## Appendix 1 for country groupings ## Source details **Canonical URL:** [Appendix 1 for country groupings](https://www.imf.org/-/media/files/publications/reo/mcd-cca/2024/update/january/english/text.pdf) ## Other formats - [Markdown version](/-/media/files/publications/reo/mcd-cca/2024/update/january/english/text.pdf.md) - [Structured JSON version](/-/media/files/publications/reo/mcd-cca/2024/update/january/english/text.pdf.json) --- ### Global outlook and key assumptions - Global growth in 2024 is projected to remain unchanged from 2023 at 3.1 percent and rise modestly to 3.2 percent in 2025. - The forecast for 2024 is higher by 0.2 percentage point compared to the October 2023 World Economic Outlook. - Historical (2000–19) average global growth: 3.8 percent. - Global headline inflation is expected to decline to 5.5 percent in 2024 and 4.4 percent in 2025; this forecast reflects a downward revision of 0.3 percentage point and 0.2 percentage point, respectively. - Projections assume interest rates in major economies and fuel and nonfuel commodity prices will decline in 2024 and 2025. - Annual average oil prices are projected to moderate by 2.3 percent in 2024 to about $79 per barrel. - Nonfuel commodity prices are expected to fall by 0.9 percent, on average. ### MENA: conflict, humanitarian impact, and immediate effects - Gaza humanitarian toll in the first 100 days of the conflict: - More than 24,000 people have lost their lives. - More than two-thirds of the deaths were women and children. - Almost 1.9 million people (nearly 85 percent of the population) have been internally displaced. - Food and water insecurity is widespread and essential infrastructure has been destroyed. - Poverty rates in Gaza likely increased from levels estimated at above 50 percent before the conflict. - International assistance to support the humanitarian response remains limited. - In the West Bank, movement of people, goods, capital, and access to resources has been tightened, with severe deterioration of security and economic conditions. ### Tourism, trade, and transmission channels - Tourism significance in MENA before the pandemic: - Accounted for between 2 and 20 percent of GDP. - Accounted for between 5 and 50 percent of goods and services exports. - Hotel occupancy indicators worsened sharply in Lebanon and Jordan following the onset of the conflict relative to the corresponding period in the previous year. - Red Sea security situation and shipping: - During the first half of 2023, trade going through the Suez Canal represented about 12 percent of global trade, including 30 percent of global container traffic, 10-15 percent of global seaborn cargo, and 8 percent of global liquified natural gas shipments. - As of January 21, 2024, the 10-day cumulative shipping volume through the Suez Canal had dropped close to 50 percent relative to the previous year. - Freight costs for routes between Europe/Mediterranean Sea and China have surged by more than 400 percent since mid-November. ### Energy and financial market developments - Conflict onset prompted a short-lived increase in oil prices; prices quickly returned to below pre-conflict levels. - The late 2023 announcement of renewed voluntary oil production cuts by OPEC+ had a minimal impact on oil prices. - Financial markets have remained broadly stable: - Sovereign spreads widened at the conflict’s start but have generally narrowed and are tighter compared to levels in early October before the conflict. - After an initial acceleration in international portfolio outflows, net outflows from debt and equity funds in the region have reverted to pre-conflict levels. ### Inflation and monetary conditions in MENA - Broad-based regional decline in inflation is a positive development. - Monetary policy has remained tight in many MENA economies in 2023; estimates of natural policy interest rates suggest a tight stance in many economies. - Month-on-month inflation—an indicator of inflationary momentum—is steadily declining. - Core inflation has approached pre-pandemic historical averages for some oil exporters. - Exceptions and persistence: - Inflation remains persistent in some economies due to country-specific factors (foreign exchange shortages in Egypt; monetary financing and cost-push pressures in Sudan). - Lebanon: inflationary pressures have been moderating since mid-2023, supported by the end of monetary financing, a forced balanced budget, and a stable exchange rate. ### Growth projections, external position, and fiscal implications - Assuming the conflict eases after the first quarter of 2024: - MENA region growth is projected to improve moderately to 2.9 percent in 2024 (from 2.0 percent in 2023). - This projection is a downgrade of 0.5 percentage point from the October 2023 Regional Economic Outlook: Middle East and Central Asia. - Growth is projected to strengthen to 4.2 percent in 2025 as conflict impacts fade and non-oil growth supports activity. - External position: - Aggregate current account balance of MENA economies in 2024 is expected to be a surplus of 3.9 percent of MENA GDP. - This surplus is expected to shrink by about $25 billion (0.7 percentage point of MENA GDP) compared to October 2023 projections, driven in large part by oil production cuts among GCC members. - Fiscal balances in many oil exporters remained healthy in 2023, supported by still-elevated oil prices and fiscal reforms (including expenditure restraint and efforts to bolster non-oil revenue). ### Country and subregion specifics - West Bank and Gaza: - Real GDP growth in 2023 is estimated to have dropped to about –6 percent. - This reflects a 9-percentage-point downgrade from the October 2023 Regional Economic Outlook. - Inflation is estimated to have risen to above 15 percent on an annual basis at the end of December 2023. - The current account deficit is estimated to have remained sizable. - Palestinian Authority financial viability compromised by economic contraction and nontransfer of full monthly “clearance” revenues by the Government of Israel; PA decision not to accept partial transfers undermines ability to pay wages and social transfers and provide services. - Financial sector sound but risks have risen given high exposure to PA finances, destruction in Gaza, and projected economic contraction. - In 2024, under the assumption the conflict gradually eases, positive growth is projected to resume from a very low base and inflation is expected to gradually ease. - Egypt: - Real GDP growth projected to decline from 3.8 percent in 2023 to 3 percent in 2024. - This is a downward revision of 0.6 percentage point relative to October 2023 projections. - Risks: potential deterioration in tourism, adverse impact on Suez Canal revenues from halted transit through the Red Sea, negative implications for foreign exchange flows, investor sentiment, and net FDI inflows; sustained foreign exchange shortages affecting private sector activity. - Jordan: - Growth in 2023 and 2024 is projected to be held back at around 2.6 percent in both years, compared to earlier projections closer to 3 percent in 2024. - Current account deficit expected to narrow less than previously projected (to 6.3 percent of GDP), mainly due to lower travel receipts and higher energy imports. - Lebanon: - Conflict is deepening complex challenges; tourism driven by the large diaspora expected to remain weak. - Agricultural output, concentrated in the country’s south, is being negatively affected. - Real GDP growth projected to have contracted further in 2023 before rebounding slightly in 2024; current account deficit is widening. - Morocco: - Growth is expected to have accelerated to about 3 percent in 2023, reflecting strong tourism revenues and a rebound in domestic demand. - Momentum projected to continue in 2024 under the assumption of a regular agriculture season. - Low-income countries (LICs): - Growth prospects for 2024 are not encouraging. Constraints include lack of foreign exchange, high inflation, and weak agricultural output (Sudan, Yemen). - Conflict in Sudan has intensified the humanitarian crisis and economic activity has come to a halt in large swathes, contributing to continued negative growth on average among LICs in 2024 after a sharp contraction in 2023. - Djibouti’s recovery depends on trade with Ethiopia and is highly exposed to Red Sea attacks given port activity’s central role. - Mauritania’s outlook is strong, supported by higher-than-expected gold production. - Oil exporters and GCC: - Non-oil growth remains robust in most oil exporters, supported by reform-driven diversification, increased domestic demand, and capital inflows. - Additional voluntary oil production cuts are dampening overall growth. - Overall GCC growth revised down to 0.5 percent in 2023 (1 percentage point lower than in the October 2023 Regional Economic Outlook), before moderately rebounding to 2.7 percent in 2024 as the drag from oil production cuts gradually fades. - Saudi Arabia growth revised to -1.1 and 2.7 percent for 2023 and 2024, respectively. - Growth revised up for some non-GCC oil exporters (including the Islamic Republic of Iran and Libya) reflecting higher-than-projected oil production. ### Inflation outlook - In line with global trends, inflation is expected to continue moderating in most MENA countries. - Inflation in MENA is expected to moderate to 14.4 percent this year, 0.6 percentage point lower than the projection in the October 2023 Regional Economic Outlook: Middle East and Central Asia. - Inflation is projected to decline to below 3 percent across GCC countries, with price pressures persisting in some non-GCC countries (Algeria, Islamic Republic of Iran). - Inflation is set to remain elevated across EM&MIs at 25.6 percent in 2024. - Inflation is set to remain elevated across LICs at 69.9 percent in 2024 (especially in Egypt, Sudan, and Yemen). - Food insecurity remains prevalent in several LICs: Djibouti, Mauritania, Somalia, Sudan, and Yemen. ### Financing needs, public debt, and fiscal conditions - Total public-sector gross financing needs for EM&MIs over 2024 are projected at $186 billion (up from $156 billion in 2023). - The $186 billion represents an increase of about 6 percentage points of fiscal revenues compared to projections in the October 2023 Regional Economic Outlook: Middle East and Central Asia. - These still-high financing needs are expected to be covered mainly through domestic bank financing, likely intensifying sovereign-bank linkages. - External financing would contribute only a small portion due to limited market access for highly indebted countries. - Stronger revenues have helped narrow primary deficits in EM&MIs and LICs, but spending rationalization plans have faced implementation challenges. - Debt levels have remained elevated and are forecast to decline only modestly over the next two years. ### Increased downside risks and transmission channels - Uncertainty and downside risks have risen significantly since October, with duration and scope for escalation of the conflict still uncertain. - Even if the conflict remains contained to Gaza and Israel, the situation remains fluid and highly uncertain; drone attacks in the Red Sea (December 2023) highlight unpredictability. - Channels and risk developments include: - Financial markets could tighten, and sovereign borrowing costs increase; risk premiums and external funding conditions could worsen, with greater net portfolio outflows and larger impacts on highly indebted countries. Further reliance on domestic financing would exacerbate the sovereign-bank nexus. Foreign direct investment flows could suffer. - Shipping and regional trade could experience adverse impacts; shipping companies are diverting away from Middle East transit routes in response to drone attacks in the Red Sea and the Gulf of Aden, and insurance rates have risen. - Egypt generates about 2.2 percent of GDP in annual balance-of-payment receipts and 1.2 percent of GDP in fiscal revenue from Suez Canal dues (based on FY 2022/23). - If the conflict intensifies, risks to other trade routes (Eastern Mediterranean Sea, air traffic) could rise; sanctions or trade restrictions could further disrupt global trade flows and supply chains. Freight costs could rise if shipping shifts to longer alternative routes. - Oil prices could rise: the MENA region produces about 35 percent of world oil exports and 14 percent of gas exports. A large and sustained spike in energy costs would imply an adverse supply shock to the global economy and could jeopardize the global disinflation process. - Mitigants to oil-price spikes include regional oil producers tapping into spare capacity (amounting to nearly 85 percent of global spare capacity) and releases of strategic oil stock. - Political tensions and social unrest could rise amid elevated unemployment, increasing pressure on fiscal balances (for example through energy subsidies) and potentially delaying structural reforms. - The conflict could trigger large refugee flows with spillovers to the broader region, Europe, and beyond, entailing additional near-term fiscal costs for host countries and possible social tensions. - More extreme, low-probability scenarios include tighter sanctions on the Islamic Republic of Iran, blockades of key regional oil and gas shipping routes (for example, the Strait of Hormuz), and attacks on major oil and gas infrastructure; in such cases, oil and gas prices could rise sharply, though spare oil capacity or strategic stock releases could mitigate impacts. ### Policy response recommendations - Policy responses should depend on extent of exposure to the conflict, preexisting vulnerabilities, and policy space. - Exchange rate flexibility: where impact is acute, let the exchange rate be the automatic stabilizer to absorb the shock. - Monetary policy: maintain focus on ensuring price stability in accordance with central bank mandates; in flexible-exchange-rate countries keep policy tight if inflationary pressures persist; where inflation is near targets monetary easing may be cautiously considered; countries with fixed exchange rates should decide according to their frameworks. - Crisis management: central bank emergency liquidity support may be needed in the event of systemic financial stress. - Fiscal policy: tailor to country needs and available fiscal space; ensure social protection systems and spending are ringfenced and targeted to the most vulnerable. - Where fiscal room is inadequate and public debt is high, consider expenditure rationalization and revenue-led fiscal consolidation. - Precautionary macroprudential policies and medium-term reforms: deepen the financial sector, strengthen liquidity conditions, spur investment and growth, regulate and monitor real estate risks, strengthen anti–money laundering/combating the financing of terrorism frameworks, diversify investor base, and improve management of state-owned banks. - Structural reforms: essential to lift longer-term growth prospects and can support near-term activity; strengthening governance to foster private investment and investor confidence. ### International cooperation and climate commitments - COP28 outcomes noted: - Pledges to loss and damage funding amounting to $792 million. - Commitments to double energy efficiency and triple the amount of renewable capacity. - $3.5 billion added to the Green Climate Fund. - $30 billion from the UAE (in partnership with BlackRock, TPG, and Brookfield) for a climate investment fund. ### IMF engagement and financing in the region - Since early 2020 through mid-January 2024, the IMF has provided more than $27 billion in financing to the MENA region. - Country-specific IMF developments included: - In Egypt, staff continues engagement with authorities on policy and financing package to support program reviews of the Extended Fund Facility. - In Jordan, a new four-year Extended Fund Facility arrangement was approved in January 2024, unlocking $1.2 billion. - In Lebanon, intensive technical assistance delivery continues. - Since the beginning of 2023, IMF programs were approved for Mauritania (Extended Credit Facility and Extended Fund Facility; Resilience and Sustainability Facility) and Morocco (Flexible Credit Line; Resilience and Sustainability Facility). - In December 2023, Somalia obtained $4.5 billion in debt relief upon reaching the Completion Point under the enhanced Heavily Indebted Poor Countries Initiative, and a new arrangement under the Extended Credit Facility was approved. - The IMF has reopened its Middle East Regional Technical Assistance Center and set up a new regional office in Riyadh, Saudi Arabia. ### Key numeric highlights - EM&MIs inflation: 25.6 percent in 2024. - LICs inflation: 69.9 percent in 2024. - Total EM&MIs financing needs over 2024: $186 billion (up from $156 billion in 2023). - Financing needs increase: about 6 percentage points of fiscal revenues compared to October 2023 projections. - Egypt Suez Canal receipts: about 2.2 percent of GDP in annual balance-of-payment receipts (FY 2022/23). - Egypt Suez Canal fiscal revenue: 1.2 percent of GDP (FY 2022/23). - MENA share of world oil exports: about 35 percent. - MENA share of world gas exports: 14 percent. - Regional spare oil capacity: nearly 85 percent of global spare capacity. - COP28 loss and damage funding pledges: $792 million. - Green Climate Fund addition: $3.5 billion. - UAE climate investment fund: $30 billion (in partnership with BlackRock, TPG, and Brookfield). - IMF financing to MENA since early 2020 through mid-January 2024: more than $27 billion. - Jordan Extended Fund Facility unlocked: $1.2 billion. - Somalia debt relief upon Completion Point: $4.5 billion. *Source: text - 8.7 percent in 2024 and 7.9 percent in 2025. This — https://www.imf.org/-/media/files/publications/reo/mcd-cca/2024/update/january/english/text.pdf* ### Appendix 1 for country groupings. ### Appendix 1 for country groupings ### Global outlook and key assumptions - Global growth in 2024 is projected to remain unchanged from 2023 at 3.1 percent and rise modestly to 3.2 percent in 2025. - The forecast for 2024 is higher by 0.2 percentage point compared to the October 2023 World Economic Outlook. - Historical (2000–19) average global growth: 3.8 percent. - Global headline inflation is expected to decline to 5.5 percent in 2024 and 4.4 percent in 2025; this forecast reflects a downward revision of 0.3 percentage point and 0.2 percentage point, respectively. - Projections assume interest rates in major economies and fuel and nonfuel commodity prices will decline in 2024 and 2025. - Annual average oil prices are projected to moderate by 2.3 percent in 2024 to about $79 per barrel. - Nonfuel commodity prices are expected to fall by 0.9 percent, on average. ### MENA: conflict, humanitarian impact, and immediate effects - Gaza humanitarian toll in the first 100 days of the conflict: - More than 24,000 people have lost their lives. - More than two-thirds of the deaths were women and children. - Almost 1.9 million people (nearly 85 percent of the population) have been internally displaced. - Food and water insecurity is widespread and essential infrastructure has been destroyed. - Poverty rates in Gaza likely increased from levels estimated at above 50 percent before the conflict. - International assistance to support the humanitarian response remains limited. - In the West Bank, movement of people, goods, capital, and access to resources has been tightened, with severe deterioration of security and economic conditions. ### Tourism, trade, and transmission channels - Tourism significance in MENA before the pandemic: - Accounted for between 2 and 20 percent of GDP. - Accounted for between 5 and 50 percent of goods and services exports. - Hotel occupancy indicators worsened sharply in Lebanon and Jordan following the onset of the conflict relative to the corresponding period in the previous year. - Red Sea security situation and shipping: - During the first half of 2023, trade going through the Suez Canal represented about 12 percent of global trade, including 30 percent of global container traffic, 10-15 percent of global seaborn cargo, and 8 percent of global liquified natural gas shipments. - As of January 21, 2024, the 10-day cumulative shipping volume through the Suez Canal had dropped close to 50 percent relative to the previous year. - Freight costs for routes between Europe/Mediterranean Sea and China have surged by more than 400 percent since mid-November. ### Energy and financial market developments - Conflict onset prompted a short-lived increase in oil prices; prices quickly returned to below pre-conflict levels. - The late 2023 announcement of renewed voluntary oil production cuts by OPEC+ had a minimal impact on oil prices. - Financial markets have remained broadly stable: - Sovereign spreads widened at the conflict’s start but have generally narrowed and are tighter compared to levels in early October before the conflict. - After an initial acceleration in international portfolio outflows, net outflows from debt and equity funds in the region have reverted to pre-conflict levels. ### Inflation and monetary conditions in MENA - Broad-based regional decline in inflation is a positive development. - Monetary policy has remained tight in many MENA economies in 2023; estimates of natural policy interest rates suggest a tight stance in many economies. - Month-on-month inflation—an indicator of inflationary momentum—is steadily declining. - Core inflation has approached pre-pandemic historical averages for some oil exporters. - Exceptions and persistence: - Inflation remains persistent in some economies due to country-specific factors (foreign exchange shortages in Egypt; monetary financing and cost-push pressures in Sudan). - Lebanon: inflationary pressures have been moderating since mid-2023, supported by the end of monetary financing, a forced balanced budget, and a stable exchange rate. ### Growth projections, external position, and fiscal implications - Assuming the conflict eases after the first quarter of 2024: - MENA region growth is projected to improve moderately to 2.9 percent in 2024 (from 2.0 percent in 2023). - This projection is a downgrade of 0.5 percentage point from the October 2023 Regional Economic Outlook: Middle East and Central Asia. - Growth is projected to strengthen to 4.2 percent in 2025 as conflict impacts fade and non-oil growth supports activity. - External position: - Aggregate current account balance of MENA economies in 2024 is expected to be a surplus of 3.9 percent of MENA GDP. - This surplus is expected to shrink by about $25 billion (0.7 percentage point of MENA GDP) compared to October 2023 projections, driven in large part by oil production cuts among GCC members. - Fiscal balances in many oil exporters remained healthy in 2023, supported by still-elevated oil prices and fiscal reforms (including expenditure restraint and efforts to bolster non-oil revenue). ### Country and subregion specifics - West Bank and Gaza: - Real GDP growth in 2023 is estimated to have dropped to about –6 percent. - This reflects a 9-percentage-point downgrade from the October 2023 Regional Economic Outlook. - Inflation is estimated to have risen to above 15 percent on an annual basis at the end of December 2023. - The current account deficit is estimated to have remained sizable. - Palestinian Authority financial viability compromised by economic contraction and nontransfer of full monthly “clearance” revenues by the Government of Israel; PA decision not to accept partial transfers undermines ability to pay wages and social transfers and provide services. - Financial sector sound but risks have risen given high exposure to PA finances, destruction in Gaza, and projected economic contraction. - In 2024, under the assumption the conflict gradually eases, positive growth is projected to resume from a very low base and inflation is expected to gradually ease. - Egypt: - Real GDP growth projected to decline from 3.8 percent in 2023 to 3 percent in 2024. - This is a downward revision of 0.6 percentage point relative to October 2023 projections. - Risks: potential deterioration in tourism, adverse impact on Suez Canal revenues from halted transit through the Red Sea, negative implications for foreign exchange flows, investor sentiment, and net FDI inflows; sustained foreign exchange shortages affecting private sector activity. - Jordan: - Growth in 2023 and 2024 is projected to be held back at around 2.6 percent in both years, compared to earlier projections closer to 3 percent in 2024. - Current account deficit expected to narrow less than previously projected (to 6.3 percent of GDP), mainly due to lower travel receipts and higher energy imports. - Lebanon: - Conflict is deepening complex challenges; tourism driven by the large diaspora expected to remain weak. - Agricultural output, concentrated in the country’s south, is being negatively affected. - Real GDP growth projected to have contracted further in 2023 before rebounding slightly in 2024; current account deficit is widening. - Morocco: - Growth is expected to have accelerated to about 3 percent in 2023, reflecting strong tourism revenues and a rebound in domestic demand. - Momentum projected to continue in 2024 under the assumption of a regular agriculture season. - Low-income countries (LICs): - Growth prospects for 2024 are not encouraging. Constraints include lack of foreign exchange, high inflation, and weak agricultural output (Sudan, Yemen). - Conflict in Sudan has intensified the humanitarian crisis and economic activity has come to a halt in large swathes, contributing to continued negative growth on average among LICs in 2024 after a sharp contraction in 2023. - Djibouti’s recovery depends on trade with Ethiopia and is highly exposed to Red Sea attacks given port activity’s central role. - Mauritania’s outlook is strong, supported by higher-than-expected gold production. - Oil exporters and GCC: - Non-oil growth remains robust in most oil exporters, supported by reform-driven diversification, increased domestic demand, and capital inflows. - Additional voluntary oil production cuts are dampening overall growth. - Overall GCC growth revised down to 0.5 percent in 2023 (1 percentage point lower than in the October 2023 Regional Economic Outlook), before moderately rebounding to 2.7 percent in 2024 as the drag from oil production cuts gradually fades. - Saudi Arabia growth revised to -1.1 and 2.7 percent for 2023 and 2024, respectively. - Growth revised up for some non-GCC oil exporters (including the Islamic Republic of Iran and Libya) reflecting higher-than-projected oil production. ### Inflation outlook - In line with global trends, inflation is expected to continue moderating in most MENA countries. - Inflation in MENA is expected to moderate to 14.4 percent this year, 0.6 percentage point lower than the projection in the October 2023 Regional Economic Outlook: Middle East and Central Asia. - Across MENA oil exporters, headline inflation is forecast to average (text ends). *Regional Economic Outlook—Europe April 2021; IMF | Middle East and Central Asia Department.* ### 8.7 percent in 2024 and 7.9 percent in 2025. This ### 8.7 percent in 2024 and 7.9 percent in 2025. This ### Inflation and growth projections - Inflation is projected to decline to below 3 percent across GCC countries, with price pressures persisting in some non-GCC countries (Algeria, Islamic Republic of Iran). - Inflation is set to remain elevated across EM&MIs at 25.6 percent in 2024. - Inflation is set to remain elevated across LICs at 69.9 percent in 2024 (especially in Egypt, Sudan, and Yemen). - Food insecurity remains prevalent in several LICs: Djibouti, Mauritania, Somalia, Sudan, and Yemen. ### Financing needs, public debt, and fiscal conditions - Total public-sector gross financing needs for EM&MIs over 2024 are projected at $186 billion (up from $156 billion in 2023). - The $186 billion represents an increase of about 6 percentage points of fiscal revenues compared to projections in the October 2023 Regional Economic Outlook: Middle East and Central Asia. - These still-high financing needs are expected to be covered mainly through domestic bank financing, likely intensifying sovereign-bank linkages. - External financing would contribute only a small portion due to limited market access for highly indebted countries. - Stronger revenues have helped narrow primary deficits in EM&MIs and LICs, but spending rationalization plans have faced implementation challenges. - Debt levels have remained elevated and are forecast to decline only modestly over the next two years. ### Increased downside risks and transmission channels - Uncertainty and downside risks have risen significantly since October, with duration and scope for escalation of the conflict still uncertain. - Even if the conflict remains contained to Gaza and Israel, the situation remains fluid and highly uncertain; drone attacks in the Red Sea (December 2023) highlight unpredictability. - Channels and risk developments include: - Financial markets could tighten, and sovereign borrowing costs increase; risk premiums and external funding conditions could worsen, with greater net portfolio outflows and larger impacts on highly indebted countries. Further reliance on domestic financing would exacerbate the sovereign-bank nexus. Foreign direct investment flows could suffer. - Shipping and regional trade could experience adverse impacts; shipping companies are diverting away from Middle East transit routes in response to drone attacks in the Red Sea and the Gulf of Aden, and insurance rates have risen. - Egypt generates about 2.2 percent of GDP in annual balance-of-payment receipts and 1.2 percent of GDP in fiscal revenue from Suez Canal dues (based on FY 2022/23). - If the conflict intensifies, risks to other trade routes (Eastern Mediterranean Sea, air traffic) could rise; sanctions or trade restrictions could further disrupt global trade flows and supply chains. Freight costs could rise if shipping shifts to longer alternative routes. - Oil prices could rise: the MENA region produces about 35 percent of world oil exports and 14 percent of gas exports. A large and sustained spike in energy costs would imply an adverse supply shock to the global economy and could jeopardize the global disinflation process. - Mitigants to oil-price spikes include regional oil producers tapping into spare capacity (amounting to nearly 85 percent of global spare capacity) and releases of strategic oil stock. - Political tensions and social unrest could rise amid elevated unemployment, increasing pressure on fiscal balances (for example through energy subsidies) and potentially delaying structural reforms. - The conflict could trigger large refugee flows with spillovers to the broader region, Europe, and beyond, entailing additional near-term fiscal costs for host countries and possible social tensions. - More extreme, low-probability scenarios include tighter sanctions on the Islamic Republic of Iran, blockades of key regional oil and gas shipping routes (for example, the Strait of Hormuz), and attacks on major oil and gas infrastructure; in such cases, oil and gas prices could rise sharply, though spare oil capacity or strategic stock releases could mitigate impacts. ### Policy response recommendations - Policy responses should depend on extent of exposure to the conflict, preexisting vulnerabilities, and policy space. - Exchange rate flexibility: where impact is acute, let the exchange rate be the automatic stabilizer to absorb the shock. - Monetary policy: maintain focus on ensuring price stability in accordance with central bank mandates; in flexible-exchange-rate countries keep policy tight if inflationary pressures persist; where inflation is near targets monetary easing may be cautiously considered; countries with fixed exchange rates should decide according to their frameworks. - Crisis management: central bank emergency liquidity support may be needed in the event of systemic financial stress. - Fiscal policy: tailor to country needs and available fiscal space; ensure social protection systems and spending are ringfenced and targeted to the most vulnerable. - Where fiscal room is inadequate and public debt is high, consider expenditure rationalization and revenue-led fiscal consolidation. - Precautionary macroprudential policies and medium-term reforms: deepen the financial sector, strengthen liquidity conditions, spur investment and growth, regulate and monitor real estate risks, strengthen anti–money laundering/combating the financing of terrorism frameworks, diversify investor base, and improve management of state-owned banks. - Structural reforms: essential to lift longer-term growth prospects and can support near-term activity; strengthening governance to foster private investment and investor confidence. ### International cooperation and climate commitments - COP28 outcomes noted: - Pledges to loss and damage funding amounting to $792 million. - Commitments to double energy efficiency and triple the amount of renewable capacity. - $3.5 billion added to the Green Climate Fund. - $30 billion from the UAE (in partnership with BlackRock, TPG, and Brookfield) for a climate investment fund. ### IMF engagement and financing in the region - Since early 2020 through mid-January 2024, the IMF has provided more than $27 billion in financing to the MENA region. - Country-specific IMF developments included: - In Egypt, staff continues engagement with authorities on policy and financing package to support program reviews of the Extended Fund Facility. - In Jordan, a new four-year Extended Fund Facility arrangement was approved in January 2024, unlocking $1.2 billion. - In Lebanon, intensive technical assistance delivery continues. - Since the beginning of 2023, IMF programs were approved for Mauritania (Extended Credit Facility and Extended Fund Facility; Resilience and Sustainability Facility) and Morocco (Flexible Credit Line; Resilience and Sustainability Facility). - In December 2023, Somalia obtained $4.5 billion in debt relief upon reaching the Completion Point under the enhanced Heavily Indebted Poor Countries Initiative, and a new arrangement under the Extended Credit Facility was approved. - The IMF has reopened its Middle East Regional Technical Assistance Center and set up a new regional office in Riyadh, Saudi Arabia. ### Key numeric highlights (preserved exactly) - EM&MIs inflation: 25.6 percent in 2024. - LICs inflation: 69.9 percent in 2024. - Total EM&MIs financing needs over 2024: $186 billion (up from $156 billion in 2023). - Financing needs increase: about 6 percentage points of fiscal revenues compared to October 2023 projections. - Egypt Suez Canal receipts: about 2.2 percent of GDP in annual balance-of-payment receipts (FY 2022/23). - Egypt Suez Canal fiscal revenue: 1.2 percent of GDP (FY 2022/23). - MENA share of world oil exports: about 35 percent. - MENA share of world gas exports: 14 percent. - Regional spare oil capacity: nearly 85 percent of global spare capacity. - COP28 loss and damage funding pledges: $792 million. - Green Climate Fund addition: $3.5 billion. - UAE climate investment fund: $30 billion (in partnership with BlackRock, TPG, and Brookfield). - IMF financing to MENA since early 2020 through mid-January 2024: more than $27 billion. - Jordan Extended Fund Facility unlocked: $1.2 billion. - Somalia debt relief upon Completion Point: $4.5 billion. *Italic: Source: text - 8.7 percent in 2024 and 7.9 percent in 2025. This — https://www.imf.org/-/media/files/publications/reo/mcd-cca/2024/update/january/english/text.pdf* --- _Source: https://www.imf.org/-/media/files/publications/reo/mcd-cca/2024/update/january/english/text.pdf_