IMF Survey: Mideast Countries See Opportunity Amid Unrest

IMF News, April 27, 2011

Source details

Recent uprisings in the Middle East and North Africa provide an opportunity to lay the foundation for a socially inclusive growth agenda, but in the near term oil-importing countries face multiple pressures from higher crude prices and disruptions to economic activity.
Immediate challenge: maintain social cohesion while preserving macroeconomic stability.

Projected regional growth in the Middle East and North Africa: 3.9 percent in 2011, unchanged from 2010.
Oil-exporting countries included in projections: Algeria, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, Sudan, the United Arab Emirates, and Yemen (projections exclude Libya).
Oil-importing countries listed: Afghanistan, Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Pakistan, Syria, and Tunisia.

Combined external current account balance for regional oil exporters (excluding Libya) expected to more than double to $380 billion in 2011.
Overall real GDP growth for these economies (excluding Libya) projected to increase to 4.9 percent in 2011.
Non-oil GDP growth for the group as a whole projected to remain flat at 3.5 percent.
In the GCC, non-oil GDP growth expected to increase to 5.3 percent in 2011 from 4.2 percent in 2010.
Higher oil prices and increased oil production strengthen external and fiscal positions, and higher oil revenues are expected to more than offset additional spending.
Structural challenges remain: need for greater economic diversification, job creation, further financial development, and improvements in public resource management.

Growth among oil importers set to slow to 2.3 percent in 2011.
Deterioration in terms of trade from higher food and fuel prices expected to inflate import bills by about $15 billion, or nearly 3 percent of GDP, on average.
Consequences: higher inflation or worsened fiscal balances depending on subsidy responses.
Political turmoil weighs on tourism and investment, adds to fiscal pressures via higher interest rates and pressures for higher spending.
Slow growth of past years failed to generate enough jobs; youth unemployment rates register well above 20 percent in a number of countries.
Managing Director statement: IMF could provide support of up to $35 billion to help Middle Eastern oil-importing countries meet financing needs.

Governments have been expanding subsidies, raising wages and pensions, making additional cash transfers, stepping up other public spending, and reducing taxes to mitigate social unrest and higher food and fuel costs.
Near-term additional spending is understandable and necessary to ensure social cohesion, but will add strain on public finances.
Recommendations for countries with limited fiscal space:
- Consider partially offsetting additional spending in priority areas through cuts elsewhere.
- Medium-term: avoid perpetually financing social tensions through deficits.
- Raise revenues.
- Implement well-targeted social safety nets to replace subsidies.
- Reduce waste in public spending.
Emphasized need to address pressures on macroeconomic and financial stability quickly to avoid impeding pursuit of a socially inclusive growth agenda and job creation.

A stable macroeconomic environment to provide confidence and attract investment.
Enough private sector jobs to absorb the currently unemployed and a fast-growing labor force.
Access to economic opportunity for citizens to realize their potential.
Social protection for the vulnerable.
Strong and transparent institutions that ensure accountability and good governance.
Objective: growth that generates employment, is more inclusive, and results in broadly shared development gains.

Regional growth projection: 3.9 percent in 2011.
Oil-exporters' GDP growth (excluding Libya): 4.9 percent in 2011.
Oil-importers' GDP growth: 2.3 percent in 2011.
Combined external current account balance for oil exporters (excl. Libya): $380 billion in 2011.
Non-oil GDP growth (group as a whole): 3.5 percent.
GCC non-oil GDP growth: 5.3 percent in 2011 from 4.2 percent in 2010.
Import bill increase for oil importers: about $15 billion, or nearly 3 percent of GDP, on average.
Youth unemployment rates: well above 20 percent in a number of countries.
IMF potential support cited: up to $35 billion.

Source: IMF Survey: Mideast Countries See Opportunity Amid Unrest, April 27, 2011.