## Key Messages — October 2023 Regional Economic Outlook: Middle East & Central Asia ## Source details **Canonical URL:** [Key Messages — October 2023 Regional Economic Outlook: Middle East & Central Asia](https://www.imf.org/-/media/files/publications/reo/mcd-cca/2023/october/english/october-2023-reo-key-messages.pdf) ## Other formats - [Markdown version](/-/media/files/publications/reo/mcd-cca/2023/october/english/october-2023-reo-key-messages.pdf.md) - [Structured JSON version](/-/media/files/publications/reo/mcd-cca/2023/october/english/october-2023-reo-key-messages.pdf.json) --- ### Overarching context - With the World Bank–IMF Annual Meetings returning to the Arab World for the first time in two decades, it is time to rethink the region’s development model. - Overarching themes of the 2023 Annual Meetings: building resilience, securing a transformational recovery, and reinvigorating global cooperation. - Growth in many economies in the Middle East and Central Asia is slowing, reflecting the combined effect of tighter policies, oil production cuts, and domestic challenges. - Inflation is easing, but large differences persist between countries. Elevated debt levels in some countries continue to pose challenges. - The balance of risks has improved since April as adverse global challenges have receded. Still, risks remain tilted to the downside, and climate-related threats are rising. - Tight policies to reduce inflation and maintain debt sustainability and financial stability remain the priority. Macroprudential policy can ease tensions between price and financial stability objectives. - Structural reforms can help support near-term growth and longer-term growth prospects. Sequencing and packaging reforms strategically can magnify growth dividends. - Promoting inclusive growth will require substantial reforms to close the gap between the development models of the past and what is needed going forward. ### Growth outlook and regional details - Middle East and North Africa (MENA) - Real GDP growth is set to slow to 2.0 percent this year (a downgrade of 1.1 percentage points from April) as tight policies to safeguard macroeconomic stability, OPEC+ oil production cuts, and country-specific headwinds weigh on economic activity. - Economic activity is forecast to improve in 2024, with growth reaching 3.4 percent (unchanged from April) — but to remain below its prepandemic historical average over the medium term. - Caucasus and Central Asia (CCA) - Real GDP growth is projected to remain relatively robust in 2023 at 4.6 percent (a 0.3 percentage-point upgrade), reflecting the continued impact of trade and financial flows from Russia and strong domestic demand. - Gradual normalization of these flows will likely dampen activity in 2024, with growth easing to 4.2 percent (a 0.3 percentage-point downgrade). - Amid persistent structural challenges, medium-term growth is projected to remain lackluster. ### Inflation and financing conditions - Inflation - Average inflation in MENA is forecast to peak at 17.5 percent in 2023 (partly reflecting high inflation in a few economies; 13.4 percent excluding Egypt and Sudan) before easing to 15.0 percent in 2024 (9.7 percent, excluding Egypt and Sudan). - In the CCA, price pressures are expected to continue abating, falling from 11.0 percent in 2023 to 8.3 percent in 2024. - Financing conditions - MENA central banks have continued raising rates in 2023, albeit at a slower pace than last year. - The monetary policy cycle appears to have peaked in the CCA. - A higher-for-longer interest rate environment could strain ME&CA financial institutions, with implications for banking sector profitability, credit provision, economic growth, and financial stability. ### Risks - upside scenario - A faster-than-anticipated global decline in inflation would reduce pressure on central banks to raise interest rates further. - downside scenarios - A larger-than-expected slowdown in China or major advanced economies could reduce external demand. - An escalation of the war in Ukraine could reignite price pressures and worsen food insecurity. - Climate shocks or natural disasters could impact infrastructure, agriculture output, food prices, and social stability. - Net assessment: Risks have receded since April but remain to the downside. ### Policy recommendations - Monetary policy - Maintain focus on price stability. - In countries with persistent inflationary pressures, a continued tight monetary policy stance is essential until signals of sustained disinflation are well-established. For some economies, this may require further tightening. - Example: policy rates remain below model-based estimates of natural rates in Egypt, Pakistan, and Tunisia. - Where inflation is returning to target and underlying inflationary pressures are abating, policy easing should be done cautiously and with due attention to signs of renewed price pressures. - Fiscal policy - Build buffers to strengthen resilience. Fiscal consolidation efforts should continue to build buffers and safeguard debt sustainability, especially in emerging markets. - Economic diversification and boosting fiscal buffers among oil exporters would help ensure resilience. - All countries would benefit from domestic revenue mobilization and spending efficiency. - Fiscal reforms (for example, increasing budget transparency and adopting credible medium-term fiscal frameworks) will reinforce efforts and facilitate access to external market financing. - Structural reforms - Transform the economy to prepare for tomorrow’s challenges. Implementing structural reforms is critical to solving the deep-seated economic challenges constraining growth in ME&CA. - A first-generation reform package that includes governance, external sector, and regulatory reform could increase output by almost 10 percent over five years. - Governance reforms are especially important and can generate positive output effects even during periods of weak growth or limited policy space. Major governance reforms could increase output by about 6 percent over five years. - Regulatory quality reforms have a positive impact on output, contributing to a 4 percent increase after five years. - Sequencing and packaging reforms strategically can magnify growth dividends. ### IMF engagement and financing to the region - Since the onset of the pandemic, the IMF has provided $34 billion in new financing to 15 ME&CA countries (including $26.3 billion to 8 MENA countries) and allocated $49.3 billion special drawing rights to boost the region’s reserve assets. - Over the past year, IMF programs were approved for Armenia, Egypt, Mauritania, Morocco, and Pakistan. - Since 2020, the IMF has provided about $6 billion in emergency financing and enhanced its emergency financing facilities. - Morocco recently became the first ME&CA country to secure financing under the Fund’s Resilience and Sustainability Facility, which provides long-term financing to strengthen economic resilience by supporting policy reforms that reduce climate change-related risks, among others. *Source: October 2023 Regional Economic Outlook: Middle East & Central Asia — Key Messages* --- _Source: https://www.imf.org/-/media/files/publications/reo/mcd-cca/2023/october/english/october-2023-reo-key-messages.pdf_