A Stronger Engine for Middle East and North Africa’s Growth

IMF News, February 10, 2025

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Global growth is projected to hold at 3.3 percent this year and the next, and then to slow over the next five years, to just above 3 percent.
For the Middle East and North Africa, growth is expected to rebound to about 3.6 percent in 2025, driven by a recovery in oil production and an easing of regional conflicts.
Global public debt is projected to hit 100 percent of global GDP by 2030.
Many countries in the region face debt levels exceeding 70 percent of GDP, posing the risk of a low-growth, high-debt scenario.
Trade is no longer a distinct engine of growth: global trade and global GDP are now growing at roughly the same rate.
The technology revolution—especially AI—is expected to transform the way we live and work, perhaps as early as the next five years.
Inflation has been largely tamed, but has picked up again in some countries, potentially causing divergence in interest rates and higher borrowing costs for emerging market and developing economies.

Findings:

Short-term fiscal stimulus often provides a temporary “sugar rush” of growth but can fuel inflation and financial turbulence.
Productivity growth is essential for stronger long-term growth and economic performance.
Countries in the region that are more digitalized have substantially higher productivity than less-digitalization ones.
Digital innovation, with AI technologies, is expected to raise UAE’s GDP significantly by 2030.
Reducing the state’s footprint and strengthening governance can yield significant benefits (examples cited: Saudi Arabia, UAE, Morocco).
Encouraging employment—especially private jobs for women and youth—is critical given a growing working-age population.
Notable labor-market and human capital reforms have been seen in Oman, Qatar, and Bahrain.
Economic diversification into new sectors and services (e.g., batteries for electric cars, green supply chains, improved connectivity) is a priority opportunity, particularly for oil-exporting countries.
Regional cooperation (GCC as an example) can yield substantial benefits.

Policy recommendations:

Prioritize structural changes that increase economic resilience, agility, and long-term growth potential rather than temporary demand stimulus.
Accelerate digitalization and increase R&D spending to enhance productivity.
Reduce the state’s footprint where appropriate and strengthen governance to foster private sector investment.
Promote flexible labor markets, and invest in education and vocational training to boost youth and female employment.
Reallocate resources toward new economic sectors and services to support diversification.
Deepen regional cooperation to leverage shared gains from integration.

Key challenges and projections:

Public finances remain under significant strain after multiple shocks.
Governments must contain high debt levels while meeting rising spending needs (jobs, social safety nets, climate resilience, national security, post-conflict reconstruction).
Addressing the impact of more frequent natural disasters will potentially require a cumulative $1 trillion in investment by 2030.

Fiscal strategy recommendations:

Pursue a prudent fiscal stance to preserve macroeconomic stability and enable private-sector-led growth.
Decisively use fiscal policy to build fiscal buffers—the capacity to spend when needed to respond to shocks and meet development and climate-related needs.
Carefully calibrate the size, pace, and composition of fiscal consolidation to avoid unduly hampering growth.
Tailor budgetary reforms to country circumstances and provide compensatory support for those adversely affected to secure public support.
Increase tax revenues by strengthening domestic tax systems and expanding tax bases as economies diversify.
Leverage digitalization and AI to modernize tax administrations.
Mobilize private domestic and external financing; enable an investment-friendly environment and strengthen the financial sector’s role.

Special country and reconstruction considerations:

Several countries require special attention for conflict resolution or post-conflict reconstruction (explicit references to Sudan, Yemen, Gaza ceasefire, political changes in Syria and Lebanon).
International reconstruction efforts present an opportunity to rebuild better and lay foundations for stronger growth.

Since early 2020, the IMF has approved about $33 billion in financing for the region, most recently in 2024 to help mitigate the impact of conflict.
The IMF reformed its surcharge policy, resulting in important savings for some countries.
The IMF has expanded capacity development and strengthened its regional presence with resident representative offices, technical assistance centers, and a new regional office in Riyadh.
The IMF is stepping up efforts to support the private sector with the creation of a new IMF Advisory Council on Entrepreneurship and Growth; the region will be represented on it.
The IMF looks forward to the upcoming Al-Ula conference with emerging market economies to discuss key issues affecting the region.

Countries must become more agile, adaptable, and resilient to navigate rapid global transformations.
The private sector should lead transformation through entrepreneurship, job creation, and innovation.
Governments should foster the environment for private-sector-led growth by strengthening governance, modernizing public institutions, reducing bureaucracy, encouraging youth and female employment, improving access to capital, and designing people-first policies with stronger social support.
Collective action: “linabda al-âmal”—let’s start the work together.

Source: The Managing Director’s Keynote Speech at the Ninth Arab Fiscal Forum, February 10, 2025.