Transcript of Middle East and Central Asia Department Press Briefing

IMF News, October 13, 2023

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Published: October 13, 2023

Regional outlook: growth projections and recent revisions

Middle East and North Africa (MENA)
- Real GDP growth forecast: 2 percent for 2023 (a downgrade by 1.1 percentage point from April projections).
- Growth forecast: 3.4 percent in 2024.
- Persistent structural hurdles will constrain growth over the forecast horizon.
- Growth is not forecast to be strong or inclusive enough to create the needed jobs for the 100 million Arab youth who will reach working age over the next ten years.
Caucasus and Central Asia (CCA)
- GDP growth projected to remain relatively robust at 4.6 percent in 2023 (a 0.3 percent upgrade since last April).
- Growth expected to ease to 4.2 percent in 2024 (a 0.3 percentage point downgrade compared to April).
- Upgrade driven by still-strong trade and financial flows from Russia; expected easing as these flows gradually normalize.
Additional regional notes
- Growth expectations constrained by tighter policies, oil production cuts, geopolitical tensions, and domestic challenges.

Inflation, monetary conditions, and financing

Inflation
- MENA: Excluding Egypt and Sudan, average inflation is projected to peak at 13.4 percent this year before falling to 9.7 percent in 2024.
- Caucasus and Central Asia: Price pressures expected to ease from 11 percent in 2023 to 8.3 percent in 2024.
- Inflation remains high in specific countries (examples cited: Egypt, Sudan).
Monetary policy and financing conditions
- MENA central banks continued raising rates in 2023, albeit at a slower pace than last year.
- Monetary policy tightening cycle appears to have peaked in the CCA.
- A higher-for-longer interest rate environment could strain corporates, financial institutions, and public finances, with implications for banking sector profitability, credit provision, economic growth, and financial stability.
- Sovereign–bank linkages may worsen under prolonged elevated rates.
Recent price reaction to conflict
- Short-term observed oil price movement: an increase by $5 per barrel after recent hostilities, though oil prices later fell back and were lower than two months earlier (as of the briefing).

Risks, scenarios, and recent shocks

Downside risks (tilted to the downside)
- Reduced external demand if China experiences a sharper-than-expected slowdown.
- Escalation of the war in Ukraine.
- Climate-related events and natural disasters (recent examples: earthquake in Morocco; floods in Libya).
Upside scenario
- Faster-than-anticipated global decline in inflation could reduce pressure on central banks to raise interest rates further.
Natural disasters and climate threats
- National disasters can have rapid and devastating economic and social consequences; recent events underscore need for buffers and resilience.

Policy priorities and recommendations

Monetary policy
- Price stability should remain the focus.
- Where inflationary pressures are persistent, monetary policy should remain tight until signs of sustained disinflation are well established.
- Further tightening may be required in some economies (examples cited: Egypt, Tunisia).
- Any policy easing should be done cautiously and monitor signs of renewed price pressures.
Fiscal policy
- Fiscal consolidation efforts should focus on building buffers and safeguarding debt sustainability, especially in emerging markets and economies with high debt levels and financing needs.
- Oil exporters should focus on economic diversification and boosting fiscal buffers.
- All countries would benefit from domestic revenue mobilization and increased spending efficiency.
- Fiscal reforms to increase budget transparency and adopt credible medium-term fiscal frameworks will help reach domestic goals and facilitate access to international financial markets.
Structural reforms
- Sequencing and packaging reforms strategically can magnify growth dividends.
- First-generation reform package (governance, external sector, regulatory framework) could increase output by almost 10 percent over five years.
- Major governance reforms could increase output by about 6 percent over five years.
- Regulatory quality reforms could contribute to a 4 percent increase in output after five years.
- Reforms should target inclusivity to create jobs and support long-term transformation (noted urgency with Annual Meetings held in the Arab World).
Resilience-building
- Increase reserves and fiscal/financial buffers to respond swiftly to shocks.
- Enhance business climate, investment attractiveness, and technology adoption.
- Strengthen banking sector resilience given higher-for-longer interest rate risks.

IMF engagement, financing, and tools

Financing approved and allocations
- IMF has approved $34 billion in financing to 15 countries in both Middle East and Central Asia since the onset of the pandemic.
- Fund has allocated 49.3 billion additional financing through the SDRs, the Special Drawing Rights.
- In the past year, IMF programs were approved for Armenia, Egypt, Mauritania, Morocco and Pakistan.
- Morocco became the first country in the MENA region to secure financing under the Fund's Resiliency and Sustainability Facility (RSF).
- RSF provides long-term financing to strengthen economic resilience by supporting policy reforms that reduce climate-related risk among other priorities.
Past crisis-era responses (examples)
- Rapid financing during Covid: example cited—$8.5 billion secured and provided in two months in a prior program context (2016–2020 reference).
- Regional rapid responses: "In a few months, $100 million were distributed in the region."
- Country example: "In less than two months, Tunisia was able to have $550 million."
- SDR distribution example mentioned: "$650 billion in SDRs that were distributed to increase liquidity."
- Mention of a "3 billion facility" (context: helping deal with Morocco earthquake consequences).
Instruments and non-financing support
- Policy advice, technical assistance, Article IV consultations, and program design support.
- Collaboration with partners (example: World Bank, European Investment Bank, DIFC noted in context of Regional Economic Outlook launch and cooperation).

Country-specific remarks from the briefing

Morocco
- Central Bank and financial authorities credited with reducing inflation and keeping the banking sector strong despite recent shocks (Covid-19, war in Ukraine, oil price increases).
- Need to continue monetary discipline to protect lower-income groups from inflation.
- Structural reforms and increased buffers remain priorities to enhance resilience to future shocks and climate risks.
- IMF program aims to support strategic change, including climate considerations; Morocco benefited from RSF financing.
- IMF and World Bank/partners working on assessments of earthquake impacts; the IMF cited the "3 billion facility" as helpful.
Egypt
- Noted high debt levels and exposure to external shocks (commodity import dependence, tourism sector impacts, higher global interest rates).
- Program design pillars mentioned:
- Revive the economy.
- Preserve macroeconomic stability.
- Give more space to the private sector via state-owned enterprise reviews and a flexible exchange rate.
- Fiscal objectives highlighted: preserve a sound budget, reduce debt service cost, increase budget flexibility.
- Exchange rate management: flexible exchange rate mechanism monitored periodically; market forces (demand and supply) determine rates under the program framework.
Tunisia
- Talks between IMF and Tunisia ongoing; IMF expects a mission to visit to assess Article IV developments.
- No alternative program proposal from Tunisian authorities reported at the time of the briefing.
- IMF emphasized subsidy reform (to target resources better and increase social spending) and the importance of central bank independence in achieving price and financial stability.
- Example of rapid financing: Tunisia received $550 million in less than two months during prior support.
Lebanon
- Staff-level agreement dated April 7, 2022 included minimum prior actions before program enactment; three prior actions highlighted as essential:
- Passage of a law on capital controls to enable financial sector overhaul.
- Passage of bank resolution legislation.
- Passage of the 2022 and 2023 budgets.
- These prior actions were described as minimum requirements to stabilize Lebanon’s financial situation and enable reforms.
Caucasus and Central Asia (regional cooperation)
- IMF supports regional integration initiatives (trade, infrastructure, electricity networks, financial market development).
- Reference to a recent IMF paper: "Paving the Way to More Resilient, Inclusive, and Greener Economies in the Caucasus and Central Asia."
- Encouragement of cooperation between CCA, Gulf, and other partners; GCC–CCA summit example cited.

Transcript of Middle East and Central Asia Department Press Briefing — October 13, 2023, IMF Communications Department

References

the Way to More Resilient, Inclusive, and Greener Economies in the Caucasus and Central Asia](https://www.imf.org/en/Publications/Departmental-Papers-Policy-Papers/Issues/2023/05/26/Paving-the-Way-to-More-Resilient-Inclusive-and-Greener-Economies-in-the-Caucasus-and-532116)

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