Rapid spread of the Delta variant and risk of more virulent variants increase uncertainty; vaccine delays and further outbreaks are significant downside risks to recovery and debt sustainability.
- Tighter global financial conditions and financing risks:
  - EM&MI countries vulnerable to a rise in global bond yields if global inflationary pressures persist longer than expected.
  - A tightening could lead to capital outflows, higher sovereign spreads, higher interest rates, challenges for highly leveraged firms, increased financing and rollover risks, and worsened bank-sovereign linkages, potentially reducing credit to the private sector and threatening recovery and financial stability.
  - Figure 1.8 context: cumulative capital flows and vulnerability distinctions based on foreign exchange reserves.
- Persistent inflation risk:
  - Could arise from continued global supply constraints, food price increases, and de-anchoring inflation expectations in countries with weak monetary frameworks.
  - Rising inflation would disproportionately hurt poorer segments of society and could trigger further monetary tightening where applicable.

*International Monetary Fund | October 2021*

### 1. REGIONAL DEvELOpMENTS AND OUTLOOK: FROM CRISIS MANAGEMENT TO TRANSFORMATIONAL RECOvERy

### 1. REGIONAL DEvELOpMENTS AND OUTLOOK: FROM CRISIS MANAGEMENT TO TRANSFORMATIONAL RECOvERy

### Key risks to the recovery
- Premature withdrawal of policy support increases the risk of:
  - Vulnerability to new variants, impacting firms in hardest-hit sectors and vulnerable households.
  - Increased bankruptcies, defaults, and nonperforming loans, leading to corporate and banking sector risks (Chapter 3).
  - Higher unemployment and exacerbated inequities (Chapter 2).
- Social unrest has increased in 2021 (though lower than in 2019) and could rise further due to repeated infection waves, dire economic conditions, high unemployment, and food prices—particularly affecting LICs and FCS.
- Geopolitical and security risks (for example, in Iraq, Lebanon, Libya, Tunisia, and Yemen) and the crisis in Afghanistan are deepening poverty and displacement, with outward spillovers through potential refugee waves (Box 1.2).
- Crisis legacies and scarring:
  - About 7 million more people are estimated to have entered extreme poverty during 2020–21 in the region compared to pre-crisis projections.
  - Preexisting vulnerabilities include debt overhang, high structural unemployment, prevalence of inefficient state-owned enterprises that limit private sector innovation and pose fiscal risks, and commodity dependence.
- Climate shocks: climate change is driving more frequent and intense weather-related disasters, posing significant challenges given large adaptation needs and hydrocarbon dependence (Box 1.3).

### Vaccine deployment — short-term priority
- Swift vaccination is the main short-term policy priority to save lives, support recovery, and reduce divergences across countries.
- Targets: vaccinate at least 40 percent of the population by the end of this year and 70 percent by the first half of 2022.
- Region has secured 576 million vaccines, with 52 percent of these committed by the COVID-19 Vaccines Global Access initiative and African Union’s African Vaccine Acquisition Trust.
- Estimated shortfall: short by about 66 million vaccines, broken down as:
  - 24 million for the MENA region
  - 7 million for Afghanistan
  - 21 million for Pakistan
  - 14 million for the CCA region
- Note: Vaccines secured come from bilateral deals, donations received, and committed vaccines through global and regional initiatives; they do not represent doses delivered. Shortfalls were estimated before the revision of the target to 70 percent.

### Fiscal policy: balancing support and sustainability
- Countries where vaccination is slow and infection rates are rising should continue to support lives and livelihoods; additional fiscal support should be well targeted to the most vulnerable and consider available fiscal space.
- Countries with fiscal space should:
  - Clearly communicate and make gradual any withdrawal of policy support to avoid sharp adjustments that could threaten recovery.
- Countries without fiscal space must adjust despite fragile recovery; focus on quality and composition of adjustment:
  - Reallocate spending and increase efficiency.
  - Eliminate subsidies that benefit the rich.
  - Contain high wage bills.
  - Mobilize revenue (October 2021 Fiscal Monitor).
- Risks to debt stabilization should be carefully managed, including monitoring contingent liabilities accumulated during the pandemic (Box 1.1).
- Oil exporters: use higher oil revenues to rebuild policy space, avoid procyclical spending if the recovery is on hold, and focus additional spending on longer-term transformational challenges.

### Monetary policy challenges
- Central banks face the task of curbing rising inflation without choking the fragile recovery.
- If inflation expectations remain anchored, central banks could look through transitory inflation pressures and avoid tightening until recovery takes hold.
- If inflation proves persistent, central banks may need to raise interest rates (as was done in some countries) to prevent de-anchoring of inflation expectations.
- In countries with pegged exchange rates, monetary accommodation is expected to decline as advanced country monetary policies normalize.

### Financial sector calibration
- Depending on recovery strength and policy support, 15 to 25 percent of firms in the region may need to be either restructured or liquidated (Chapter 3).
- Gradual withdrawal of financial sector support is key to preventing defaults that would harm private sector recovery, employment, and financial stability.
- Emergency measures should increasingly target distressed but viable firms and sectors, given limited fiscal space.
- Strengthen financial safety nets—bank resolution and deposit insurance frameworks—to guard against financial stability risks.
- Maintain support for private sector credit and monitor banks’ exposures to sovereigns.
- Over the longer term: enhance insolvency frameworks and develop domestic capital and debt markets to support corporate sector adjustment.

### Labor market and social policy priorities
- Improve education and training opportunities and provide hiring incentives to facilitate worker mobility toward expanding sectors and support the post-COVID-19 transition (Chapter 2).
- Countries that implemented labor retention schemes (for example, Azerbaijan, Egypt, and Jordan) should unwind these schemes as recovery gains momentum, promote return to active job searches, and re-engage displaced workers.
- Where fiscal space exists, use carefully designed, temporary, and targeted hiring subsidies to support job creation.
- Implement structural reforms to incentivize formal, youth, and women employment and enhance mobility for migrant workers.
- Revisit social contracts: reorient toward health and education, expand quality and coverage of safety nets, and reexamine the role and efficiency of subsidies.
- Reassess state-owned enterprises’ objectives and governance and pursue competition-enhancing regulatory reform to reduce fiscal risks and promote private sector innovation and growth (see Rigo and others 2021).
- Improve anti-corruption frameworks to support stronger growth (see Jarvis and others 2021).

### Leveraging global trends and investments for transformation
- Invest in digital technologies and infrastructure to better identify vulnerable groups, deliver support, promote financial inclusion, and catalyze new growth and employment.
  - Examples: Morocco’s centralized digital registration and unified internet portal; digital outreach to informal workers in Egypt.
  - Cross-border central bank digital currency experiments: Central Bank of Tunisia with Banque de France; UAE and Saudi Arabia Project Aber.
- Accelerate national adaptation plans and pursue regional cooperation to adapt to climate change, mitigate emissions, manage transition risks, and create opportunities for green investments and job creation.

### IMF support, SDR allocation, and multilateral coordination
- The IMF has supported members in the region with $20 billion in financing since the pandemic began.
- The IMF, in coordination with other institutions, has facilitated the Debt Service Suspension Initiative and supported the Common Framework for debt treatment.
- The IMF is revamping its broader strategy for FCS to better tailor engagement across fragility and conflict contexts.
- The IMF’s 2021 general allocation of SDR—the largest in IMF history—became effective in August, increasing the region’s reserve assets by $49.3 billion.
- Guidance: for SDRs to yield maximum benefit, their use should be prudent, well-informed, and consistent with macroeconomic sustainability and transparency.

### Debt outlook and medium-term fiscal challenges
- The COVID-19 shock has raised fiscal deficits and public debt-to-GDP ratios across the ME&CA region, worsening debt stabilization prospects in several countries.
- Most ME&CA countries face a higher probability than pre-COVID-19 that debt would not stabilize over a three-year horizon, based on the IMF’s new Sovereign Risk and Debt Sustainability Framework debt fan-chart toolkit (Box Figure 1.1.1).
- Before COVID-19, the probability of debt non-stabilization was high: 44 percent on average across ME&CA countries in the sample; this probability increased further post-COVID-19.
- Reducing debt to pre-COVID-19 levels would require much stronger fiscal adjustment (than envisaged pre-COVID-19) for over a decade (see October 2021 Fiscal Monitor, Chapter 2).
- Baseline projections assume significantly negative interest rate-growth differentials, similar to or exceeding pre-COVID-19 averages (Box Figure 1.1.3); these assumptions are sensitive to risks of lower growth from new COVID-19 waves, medium-term scarring, and a sudden rise in global interest rates with large financing needs.

*International Monetary Fund | October 2021*

### 2. The material debt reductions targeted for EMs hinge on

### 2. The material debt reductions targeted for EMs hinge on

### Debt stabilization risks and decomposition
- Material debt reductions targeted for emerging markets (EMs) hinge on relatively strong fiscal adjustment efforts over the medium term.
- Socio-political feasibility of these efforts may be tested in the context of fragile and high unemployment-ridden recoveries.
- Many countries provided extraordinary financial support during the pandemic through off-budget measures and quasi-fiscal operations, including through state-owned enterprises; a materialization of these contingent liabilities may add to debt pressures.
- Box Figure 1.1.2 presents a decomposition of cumulative debt changes between end-2020 and end-2026 into:
  - Primary balance
  - R-G (Real interest rate on debt minus real growth rate of the economy)
  - Residual
  - Sum

### Baseline versus adverse (alternative) scenario — assumptions and impacts
- An adverse scenario increases the probability of debt non-stabilization. The alternative scenario assumes (during 2022–26):
  - higher real effective interest rates by 150 basis points;
  - a cap on yearly projected growth for each country at the average real growth during the period 2001–19;
  - lower primary balances by 1 percent of GDP for EMs and oil exporters, and 0.5 percent of GDP for low-income countries (LICs), to account for possible optimism in medium-term fiscal frameworks;
  - an additional 1 percent of GDP in contingent liability materializations every year, to account for implicit and explicit government guarantees of private sector or state-owned enterprises’ (SOE) debt.
- The probability of debt non-stabilization increases markedly under the alternative scenarios, particularly for EMs and LICs (Box Figure 1.1.4).

### Policy implications and recommended actions
- Continued vigilance and consideration of fiscal adjustment measures once the recovery is underway, anchored in a credible medium-term fiscal plan.
- Steps toward stronger institutions to enhance the credibility of medium-term adjustment, help anchor expectations, and signal commitment to fiscal prudence.
- Careful budgeting of likely risks to the public balance sheet from SOEs and other contingent liabilities.
- Given high debt levels, maintaining policy space for critical spending will require:
  - expedited structural reforms to boost growth;
  - debt management strategies to reduce confidence risks arising from near-term financing pressures;
  - additional grant and concessional financing from development partners.

### Turmoil in Afghanistan — outward spillovers and economic effects
- The turmoil in Afghanistan is expected to generate important economic and security spillovers to the region and beyond, including internal displacement and potential refugee surges to neighboring countries, Turkey, and Europe.
- Afghanistan’s shocks could cause up to a 30 percent output contraction, with falling imports, a depreciating Afghani, and accelerating inflation.
- As of end-2020:
  - there were 3.5 million people displaced inside Afghanistan and nearly 3 million Afghan refugees around the world, half of them in Pakistan.
- Assuming that 1 million Afghans flee their country and settle in other countries in proportion to the existing stock of Afghan refugees, the annual cost of hosting new refugees would vary:
  - $100 million in Tajikistan (1.3 percent of GDP);
  - about $300 million in Iran (0.03 percent of GDP);
  - more than half a billion dollars in Pakistan (0.2 percent of GDP).
- Exports to Afghanistan are macroeconomically and socially relevant for Iran, Pakistan, Turkmenistan, and Uzbekistan, making up 4–8 percent of these countries’ exports.
- Cross-border “cash” flows are likely to grow, raising anti–money laundering/combating the financing of terrorism concerns; trade in border regions could shift to the Pakistani rupee and Iranian rial.

### Climate change challenges in ME&CA
- Average temperatures are expected to increase in all ME&CA countries by 2050, even with significant cuts in global emissions.
- Lower and more erratic precipitation will aggravate water scarcity; rising sea levels and more frequent weather-related disasters will be felt unevenly, with agricultural communities especially exposed.
- Adaptation:
  - Most countries have not yet estimated adaptation costs or prioritized adaptation policies.
  - Securing financing for adaptation will require filling data gaps on costs and benefits, mobilizing internal resources, and seeking bilateral and multilateral support.
  - Green bonds could help attract resources for adaptation goals.
- Mitigation:
  - The region accounts for about 10 percent of global greenhouse gas emissions, with large contributions from just a few countries.
  - Many countries communicated mitigation targets under the 2015 Paris Agreement, often conditional on external support.
  - Achieving 2030 targets requires action and regional cooperation today.
- Transition:
  - Global mitigation efforts will affect energy markets and countries reliant on hydrocarbon revenues.
  - Reforms to accelerate economic diversification and rationalize government expenditures will be required.
  - Strengthening climate-risk disclosure frameworks will help companies and financial institutions manage transition risks.
- Box Figure 1.3.2 reports hydrocarbon revenues as a share of total revenue for oil-exporters in 2011–15 and 2016–20 (country-specific series shown in the source).

### Labor market challenges during the pandemic, the role of informality, and the road ahead
- The ME&CA region entered the pandemic with poor labor market outcomes:
  - average unemployment rate in 2018–19: 9.4 percent;
  - labor force participation rate in 2018–19: 55 percent;
  - female labor force participation in 2018–19: about 33 percent (compared with 53 percent in Latin America and the Caribbean and 54 percent in the Asia and Pacific region).
- Informality and employment shares:
  - informal employment, proxied by self-employment, stood at 35 percent of total employment in 2018–19 and at almost 50 percent for the ME&CA region’s low-income countries.
- Pandemic labor market impacts (region-wide):
  - average unemployment rate increased from 9.4 percent (2018–19) to 10.7 percent in 2020;
  - employment in the region fell by an estimated 8 million persons or, in proportion to the working-age population, by 2.2 percentage points.
- The pandemic’s labor-market shock was unprecedented in magnitude and speed; in many countries employment losses at the onset of the pandemic exceeded declines during previous recessions or slowdowns.
- Informality did not act as a buffer during the pandemic; self-employment slumped in MENAP and CCA in 2020.
- Policy implications for labor markets:
  - structural reforms to make labor markets more responsive to growth, such as reducing informality, rationalizing large public sector employment, and addressing regulatory impediments in product and labor markets;
  - as recovery firms up, shift from employment retention to facilitating reallocation to limit scarring, skill losses, and lasting increases in inequality.

### Comparative labor-market indicators (Table 2.1)
- Unemployment rate: 9.3 9.0 9.1 9.6 9.0 10.2
- Labor force participation rate: 50.3 49.9 49.5 49.6 49.7 48.1
- Employment-to-working age population ratio: 45.3 44.6 44.5 43.8 43.5 41.5
- Ratio of total weekly hours worked (to population aged 15–64): 42.1 42.2 42.1 42.1 41.6 40.3

*Regional Economic Outlook: Middle East and Central Asia, International Monetary Fund | October 2021*

### 2. LAbOR MARKET ChALLENGES DURING ThE pANDEMIC, ThE ROLE OF INFORMALITy, AND ThE ROAD AhEAD

### 2. LAbOR MARKET ChALLENGES DURING ThE pANDEMIC, ThE ROLE OF INFORMALITy, AND ThE ROAD AhEAD

### Pandemic impacts: headline statistics and heterogeneity
- Unemployment increased more in MENAP than in CCA—by 1.3 percentage points in the former (1.4 in MENA) and 0.8 percentage points in CCA.
- Within MENAP, unemployment in Gulf Cooperation Council (GCC) economies increased an unprecedented 3 percentage points to 5.4 percent in 2020—the highest overall unemployment rate in the GCC’s history (ILO estimates).
- Employment declines by group:
  - Women’s employment levels fell by 6.1 percent in 2020 relative to the 2018–19 average.
  - Men’s employment levels fell by 3.9 percent in 2020 relative to the 2018–19 average.
- Private versus public employment in 2020:
  - Private employment: −2.5 percent (regionwide average).
  - Public employment: −1.1 percent (regionwide average).
  - Private employment declines by subregion: CCA −3.6 percent; MENAP −2.4 percent.
- Sectoral and worker-group effects:
  - Contact-intensive sectors’ decline in employment in 2020 was around three times that of noncontact-intensive sectors.
  - Low-skilled workers’ employment decline was nearly twice that of high-skilled workers; among low-skilled, women were disproportionately affected.
  - Youth were hit more severely: the increase in youth unemployment was around two and half times that of adults or more.
  - Migrant employment experienced sharp declines in GCC countries, with implications for domestic consumption and outward remittances.
- Real wages: With a few exceptions, countries saw a moderation in real wage growth in 2020 from the average in 2018–19.

### Policy responses during the pandemic
- Many countries implemented wide-ranging measures to support firms and workers; common measures included:
  - Support for the establishment of remote work.
  - Wage subsidies to enterprises or directly to workers (examples listed in source: Iran, Kazakhstan, Morocco).
  - Access to paid leave and employment retention programs (examples listed: Armenia, Azerbaijan, Georgia, Jordan, Saudi Arabia).
  - Cash transfers to cushion the impact on informal workers (examples listed: Azerbaijan, Egypt, Iran, Jordan, Morocco).
- The IMF staff assessment notes these measures prevented a heavier toll, enabled teleworking, and supported job retention, thereby moderating the rise in unemployment.

### Labor market recovery prospects and the role of Okun’s law
- The study estimates Okun’s coefficients (sensitivity of unemployment to a unit change in real output) to assess how unemployment would decline as recovery takes hold.
- Regional and subgroup Okun’s coefficients (estimated average values):
  - ME&CA average Okun’s coefficient: −0.035.
  - MENAP average Okun’s coefficient: −0.013.
  - MENAP excluding high-income countries: −0.031.
  - CCA average Okun’s coefficient: −0.075.
- Interpretation and implications:
  - Labor markets in ME&CA have historically been not very responsive to GDP growth, broadly comparable to emerging market and developing economies and low-income countries.
  - MENAP labor markets respond less to output fluctuations than CCA; low responsiveness in MENAP is mainly due to GCC countries.
- Simulations and near-term outlook:
  - Based on country-by-country Okun relationships and IMF April 2021 WEO GDP growth projections, labor market recovery is projected to be slow and uneven in 2021–22.
  - For MENAP, unemployment rates would decline on average in 2021–22 only in some countries—those where unemployment is more sensitive to growth, where the growth outlook is relatively positive, or both (for example, North Africa).
  - In the CCA, unemployment would decline in most countries conditional on the projections.

### Required growth rates and potential obstacles to recovery
- Very high growth rates would be required in many countries to stabilize or reduce unemployment without reforms:
  - In some MENAP economies (notably where unemployment is barely responsive to GDP growth, such as some GCC economies), growth would need to reach close to 10 percent to stabilize unemployment; to reduce unemployment, growth would need to exceed this threshold.
  - In some CCA countries, unemployment-stabilizing growth would need to rise above 8 percent.
- These required growth rates:
  - Are much higher than realized averages over the pre-pandemic period.
  - For many countries exceed IMF growth projections, implying that projected growth alone may be insufficient to create enough jobs for unemployment to decline.
- Hysteresis and asymmetry risks:
  - Evidence for ME&CA emerging markets indicates a stronger unemployment response in downturns than in upturns, suggesting potential hysteresis effects where job losses from downturns are not fully recouped in recoveries.
  - If downturn responses dominate, Okun’s coefficients during recovery may be even smaller (in absolute value) than historical averages, weighing on the speed of labor market recovery.

### Structural factors limiting labor market responsiveness, including informality
- The weak labor market response to output fluctuations is attributed to structural factors, including informality, labor market policies, economic structures, and institutions.
- Pandemic-specific influences that could alter the historical unemployment–output relationship:
  - Factors that could increase responsiveness during recovery: faster-than-normal decline in unemployment once restrictions are fully lifted (because contact-intensive sectors were disproportionately affected).
  - Factors that could decrease responsiveness during recovery: teleworking development preventing some job losses during downturn, job retention policies that dampened unemployment increases, and post-pandemic structural transformation toward capital-intensive sectors reducing employment responsiveness to output.
- Empirical tests (simulations of 2020 unemployment using historical Okun estimates through 2019) do not show systematic bias, implying that the exceptional 2020 activity decline produced exceptional job losses consistent with historical relationships.

*Italic: Source: International Monetary Fund | October 2021 (chapter: 2. LAbOR MARKET ChALLENGES DURING ThE pANDEMIC, ThE ROLE OF INFORMALITy, AND ThE ROAD AhEAD).*

### 2. LAbOR MARKET ChALLENGES DURING ThE pANDEMIC, ThE ROLE OF INFORMALITy, AND ThE ROAD AhEAD

### 2. LAbOR MARKET ChALLENGES DURING ThE pANDEMIC, ThE ROLE OF INFORMALITy, AND ThE ROAD AhEAD

### Determinants of Okun’s Coefficient
- Bivariate regressions on a global sample show a weaker (less negative) Okun’s coefficient is associated with:
  - A higher level of informality (self-employed, percent of total employment), because it acts as a safety net allowing workers who lost jobs during downturns to transition to informal employment rather than face unemployment or drop out of the labor force.
  - Rigid product market regulatory framework, such as high costs related to bureaucracy, and favoritism, which raise labor market frictions significantly.
  - Greater flexibility in wage setting, which allows some of the burden of labor market adjustment to fall on wages and not all on employment.
  - Lower skills levels, because low-skilled workers tend to have less dynamism in the formal labor market.
  - Large public sector employment and high wage premiums, because the former is a more stable source of employment and thus less responsive to growth, while the latter can divert labor from the private sector.
  - High share of agriculture and low share of services in value added, which could signal low levels of skill and high levels of informality.
- Informality is one of the most robust determinants of Okun’s coefficient (see Ahn and others 2019).
- When all variables are included in the regression, only labor informality, the share of services’ value added in GDP, and level of education or skill remain statistically significant.

### Informality and the Post‑Pandemic Labor Market Recovery: Two Scenarios
- Scenario 1: Faster-than-usual rebound in employment
  - Economies with a prevalent informal sector could see a quick rebound in employment in the short term once health risks are controlled.
  - Lockdowns and restrictions hit high-contact services hard; informal jobs are flexible in hiring and setup costs and can bounce back quickly (Alfaro, Becerra, and Eslava 2020).
  - Near-term boost to total employment is possible, but reentry of workers into the formal sector when the economy expands would facilitate a more lasting and stronger recovery.
- Scenario 2: Persistently high informality that hinders recovery
  - In countries where the pandemic persists (for example, due to slow vaccine access), workers concentrated in hit sectors (such as tourism) risk losing skills and becoming employable only in informal jobs.
  - This could lead to long-lasting damage (hysteresis effects) and dampen the recovery, including by lowering overall productivity in the economy.

### Policy Actions Toward an Inclusive Recovery
- Immediate priorities:
  - Protect the vulnerable and create conditions for strong labor markets by closing social safety gaps and supporting groups hit unevenly by the pandemic to limit hysteresis and preserve potential and inclusive growth.
- Recalibrate crisis-related labor market measures as recoveries gain momentum:
  - Shift from employment retention toward facilitating reallocation.
  - Unwind labor retention programs (for example, in Azerbaijan, Egypt, and Jordan) as recovery gains traction to avoid supporting permanently unviable jobs.
  - Countries with fiscal space could support job creation through carefully designed, temporary, and targeted hiring subsidies (OECD 2021).
  - Promote return to active job search and incentives to encourage worker mobility to expanding opportunities.
- Minimize risk of deep scars:
  - Expand active labor market policies to promote reallocation, modernize and strengthen public employment services to improve employability and placement, especially for youth.
  - Encourage vocational training to improve employment opportunities and address skills mismatches.
  - Devote resources to reverse learning losses among children and invest in high-quality education to address youth unemployment and boost productivity.
- Rethink social protection and formalization policies:
  - Extend social safety nets to informal workers (examples: Egypt and Morocco introduced targeted cash transfer programs leveraging financial innovation and digitalization).
  - Facilitate formalization through a battery of policies, including carefully designed minimum wages and labor taxation reforms; high labor tax wedges can reduce formal employment.
  - Shift taxation burden away from labor toward consumption taxes, while compensating low-income households for any regressive impact through cash transfers.
  - As formalization progresses, protect workers through well-designed unemployment insurance (see Duval and Loungani 2019).

### Structural Policies to Improve Recovery and Boost Potential Growth
- Improve the business environment through holistic reforms:
  - Promote e-government and strengthen independent scrutiny, audit agencies, public oversight, accountability, and fiscal transparency.
  - Foster a strong and independent judiciary to ensure contract enforcement and improve integrity, including in the civil service.
  - Remove barriers to competition to improve employment response to output changes and raise employment rates.
- Labor market regulatory reform:
  - Address impediments such as rigidity in hiring and firing in Algeria, Morocco, and Tunisia; and low flexibility in wage determination in Pakistan and Tunisia.
- Reduce public sector role as employer of first and last resort:
  - The use of public sector employment as a countercyclical tool (as the average MENAP country did during the pandemic) is risky because it is difficult to reduce such employment after the need disappears.
  - Curb public sector employment, tackle high procedural requirements for dismissals, and reform severance pay.
  - In the GCC, reduce segmentation between nationals and expatriates by allowing migrant workers greater flexibility to move between jobs (as Qatar, Saudi Arabia, and the UAE have done).
- Address gender gaps:
  - Expand affordable access to early childhood facilities to increase female labor market participation.
  - Strengthen laws to combat discrimination against women, promote wage transparency, and enforce equal pay laws.
  - Foster digital transformation to provide flexible work arrangements that help combine paid work with caregiving responsibilities.

### Firms, Corporate Sector Stress, and the Uneven Recovery
- The nonfinancial corporate sector in MENAP entered the pandemic with weaker fundamentals than before previous crises: pre-pandemic revenue growth, profitability and liquidity were lower, and leverage was higher.
- The pandemic caused an unprecedented decline in corporate revenue and profitability.
- After a historic revenue drop in the first half of 2020, gradual lifting of containment measures allowed some firms in MENAP to start recovering; by Q1 2021, revenue growth and profitability for the corporate sector had returned to pre-pandemic levels.
- Recovery is uneven: high-contact-intensive sectors, firms with preexisting vulnerabilities, small firms, and those lacking digital connectivity faced the brunt of the pandemic.
- A stress-testing exercise suggests that 15 to 25 percent of firms in the region may need to be either restructured or liquidated.
- The median corporate revenue contraction in MENAP (based on publicly listed firms from Compustat) and the one reported by large firms in CCA countries (based on BEEPS-ES COVID-19 surveys) were broadly similar at 18 percent (year over year) during the first half of 2020.
- Policy implications for firms and financial stability:
  - Targeted policy support to vulnerable but viable firms and sectors remains vital to prevent firm defaults while the recovery takes hold.
  - Swift restructuring of viable but insolvent firms and liquidation of unviable ones would support a stronger, more resilient recovery.
  - To preserve financial stability, authorities should closely monitor macroprudential risks, maintain appropriate financial safety nets, and encourage vulnerable banks to use the respite afforded by policy support to strengthen buffers against upcoming risks.

*International Monetary Fund | October 2021*

### 3. COVID-19 and the Corporate-Sector Outlook

### 3. COVID-19 and the Corporate-Sector Outlook

### Firms’ recovery: oil-exporting versus oil-importing countries
- Revenues in oil exporters contracted by about half of the decline in oil importers during the first half of 2020.
- Revenues and profitability in oil importers had recovered faster by the end of 2020 and continued to outperform during the first quarter of 2021.
- The performance gap reflects:
  - The prevalence of firms in high-contact-intensive (HCI) sectors in oil exporters (20 percent higher than in oil importers).
  - Deep loss of expatriate employment—particularly in HCI sectors—in GCC countries, which accounted for 70 percent of their labor force pre-pandemic and has yet to recover.

### Sectoral patterns: high-contact-intensive (HCI) versus low-contact-intensive (LCI) sectors
- During the first half of 2020, revenues contracted:
  - HCI sectors: −11 percent year over year.
  - LCI sectors: −7 percent year over year.
- By the first quarter of 2021:
  - LCI sector revenues had recovered to 18 percent year over year, and profitability had exceeded pre-pandemic levels.
  - HCI sector revenue growth continued to decline.

### Firm heterogeneity: pre-pandemic performance, size, SMEs, and SOEs
- Pre-pandemic better- versus worse-performing firms (top and bottom quartiles by 2018–19 profitability):
  - The performance gap widened by end-2020.
  - Worse-performing firms experienced plummeting revenues in H1 2020 and continued decline of −30 percent year over year in Q1 2021.
  - Better-performing firms: 16 percent revenue growth year over year by Q1 2021.
  - Note: Pre-pandemic better-performing firms also entered the crisis with significant liquidity buffers and equity positions.
- Small publicly listed firms (defined as total assets below the country-specific median in 2019) versus large firms:
  - Revenues of small publicly listed firms contracted almost twice those of large peers during H1 2020.
  - By Q1 2021:
    - Small firms still contracting: −11 percent year over year.
    - Large firms recovering strongly: 14 percent year over year.
- SMEs in ME&CA (unlisted firms with less than 250 workers) were heavily affected in key job-rich sectors:
  - SME revenue and job losses at the pandemic peak were slightly deeper compared with large firms.
  - SMEs’ revenue plummeted by 40–45 percent in service, hospitality, and tourism sectors versus about 10 percent for large firms.
  - SME jobs declined by 32 percent in those sectors versus 20 percent in large firms.
  - Reasons: less diversification, greater downsizing difficulty, and more aggressive bank lending cuts in bad times.
- State-owned enterprises (SOEs):
  - Entered the crisis with revenue growth of 2.5 percent (about half of the median privately owned firm in MENAP).
  - Revenues declined less during H1 2020: −6 percent year over year versus −19 percent for the median private firm.
  - By Q1 2021:
    - SOE revenues still contracting: −3.5 percent.
    - Privately owned firm revenues recovered strongly: 10 percent.

### Digital connectivity and firm resilience
- Firms that invested in digital technologies before the pandemic experienced a lower decline in sales at the pandemic’s peak of about 4 percentage points compared with those that had not.
- About 35 percent of reporting firms increased or started digital activities during the pandemic.
- Digital-enabled firms are associated with improved resilience (regression analysis based on 2019–20 data for a sample of countries).

### Policy support and cost adjustments that helped firms
- Common policy measures deployed across the region included:
  - Tax deferrals.
  - Furlough programs.
  - Wage subsidies.
  - Policy rate cuts.
  - Liquidity support.
  - Loan guarantee programs.
- Coverage and uptake:
  - Overall, 34 percent of firms in a sample of ME&CA countries indicate they received at least one type of policy support.
  - SMEs: 33 percent received at least one type of policy support.
  - Large firms: 48 percent received at least one type of policy support.
- Contribution of policy support to median MENAP firm in 2020:
  - Income tax payments (taxes accrued from 2019 operations) contracted by 12 percent; effective tax rates declined by 2 percentage points in 2020.
    - Pre-pandemic worse-performing firms: largest drop in tax payments: −24 percent.
    - Effective tax rate decline: oil importers −3 percentage points; oil exporters −0.2 percentage points.
    - Tax payments and effective tax rates contracted by less than that reported by the median firm in emerging markets.
  - Firms’ interest expenses decreased by 10 percent overall:
    - Oil exporters: −13 percent.
    - Oil importers: −8 percent.
    - Typical emerging-market firm: about −2 percent.
  - Net borrowing during 2020, as a percentage of 2019 assets, increased by 3 percentage points (MENAP median), slightly lower than the 4-percentage-point increase for the median firm across emerging markets.
- Cost adjustments:
  - Firms’ nonwage outlays were curtailed by 10 percent by end-2020.
  - Wage bills remained broadly unchanged overall, but:
    - Oil exporters: wage bills contracted by 5 percent.
    - Oil importers: wage bills increased by 3 percent (reflecting fall of expatriate employment in GCC countries).
  - About 30 percent of firms changed their production process in response to the pandemic.

### Liquidity, solvency, and “zombification” risks
- Pre-pandemic worse-performing firms entered the crisis with impaired debt-service capacity (negative interest-coverage ratio [ICR]) and high debt burden.
- Despite cost reductions and policy support, zombification, liquidity, and solvency risks have risen for these worse-performing firms.
  - “Zombification” defined as firms whose profits are insufficient to cover cost of capital; such firms tend to be smaller, less productive, more leveraged, and invest less.
- Leverage rose from 51 to 57 percent by Q1 2021 (region-wide median), increasing solvency risks amid subdued earnings.
- Small firms face protracted recovery risks due to subdued earnings, diminished debt-service capacity, and constrained access to credit.

### Banking system resilience and emerging risks
- Swift macro-financial policy and liquidity support helped banking systems in ME&CA withstand the pandemic shock to date.
  - Measures included easing debt-service burden, releasing macroprudential buffers, and modifying loan classification criteria to pause or delay recognition of NPLs.
- Nonperforming loans (NPLs) averaged about 7½ percent of total loans and remained broadly stable, contrasting with rapid rises in prior crises.
- Loan-loss provisioning in 2020 was higher than in 2019, partly due to regulatory requirements, indicating banks are building buffers against potential asset-quality deterioration when policy support is withdrawn.
- Risks are building up unevenly, driven by:
  - Pre-pandemic vulnerabilities.
  - Banks’ exposure to the corporate sector, especially HCI sectors.
  - Easing of policies that delayed NPL recognition.
- Banks with higher exposure to the corporate sector entered the crisis with:
  - Higher NPLs.
  - Lower capital adequacy and liquidity ratios.
  - These buffers deteriorated slightly in 2020, increasing susceptibility to risk, though higher provisioning somewhat mitigates this vulnerability.

*Source: IMF — Regional Economic Outlook: Middle East and Central Asia, October 2021, chapter “3. COVID-19 and the Corporate-Sector Outlook”*

### 1. Elevated Vulnerabilities in Pre-Pandemic

### 1. Elevated Vulnerabilities in Pre-Pandemic

### Weaker Firms and Leverage
- Banking systems more exposed to HCI sectors have seen an increase in NPLs during the pandemic, reflecting weaker performance of firms in these sectors.
- Exposure to HCI sectors is highest in the GCC, but risk is tilted disproportionately toward low-income countries, which entered the pandemic with high NPLs and limited fiscal and external buffers amid significant exposure to HCI sectors.

### Corporate Outlook amid Elevated Uncertainty
- The pandemic left a legacy of impaired debt-service capacity and exacerbated debt overhang in an important subset of firms, which—if unaddressed—could prompt financial stability risks and a prolonged period of weak economic performance.
- Subdued earnings and a premature and generalized withdrawal of policy support can increase vulnerable firms’ liquidity and solvency stress, potentially triggering a wave of bankruptcies.
- The analysis uses stress-testing tools and two scenarios:
  - Baseline scenario: real GDP grows as forecast in the IMF’s World Economic Outlook with no change in policy support to firms relative to 2020.
  - Adverse scenario: real GDP growth is one standard deviation below World Economic Outlook projections, and policy support is withdrawn symmetrically across firms starting from 2022 through an assumed rise in firms’ effective interest rates by 200 basis points (relative to 2020 rates) and in effective tax rates to their 2019 levels.

### Liquidity Stress Is Projected to Remain Elevated for Small Firms
- Small firms’ liquidity stress (projected negative cash balances) would remain substantially high over the medium term and could be exacerbated further in the adverse scenario.
- Key projected figures:
  - About 38 and 42 percent of small firms would face cash shortages and would have to borrow under the baseline and adverse scenarios, respectively, compared with 25 percent pre-pandemic.
  - Nearly 31 (baseline) and 37 (adverse scenario) percent of small firms’ debt would be at risk of default by 2023 if liquidity risks materialize.
- By size:
  - Large firms’ liquidity prospects are more comfortable relative to small firms, reflecting stronger pre-pandemic cash positions.
- By contact intensity:
  - Share of HCI firms facing liquidity needs would rise more than threefold (fourfold) to 21 percent (25 percent) by 2023 from a pre-pandemic level of 6 percent under the baseline (adverse) scenario.
  - This would lead to a sharp rise in HCI sectors’ debt at risk of up to 20 percent of their overall debt.
  - In LCI sectors, the share of firms at risk of illiquidity would increase twofold over the medium term, from 17 to between 30 and 34 percent under the baseline and adverse scenarios, respectively.
  - Debt at risk would be larger in HCI sectors (17–20 percent) versus LCI sectors (9–13 percent), reflecting the rapid rise in liquidity needs and borrowing of some HCI firms.

### Solvency Concerns Remain Restrained
- Small firms’ insolvency risk would be only modestly exacerbated under adverse conditions:
  - Share of insolvent small firms (equity below zero) would rise from 7 percent pre-pandemic to 8 and 11 percent in 2023 under the baseline and adverse scenarios, respectively.
  - Share of large firms with negative equity is projected to remain low and stable over the medium term.
- Across contact-intensive sectors:
  - After a sharp increase in 2020, the share of insolvent firms in HCI sectors would decline to pre-pandemic levels in the baseline scenario.
  - Under adverse conditions, the share would remain slightly above pre-pandemic levels across sectors.

### Restructuring, Liquidation, and Viability Triage
- Firms are classified by viability using ICR (interest coverage ratio) thresholds:
  - Sound: pre- and post-pandemic ICR above 1.
  - Viable (distressed but potentially recoverable): pre-pandemic ICR above 1, post-pandemic ICR below 1.
  - Zombie: pre- and post-pandemic ICR below 1.
- Triage results (average shares and debt composition for 2022–23):
  - Many firms are sound, accounting for 85 percent of firms both in oil-importing and oil-exporting countries in the baseline scenario (about 10 percentage points less under adverse conditions).
  - This implies that, at worst, 75 and 86 percent of corporate debt would be safe (low credit risk) in both country groups, respectively.
  - Overall, 15 percent of firms (up to 25 percent under adverse conditions) would require either restructuring or liquidation in both country groups.
  - Viable firms (may need debt restructuring):
    - Represent 9 and 6 percent of firms in oil-importing and oil-exporting countries, respectively, in the baseline scenario.
    - Represent 14 and 13 percent, respectively, under the adverse scenario.
    - At worst, this implies that 17 and 10 percent of corporate debt in oil importers and exporters, respectively, would need restructuring.
  - Zombie firms (might need liquidation if strategic and social objectives do not argue otherwise):
    - Represent 6 and 9 percent of firms in oil-importing and oil-exporting countries, respectively, in the baseline scenario.
    - Represent 9 and 12 percent, respectively, under the adverse scenario.

### Policy Actions for the Recovery and Beyond
- Near-term guidance:
  - Policymakers should remain nimble and cautious about withdrawing policy support for vulnerable but viable firms prematurely, given uncertainty about the pandemic’s path and heightened liquidity risks.
  - Measures should be targeted progressively to those in need—distressed but viable firms—such as small firms and those in HCI sectors.
- Medium-term guidance:
  - Shift policies toward fostering resource reallocation to viable firms and enabling a resilient recovery.
  - Encourage large firms in countries with well-functioning capital markets to raise equity to strengthen balance sheets.
  - Insolvent but viable small and medium firms should first rely on their owners and shareholders for recapitalization; if unable, government support might be required.
  - Equity injections can be used for restructuring to flatten the insolvency curve, provide liquidity, and mitigate debt overhang.
  - Where available, sovereign wealth funds could be used to inject equity with safeguards for transparency, accountability, and good governance.
  - In countries with limited fiscal space, consider measures with lower fiscal costs (for example, conversion of guaranteed debt into equity).
- Structural and regulatory reforms:
  - Strengthen insolvency frameworks: simplify procedures, increase expertise and capacity of courts and insolvency administrators, improve reorganization proceedings, provide incentives for investors to supply capital to distressed firms, enable out-of-court agreements, and introduce restructuring mechanisms with limited court intervention (for example, hybrid restructurings).
  - Reforms tailored for SMEs to simplify procedural complexities and court proceedings for micro and small enterprises.
  - Reform SOE governance and fiscal risk management to improve SOE performance and reporting, government oversight, and assessment of fiscal risks; consider restructuring, reorganization, and liquidation to level the playing field with private firms.
  - Accelerate firms’ digital connectivity to raise resilience, productivity, and competitiveness: high-speed broadband, reduced barriers to market entry and digital trade, financing for innovative start-ups, strengthened electronic payment systems, and investment in fintech to enhance financial inclusion for SMEs.
- Financial sector and market development:
  - Once eased macroprudential buffers and loan classification rules are withdrawn, a delayed rise in NPLs will likely occur; if left unaddressed, this could endanger financial stability and may require fiscal resources for recapitalization.
  - Authorities should closely monitor risks, follow a properly calibrated withdrawal of policy support, and encourage vulnerable banks to strengthen buffers during the respite provided by policy support.
  - In the medium term, develop capital markets and distressed debt markets to help viable firms strengthen balance sheets and facilitate corporate restructuring through market mechanisms.

*International Monetary Fund | October 2021*

### References

### reo-october-2021-english - References

### References
- Abidi, Nordine, Mehdi El-Herradi, and Sahra Sakha. 2021. “Digitalization and Resilience: Firm-level Evidence During the COVID-19.” IMF Working Paper, forthcoming.
- Banerjee, Ryan, and Boris Hofmann. 2020. “Corporate Zombies: Anatomy and Life Cycle.” BIS Working Paper 882, Bank for International Settlements, Basel, Switzerland.
- Demmou, Lilas, Sara Calligaris, Guido Franco, Dennis Dlugosch, Müge Adalet McGowan, and Sahra Sakha. 2021. “Insolvency and Debt Overhang Following the COVID-19 Outbreak: Assessment of Risks and Policy Responses.” OECD Economics Department Working Paper 1651, Organisation for Economic Co-operation and Development, Paris.
- Díez, Federico J., Romain Duval, Jiayue Fan, José Garrido, Sebnem Kalemli-Özcan, Chiara Maggi, Soledad Martinez-Peria, and Nicola Pierri. 2021. “Insolvency Prospects among Small and Medium Enterprises in Advanced Economies: Assessment and Policy Options.” IMF Staff Discussion Note 2021/002, International Monetary Fund, Washington, DC.
- Hong, Gee Hee, Deniz Igan, and Do Lee. 2021. “Zombies on the Brink: Evidence from Japan on the Reversal of Monetary Policy Effectiveness.” IMF Working Paper 21/44, International Monetary Fund, Washington, DC.
- IMF (International Monetary Fund). 2019. “Financial Inclusion of Small and Medium-Sized Enterprises in the Middle East and Central Asia.” IMF Departmental Paper 19/02, International Monetary Fund, Washington, DC.
- IMF (International Monetary Fund). 2021. “State Owned Enterprises in Middle East, North Africa, and Central Asia: Size, Costs, and Challenges.” IMF Departmental Paper 21/019, International Monetary Fund, Washington, DC.
- Joseph, Andreas, Christiane Kneer, and Neeltje van Horen. 2021. “All You Need Is Cash: Corporate Cash Holdings and Investment after the Global Financial Crisis.” CESifo Working Paper 9053, Center for Economic Studies and the ifo Institute, Munich.
- Liu, Yan, José Garrido, and Chanda DeLong. 2020. “Private Debt Resolution Measures in the Wake of the Pandemic.” Special Series on COVID-19 (May 27), International Monetary Fund, Washington, DC.
- Sorbe, Stephane, Peter Gal, Guiseppe Nicoletti, and Christina Timiliotis. 2019. Digital Dividend: Policies to Harness the Productivity Potential of Digital Technologies. OECD Economic Policy Paper 26, OECD Publishing, Paris.
- Tressel, Thierry, and Xiaodan Ding. 2021. “Global Corporate Stress Tests—Impact of the COVID-19 Pandemic and Policy Responses.” IMF Working Paper 2021/212, International Monetary Fund, Washington, DC.
- UNCITRAL (United Nations Commission on International Trade Law). 2021. “Draft Text for a Simplified Insolvency Regime: Note by the Secretariat.” Working Group V, 58th Session (May 3–7), United Nations Commission on International Trade Law, New York. https:// undocs .org/ en/ A/ CN .9/ WG .V/ WP .172.
- World Bank Group. 2018. Saving Entrepreneurs, Saving Enterprises: Proposals on the Treatment of MSME Insolvency. Washington, DC: World Bank Group.

### Selected Economic Indicators — MENA, Afghanistan, and Pakistan: Selected Economic Indicators, 2000–22 (Percent of GDP, unless otherwise indicated)
- Average 2000–17 | 2018 | 2019 | 2020 | Projections 2021 | 2022
- MENA
  - Real GDp (annual growth) 4.5 1.4 1.0 –2 3.2 4.1 4.1
  - of which non-oil growth 5.5 2.6 2.9 –2 2.9 3.6 3.6
  - Current account balance 7.4 3.8 1.2 –2 2.4 2.1 2.2
  - Overall fiscal balance 1.8 –2.2 1.2 3.2 8.3 2.4 5.2 3.9
  - Inflation (year average; percent) 7.1 9.7 6.8 10.4 12.9 8.8
- MENA oil exporters
  - Real GDp (annual growth) 4.6 0.6 0.1 –2 4.3 4.6 4.0
  - of which non-oil growth 5.8 2.1 2.7 –2 3.9 3.8 3.3
  - Current account balance 10.1 6.3 3.1 –2 1.8 3.7 3.7
  - Overall fiscal balance 3.6 –2.0 9.2 2.2 3.2 8.6 2.3 3.3
  - Inflation (year average; percent) 6.6 8.0 5.6 8.4 11.2 8.4
- MENA oil exporters excl. conflict countries and Iran
  - Real GDp (annual growth) 4.9 2.2 1.5 –2 5.9 2.7 4.6
  - of which non-oil growth 6.4 3.4 3.3 –2 5.6 4.2 3.7
  - Current account balance 11.9 6.6 3.9 –2 2.5 4.9 5.1
  - Overall fiscal balance 5.3 –2.1 0.9 2.9 9.5 2.2 2.7 1.4
  - Inflation (year average; percent) 3.2 2.2 –2 0.9 1.3 3.7 3.3
- Of which: Gulf Cooperation Council (GCC)
  - Real GDp (annual growth) 4.4 2.0 1.0 –2 4.8 2.5 4.2
  - of which non-oil growth 6.2 1.7 2.7 –2 3.9 3.8 3.4
  - Current account balance 13.6 8.6 5.8 –2 0.4 6.0 6.3
  - Overall fiscal balance 6.8 –2.1 5.2 1.5 2.8 8.8 2.1 2.0 4.0
  - Inflation (year average; percent) 2.6 2.2 –2 1.5 1.2 2.8 2.4
- MENA oil importers
  - Real GDp (annual growth) 4.1 3.5 3.3 –2 0.6 2.0 3.4
  - Current account balance –2.3 9.7 2.7 5.2 6.7 2.6 2.7 2.4 7.1 2.4 5.0
  - Overall fiscal balance –2.6 6.2 7.3 6.9 2.7 1.2 6.9
  - Inflation (year average; percent) 8.2 14.4 9.8 15.2 17.1 9.8
- MENAP
  - Real GDp (annual growth) 4.5 1.9 1.2 –2 2.2 2.9 4.1 4.1
  - of which non-oil growth 5.4 2.9 2.8 –2 2.2 2.6 3.6 3.6
  - Current account balance 6.8 2.9 0.8 –2 2.3 2.1 1.9 1.8
  - Overall fiscal balance 1.3 –2.2 4.2 3.6 2.8 2.4 7.2 8.2 4.7 2.4 7.4 2.4 1.0
  - Inflation (year average; percent) 7.1 8.9 6.7 10.4 12.4 8.8
- MENAP oil importers
  - Real GDp (annual growth) 4.2 4.1 2.9 –2 2.0 3.3 4.2
  - Current account balance –2.2 8.6 2.6 6.2 5.8 2.3 5.8 2.4 3.8 2.4 2.1 2.4
  - Overall fiscal balance –2.5 9.2 6.8 2.7 4.7 2.6 2.7 4.7 2.6 4.0
  - Inflation (year average; percent) 8.1 10.4 8.6 13.5 14.3 9.4
- Arab World
  - Real GDp (annual growth) 4.6 2.8 2.3 –2 4.5 4.4 4.5
  - of which non-oil growth 5.7 3.5 3.2 –2 3.9 3.8 3.9
  - Current account balance 8.1 3.5 1.3 –2 3.2 2.5 2.7
  - Overall fiscal balance 2.6 –2.1 2.2 8.2 2.9 2.3 9.2 2.3 2.1 6.6
  - Inflation (year average; percent) ..................
- Sources: National authorities; and IMF staff estimates and projections.
- Notes:
  - 2011–22 data exclude Syrian Arab Republic.
  - 2021–22 data exclude Afghanistan.
  - Note: Data refer to the fiscal year for the following countries: Afghanistan (March 21/March 20) until 2011, and December 21/December 20 thereafter, Iran (March 21/March 20), and Egypt and pakistan (July/June).
  - Definitions and country lists for MENA, MENA oil exporters, MENA oil exporters excl. conflict countries and Iran, GCC countries, MENA oil importers, MENAp, MENAp oil importers, and Arab World as provided in the source.

### CCA Region: Selected Economic Indicators, 2000–22 (Percent of GDP, unless otherwise indicated)
- Average 2000–17 | 2018 | 2019 | 2020 | Projections 2021 | 2022
- CCA
  - Real GDp (annual growth) 7.0 3.9 3.8 –2 2.2 4.3 4.1
  - Current account balance 0.0 0.2 –2 2.3 2.3 3.4 2.0 2.1 2.4
  - Overall fiscal balance 1.4 2.0 0.6 –2 2.5 4.2 2.8 2.1 2.5
  - Inflation (year average; percent) 9.1 8.0 6.7 7.5 8.5 7.5
- CCA oil and gas exporters
  - Real GDp (annual growth) 7.1 3.8 3.4 –2 2.1 4.1 3.9
  - of which non-oil growth 7.4 3.1 3.6 –2 2.2 4.0 4.1
  - Current account balance 1.1 1.3 –2 2.1 7.3 2.3 4.0 3.2 0.3 2.0 9.4
  - Overall fiscal balance 2.0 2.5 0.9 –2 2.5 3.2 2.2 5.1 2.3
  - Inflation (year average; percent) 9.5 8.9 7.1 7.8 8.4 7.8
- CCA oil and gas importers
  - Real GDp (annual growth) 6.0 5.1 6.1 –2 4.7 5.7 5.2
  - Current account balance –2.8 6.7 2.7 5.6 2.7 2.4 0.0
  - Overall fiscal balance –2.2 4.1 4.2 1.4 2.9 2.7 2.3
  - Inflation (year average; percent) 6.5 2.6 3.8 5.2 9.1 6.2
- Sources: National authorities; and IMF staff estimates and projections.
- Note:
  - A note that Azerbaijan, Kazakhstan, and Turkmenistan are indicated in a footnote; Uzbekistan data for non-oil GDp is not available.
  - Note: CCA oil and gas exporters: Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan.
  - Note: CCA oil and gas importers: Armenia, Georgia, the Kyrgyz Republic, and Tajikistan.

### ME&CA: Selected Economic Indicators, 2000–22 (Percent of GDP, unless otherwise indicated)
- Average 2000–17 | 2018 | 2019 | 2020 | Projections 2021 | 2022
- ME&CA
  - Real GDp (annual growth) 4.7 2.2 1.5 –2.8 4.1 4.1
  - of which non-oil growth 5.5 3.0 2.9 –2.6 3.7 3.7
  - Current Account balance 6.3 2.7 0.5 –2.4 1.7 1.5
  - Overall Fiscal balance 1.4 –2.0 –3.2 –8.0 –4.5 –3.8
  - Inflation (year average; percent) 7.2 8.8 6.7 10.0 11.9 8.6
- ME&CA oil exporters
  - Real GDp (annual growth) 4.9 0.9 0.4 –4.1 4.5 4.0
  - of which non-oil growth 6.0 2.3 2.8 –3.6 3.9 3.4
  - Current Account balance 9.5 6.0 2.8 –1.9 3.6 3.5
  - Overall Fiscal balance 3.7 –0.5 –2.0 –8.3 –3.8 –3.1
  - Inflation (year average; percent) 6.7 7.6 5.4 8.0 10.5 8.0
- ME&CA Emerging Market and Middle-Income Countries
  - Real GDp (annual growth) 4.3 4.6 3.3 –0.6 3.6 4.2
  - of which non-oil growth 4.5 4.7 3.4 –0.5 3.6 4.3
  - Current Account balance –3.2 –6.8 –5.8 –3.4 –3.5 –3.9
  - Overall Fiscal balance –6.0 –6.9 –7.3 –7.6 –7.2 –6.5
  - Inflation (year average; percent) 7.4 7.8 6.6 8.0 8.2 7.7
- ME&CA Low-Income Developing Countries
  - Real GDp (annual growth) 4.5 2.1 3.0 –1.5 3.4 4.4
  - of which non-oil growth 2.6 –0.6 0.2 –5.0 0.6 3.3
  - Current Account balance 1.7 –5.4 –5.6 –5.0 –7.4 –7.4
  - Overall Fiscal balance –2.2 –2.1 –3.1 –3.5 –3.3 –2.9
  - Inflation (year average; percent) 12.9 24.9 19.5 39.1 49.2 19.7
- Sources: National authorities; and IMF staff calculations and projections.
- Notes:
  - 2011–22 data exclude Syrian Arab Republic.
  - 2021–22 data exclude Afghanistan.
  - Note: Data refer to the fiscal year for the following countries: Afghanistan (March 21/March 20) until 2011, and December 21/December 20 thereafter, Iran (March 21/March 20), and Egypt and pakistan (July/June).
  - The 32 ME&CA countries and territories are divided into three (nonoverlapping) groups, based on export earnings and level of development: (1) Oil Exporters (ME&CA OE), (2) Emerging Market and Middle-Income Countries (ME&CA EM&MI); and (3) Low-Income Developing Countries (ME&CA LIC).
  - ME&CA OE include Algeria, Azerbaijan, bahrain, Iran, Iraq, Kazakhstan, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Turkmenistan, and United Arab Emirates.
  - ME&CA EM&MI include Armenia, Egypt, Georgia, Jordan, Lebanon, Morocco, pakistan, Syrian Arab Republic, Tunisia, and West bank and Gaza.
  - ME&CA LIC include Afghanistan, Djibouti, Kyrgyz Republic, Mauritania, Somalia, Sudan, Tajikistan, Uzbekistan, and yemen.

*International Monetary Fund | October 2021*

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_Source: https://www.imf.org/-/media/files/publications/reo/mcd-cca/2021/october/reo-october-2021-english.pdf_