## October 2022 Middle East and Central Asia Regional Economic Outlook — Key Messages

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**Canonical URL:** [October 2022 Middle East and Central Asia Regional Economic Outlook — Key Messages](https://www.imf.org/-/media/files/publications/reo/mcd-cca/2022/october/english/mcd-reo-october-2022-key-messages-eng.pdf)

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### Overview and materialized risks
- Risks highlighted in the April 2022 WEO have materialized: commodity prices remain high, global financial conditions have tightened faster and by more than previously expected, and a worldwide slowdown is underway.
- Economic activity in the ME&CA has been resilient thus far, but inflation surprised on the upside, and the region is facing exceptional uncertainties and downside risks.
- Multispeed recovery continued in early 2022:
  - Activity in oil exporters is benefiting from still-high energy prices.
  - The pace of expansion in emerging market and middle-income economies (EM&MIs) appears to be slowing, as these economies face a deep terms-of-trade shock, higher sovereign spreads, and eroded market access.
  - The impact of the war in Ukraine on the CCA has been so far milder than forecast, with some unexpected positive spillovers, including significant inflows and the relocation of workers and firms from Russia, supporting domestic activity.
- Inflation across ME&CA continued to increase through July and has become broad-based.

### MENA outlook and projections
- MENA aggregate:
  - Real GDP is forecast to grow 5.0 percent in 2022, up from 4.1 percent in 2021.
  - Growth is forecast to slow to 3.6 percent in 2023.
  - Forecasts for 2022−23 are unchanged from April.
- Oil exporters:
  - Economies foreseen to grow 5.2 percent in 2022, up from 4.5 percent in 2021.
  - Growth likely to slow to 3.5 percent in 2023 as OPEC+ production increases wane, oil prices decline, and global demand slows.
- EM&MI s:
  - Real GDP growth forecast at 4.9 percent in 2022, a 0.5 percentage point upward revision from April, driven by Egypt’s performance during fiscal year 2022.
  - Growth will slow to 3.9 percent in 2023, reflecting decelerations in Egypt and Tunisia.
- LICs:
  - Growth expected to remain weak at 0.8 percent in 2022 (a 0.3 percentage point downward revision from April), reflecting country-specific fragilities and the impact of high commodity prices.
- Headline inflation for MENA (excluding Sudan):
  - Forecasts for 2022−23 are 12.1 and 11.2 percent, respectively, revised up from April, reflecting lagged effects of higher food prices and, in some cases, exchange rate depreciations with broadening inflationary pressures.

### External accounts, fiscal balances, and financing needs
- Oil exporters:
  - External accounts projected to improve further in 2022−23 as oil and gas prices remain considerably higher than their 2020−21 levels.
  - Primary non-oil fiscal balances are projected to improve, with most GCC countries expected to continue to save a substantial share of their oil revenues.
  - Projected cumulative oil windfall of about $1 trillion over 2022−26.
- EM&MIs:
  - Current account deficits projected to remain roughly at their 2021 levels in 2022, reflecting robust remittance flows and resurgent tourism in some countries.
  - Lower foreign exchange reserves amid global financial tightening indicate an increase in external vulnerabilities.
  - Primary fiscal deficits projected to improve slightly relative to 2021 despite higher subsidies due to offsetting measures amid weakened fiscal space.
  - Continued primary deficits, higher interest payments, and in some cases increased reliance on short-term financing will raise public gross financing needs to $384 billion in 2022−23.
- LICs:
  - Projected to face a large deterioration in their external accounts, with higher imports concentrated on essential food and energy items.
  - Likely to experience severe food security challenges; with limited access to financing and drought in some, these countries will need international aid to secure staple food imports.
- CCA countries:
  - Growth expected to slow to 3.8 percent in 2022 from 5.6 percent in 2021.
  - Projections were upgraded by 2.0 and 5.6 percentage points in LICs and EM&MIs, respectively, relative to April, reflecting an upward revision to Russia’s real GDP growth forecast, unexpected inflows, resilient trade, and fiscal stimulus in some countries.
  - Growth in 2023 is foreseen at 4.0 percent and will likely narrow to 3.5 percent in the medium term (below the historical average of almost 7 percent).
  - Inflation forecast at 12.9 percent in 2022 and 10.5 percent in 2023, with upward revisions from April for both years.

### Key near-term drivers and heterogeneity
- Near-term external account forecasts dominated by higher oil prices and spillovers from the war in Ukraine:
  - Oil exporters continue to benefit from high oil and gas prices.
  - Increased money inflows and tourism receipts to some EM&MIs offset external headwinds.
  - Positive terms-of-trade shock beneficiaries (Azerbaijan, Kazakhstan) and countries with unanticipated positive spillovers from the war in Ukraine (Armenia, Azerbaijan, Georgia, Uzbekistan) expected to see improved fiscal performances over 2022−23.

### Downside risks and vulnerabilities
- Major downside risks identified:
  - Persistently high commodity prices and more pervasive food shortages could lead to food insecurity, social unrest, and fiscal pressures.
    - Rising fertilizer costs amid low strategic reserves could present risks to the 2023 agricultural harvest, reducing food security.
    - Combined with employment gaps, potential declines in remittances, and limited policy space, high commodity prices could worsen poverty and lead to social unrest.
  - Tighter-than-expected financial conditions could trigger debt and financial stability risks, translating into higher government debt service costs, worsening debt dynamics, and a funding crunch for EM&MIs.
  - Broadening inflation risks from large external cost-push shocks, tightening global financial conditions leading to exchange rate pressures, and weak anchoring of inflation expectations.
  - Disinflationary policies could be more costly than expected:
    - Globally, could trigger a severe slowdown in economic activity, further worsening external conditions for the region.
    - Domestically, high dollarization, shallow financial markets, and underdeveloped monetary policy frameworks could require large increases in policy rates to make a dent in inflation, risking tipping economies into recession.
  - Spillovers from the war could put the CCA’s progress toward reducing poverty and inequality at risk:
    - The war risks raising poverty by about 1 percentage point and inequality by about 1 percent and reducing real household consumption by about 2 percentage points, on average, with larger impacts in poorer countries.

### Upside possibilities
- Upside risks include:
  - A larger-than-expected moderation in food commodity prices, supported by the resumption of Ukrainian grain exports.
  - For oil importers, a greater-than-expected decline in oil prices.

### Policy priorities and recommendations
- Mitigating a cost-of-living crisis while preserving fiscal sustainability is the most pressing policy priority:
  - Restore price stability by tightening monetary policy in countries where inflation is becoming broad-based or where there are signs of de-anchoring of inflation expectations.
  - Tackle food insecurity by:
    - Decisive global efforts to lift trade restrictions and reduce excess storage reserves.
    - Improving access to fertilizers and investing in climate-resilient agriculture.
  - Protect the vulnerable while ensuring fiscal sustainability:
    - Deploy targeted support where available; use temporary food subsidies when targeted assistance is not feasible and food insecurity looms large.
    - Avoid regressive energy subsidies, tax cuts, and tax exemptions.
    - Accelerate fiscal adjustment in countries where fiscal space is limited to maintain debt sustainability.
    - Oil exporters should maximize the benefits of the oil windfall by building buffers and avoiding procyclical spending, keeping fiscal reform momentum, and progressing with diversification plans.
- Strengthen resilience and growth prospects:
  - Build resilience to future shocks by completing energy subsidy reforms in conjunction with enhancing social safety nets to free up resources for expanding social protection and investing in energy efficiency.
  - Strengthen medium-term fiscal frameworks to anchor confidence in fiscal sustainability.
  - Press ahead with structural reforms for inclusive and resilient growth:
    - Remove barriers to private firms, enact reforms that reduce informality and improve tax equity, and invest in climate-resilient technology and infrastructure.

### IMF support and tools
- IMF assistance to the region since 2020:
  - Supported ME&CA members with $21.3 billion in financing since 2020.
  - Allocated $49.3 billion special drawing rights to boost the region’s reserve assets.
- IMF toolkit adaptations:
  - Establishing the Resilience and Sustainability Trust to support low-income and vulnerable middle-income countries build resilience to external shocks and address longer-term challenges, including climate change.
  - Enhanced emergency financing facilities by establishing a new “food shock window” to help address the food crisis facing the most vulnerable members.

*mcd-reo-october-2022-key-messages-eng*

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_Source: https://www.imf.org/-/media/files/publications/reo/mcd-cca/2022/october/english/mcd-reo-october-2022-key-messages-eng.pdf_