Transcript of Press Briefing on the 2016 Economic Outlook for the Middle East and Central Asia
IMF News, October 7, 2016
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- Published: October 7, 2016
Regional overview and context
- World Economic Outlook release included the Macro Economic Forecast for the region; IMF regional economic outlook to be released October 19th in Dubai and October 21st in Almaty.
- Two dominant forces shaping the region: intensification of conflicts and the sharp drop in oil prices.
- Conflicts in Libya, Iraq, Syria and Yemen are directly affecting the lives of some 19 million people in those countries and producing spillovers for neighboring hosts (trade, tourism, confidence).
- The region is facing a refugee crisis described as the largest since the Second World War.
- IMF engagement: policy advice, program support, technical assistance; recent agreements reached on Afghanistan, Jordan, Morocco; staff level agreement in Egypt.
Conflict-affected countries and humanitarian priorities
- Immediate priority: address humanitarian and human costs; humanitarian response seen as prerequisite for changing economic trajectories in conflict countries.
- Yemen: move of the central bank raises risks for wage payments and humanitarian financing; IMF offered technical support to preserve central bank functionality and ensure flow of financing.
Oil exporters: medium-term outlook, fiscal challenges, and reform priorities
- Oil price outlook described as "closer to the $50, $60 barrel" in the medium term compared with pre-2014 levels.
- Recent oil price increase since spring has eased financial pressures somewhat, but medium-term fundamentals unchanged.
- Governments have begun fiscal consolidation measures:
- Cuts in capital spending.
- Energy price increases for electricity, gas, and water (prices still below international prices).
- Actions to contain public sector wage bills (example: Saudi Arabia announced measures to trim wage bill).
- GCC moving toward adopting a value-added tax.
- Revision of cumulative budget deficit estimate for oil exporters over 2016-2021:
- Previously "over $1 trillion" (spring number) revised "to $760 million; $765 billion over that period."
- IMF notes this remains a substantial cumulative deficit requiring further action to cut spending, raise revenues, and finance deficits while minimizing domestic financial sector and growth impacts.
- Non-oil growth is weaker across oil exporters:
- GCC non-oil growth 1.8 percent this year.
- Non-oil growth expected to rise somewhat next year but remain substantially lower than in the five years before 2015.
- Diversification and job creation:
- Need to wean economies off oil and expand private-sector job creation for nationals.
- National transformation plans (e.g., Saudi Arabia) exist; challenge is implementation and prioritization given institutional capacity constraints.
- Labor force projection for oil-exporting countries over next five years: "some little over two million young people are likely to join -- nationals, are likely to join the labor force" and "almost half of them risk becoming unemployed" unless private-sector job creation accelerates.
Oil importers in the Middle East: stabilization and growth challenges
- Macroeconomic stabilization advancing due to lower oil prices and domestic policy efforts.
- Average growth for oil-importing group:
- About 3.5 percent this year.
- "A little over 4 percent next year, 4.2."
- Wide cross-country variation: examples with low growth:
- Tunisia and Lebanon: growth below 2 percent.
- Youth unemployment ranges cited as "25 to 30 percent"; current growth not sufficient to make a dent in that over the next five years.
- Policy priorities for oil importers:
- Reorient public spending toward investment and social services while containing high wage bills that crowd out investment.
- Accelerate business environment reforms (business, trade, labor, financial markets).
- Address constraints: poor infrastructure, electricity shortages, limited finance for SMEs.
Central Asia (the Caucasus and Central Asia): shocks, policy responses, and priorities
- Adverse external shocks: recession and slowing of partner countries (particularly Russia and China) and commodity price slump; remittances affected.
- Regional growth:
- This year about 1.3 percent ("1.3 percent, which is about the lowest growth number in nearly two decades").
- Recovery projected to be slower and more gradual than after the global financial crisis or the 1998 Russian crisis.
- Policy responses observed:
- Drawdowns of previously accumulated assets where available.
- Increased public spending where fiscal space existed.
- Exchange rate adjustments and moves toward greater exchange rate flexibility.
- IMF policy advice: four priority areas
- Use fiscal space where available to maximize growth.
- Strengthen monetary and policy frameworks as countries move to exchange rate flexibility.
- Strengthen surveillance and crisis management, particularly for the financial sector (high dollarization, balance-sheet effects from exchange rate moves).
- Implement structural measures to improve competitiveness and raise living standards.
Country-specific highlights and figures
- Egypt:
- Staff-level agreement reached in August.
- IMF requirement before Board presentation: program must be shown fully financed for the first year.
- Bilateral financing gap to close for the first year: "between $5 and $6 billion of bilateral financing" in addition to IMF, World Bank, regional development banks and already identified bilaterals.
- Timing: "hopeful that by the end of this month, early next month, we should be in a position then, to go to the IMF Board with the program."
- Program design: three-year program, "and as you know it totals about $12 million" (statement as provided).
- First IMF tranche upon Board approval: "$2.5 billion."
- Policy elements supported: move to a more flexible, market-determined foreign exchange system; fiscal consolidation; VAT adoption welcomed; measures to protect social spending and promote female labor force participation.
- Mauritania:
- Growth last year: dropped "from over 5 percent" to "just above 1 percent."
- Current year projection: 3.2 percent.
- Next year projection: 4.3 percent.
- Shock driver: sharp drop in iron ore prices; increased external and fiscal vulnerabilities and financial stability risks.
- Authorities responding via spending adjustments and mobilizing external finance.
- Tunisia:
- Growth this year about 1.5 percent.
- Program objectives: accelerate growth, improve banking system functioning, reorient public spending from wage bill to investment and protection of vulnerable groups, improve provision of public services in interior regions.
- IMF support contingent on country ownership and continued policy dialogue.
- Tajikistan:
- Remittances account for almost 14 percent of GDP.
- Remittances have "fallen by a third."
- IMF in discussions and hopeful to reach closure on an IMF-supported program during the course of the year.
- Kazakhstan:
- Heavily affected by lower oil prices but had reserves to undertake countercyclical policy.
- Near-term growth virtually zero or slightly negative this year; expected improvement next year partially due to increased oil production (e.g., Kashagan field coming online).
- Longer-term emphasis on diversification via existing programs.
- Jordan:
- Extended Fund Facility and Economic Policy Council measures seen as compatible; Council intended to accelerate private-sector competitiveness and support IMF program objectives.
- Yemen:
- Central bank relocation raises risks to wage payments and humanitarian financing; IMF engaged in technical support and follow-up after Managing Director's meetings.
Policy messages and recommendations emphasized
- Fiscal policy:
- Tailor actions to country starting positions: countries with large deficits must focus on consolidation; countries with fiscal space should prioritize how spending is allocated (investment, targeted social protection).
- Reallocate away from generalized energy subsidies toward targeted protection and investment.
- Exchange rates and external adjustment:
- Move toward more flexible, market-determined exchange rate regimes to address foreign exchange imbalances and improve availability of foreign exchange.
- Structural reforms to boost private sector and jobs:
- Prioritize business environment, trade, labor market flexibility, financial market development, and SME finance.
- Implement national transformation plans with strong focus on implementation, sequencing, and institutional capacity.
- Financial sector resilience:
- Strengthen surveillance, crisis management, and banking sector policies where exchange rate moves and dollarization create balance-sheet risks.
- Social protection:
- Integrate social protection measures into adjustment programs to protect the vulnerable and build consensus for reforms; support for women's labor force participation and targeted programs noted.
Transcript of Press Briefing on the 2016 Economic Outlook for the Middle East and Central Asia, IMF Press Center, October 7, 2016