The Economic Outlook of the Middle East, North Africa, Afghanistan, and Pakistan in Five Charts

IMF News, April 29, 2019

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A steadfast commitment to reforms that build resilience and help secure higher and more inclusive private-sector-led growth is more urgent than ever in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP).
Countries must address job creation for millions of young people entering the workforce amid a slowing global economy, volatile oil prices, and uncertainty around trade tensions.
Date of publication: April 29, 2019.

Growth in oil exporters is projected to remain subdued relative to 2018.
- Gulf Cooperation Council (GCC) growth is projected to improve slightly to 2.1 percent in 2019 from 2 percent in 2018.
- A sharp decline in Iran’s economic activity (of 6 percent) results in a mere 0.4 percent rate of growth for 2019 for the region’s oil-exporting countries.
Growth for oil importers is projected to slow from 4.2 percent in 2018 to 3.6 percent this year, reflecting the slowing global economy and domestic factors.
- Aggregate projections mask wide variation among oil-importing countries (for example, Egypt continues to perform strongly, while weak growth in Pakistan weighs on the region’s aggregate growth rate).

Oil price volatility recently reached levels not seen since the shocks of 2014-15 and may continue amid:
- Uncertainties around global trade tensions.
- Iran sanctions.
- The OPEC+ production strategy.
Other risks include geopolitical risks, security concerns, and uncertainty surrounding global financial conditions.
Lower oil prices with bouts of volatility and a slower pace of fiscal consolidation will weigh on fiscal balances in oil-exporting countries.
- There are indications that government spending may no longer be able to boost growth as it could when oil prices and investment were high and the external environment was strong.
- This underscores the need to resume fiscal consolidation while sustaining growth.

Public debt ratios have continued to rise in several oil-importing countries in recent years despite fiscal consolidation efforts.
- Debt ratios have increased by 20 percent of GDP on average since 2008.
- Two-thirds of countries carry public debt of at least 70 percent of GDP, a level associated with a higher risk of debt distress.
- Debt levels for some countries, such as Egypt, Jordan and Lebanon, exceed 80 percent of GDP, limiting fiscal space for critical social and infrastructure spending and leaving economies vulnerable to less favorable financial conditions.
Policy implication: continued growth-friendly fiscal consolidation is needed to rebuild buffers and strengthen resilience.

Given considerable policy constraints, especially for fiscal policies, there is urgency for reforms that lead to private-sector-led growth that benefits all.
Priority reform areas:
- Boosting the quality of education.
- Reforming labor markets.
- Addressing key infrastructure gaps.
- Improving the business environment, including by reducing corruption and shoring up legal systems.
- Increasing access to financing for small and medium-size enterprises, which has long been low in the region relative to others, to help boost job creation and diversify economies.

IMF News — The Economic Outlook of the Middle East, North Africa, Afghanistan, and Pakistan in Five Charts (April 29, 2019).