Regional Economic Outlook for the Middle East and Central Asia, October 2022
Regional Economic Outlook, October 2022
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- Published: October 12, 2022
Regional overview: shocks and differential impacts
- Economies in the Middle East and Central Asia (ME&CA) are being buffeted by a confluence of shocks: a global slowdown, high and volatile food and energy prices, faster and stronger-than-expected tightening of financial conditions, and the risk of fragmentation.
- Emerging market and middle-income economies (EM&MIs) and low-income countries (LICs) in the region are being hit hard, with many facing curtailed access to market financing.
- Oil-exporting countries are being buffered by still-high energy prices.
- The adverse impact of Russia’s war in Ukraine on the Caucasus and Central Asia (CCA) has thus far been milder than expected, but the CCA’s strong ties to Russia entail substantial risks to the region’s outlook.
- Limited policy space in many countries raises the urgency of structural reforms to bolster economic growth while transforming economies to become more resilient, sustainable, diversified, and inclusive.
Immediate policy priorities and trade-offs
- The most urgent policy challenge for all countries is to tackle the cost-of-living crisis by:
- restoring price stability,
- protecting vulnerable groups through targeted support, and
- ensuring food security.
- Policy trade-offs in EM&MIs and LICs have become more pronounced as they also need to preserve debt sustainability and financial stability.
- Oil exporters have the opportunity to maximize the benefits of the oil windfall by building buffers and advancing their diversification plans.
- CCA countries should carefully assess the magnitude and durability of the initial spillovers from the war in Ukraine and adjust their policy mix accordingly.
- Structural reforms are urgent given limited policy space, to bolster growth and resilience.
Fiscal implications of commodity price surges in MENA
- High international food and fuel prices are exacerbating fiscal pressures in the Middle East and North Africa (MENA) at a time when countries face tightening global financial conditions and extraordinary uncertainty, while policy space is reduced from the pandemic.
- During past episodes of rising commodity prices, policy responses often lacked targeting and prior planning, producing adverse fiscal and distributional impacts, including:
- large and persistent fiscal loosening,
- increased budget rigidity,
- diminished budget equity, and
- a lack of offsetting fiscal adjustment.
- These past responses heightened debt sustainability risks for oil importers and led to procyclical fiscal policies in oil exporters, followed by abrupt fiscal adjustments when oil prices fell.
- While most MENA countries have once again resorted to similar policy responses as in the past, particularly generalized price subsidies, they have done so at a smaller scale—reflecting both a more limited fiscal space and past progress, albeit yet unfinished, with subsidy reform.
- Countries foresee some fiscal expansion in 2022 compared to prewar expectations but are expected to continue their subsequent adjustment paths.
- Policymakers in the region should consider:
- cost-effective measures to address the pressures from rising food and fuel prices, and
- reforms to enhance fiscal resilience, including reduced dependency on fuel, ahead of the next commodity cycle.
War in Ukraine: risks to poverty and inequality in the Caucasus and Central Asia
- Russia’s war in Ukraine is affecting CCA countries through several channels, including exacerbated inflationary pressures and potential risks of reduced remittance flows.
- Based on simulations using microdata from household budget surveys, the war in Ukraine risks:
- raising poverty by about 1 percentage point,
- raising inequality by about 1 percent,
- reducing real household consumption by about 2 percentage points, on average.
- The poorest countries in the region are expected to bear the brunt of the impact on poverty, which could increase by about twice the regional average and add to already-difficult policy challenges.
- Poorer households across the region are most at risk from rising food prices and a potential decline in remittances.
- Mitigating the war’s potential impact on the vulnerable will be a key priority for policymakers and will require stronger social safety nets.
- Understanding the heterogeneity of the war’s impacts across households and countries would help to design policy support programs better toward the most in need.
Regional Economic Outlook for the Middle East and Central Asia, October 2022
Content in this bundle
- Ch2onlineanexxes
- Chapter 3. War in Ukraine: Risks to Poverty and Inequality
- Microsoft Word - MCD REO October 2022 - Press Remarks for MENA Launch
- October 2022 Middle East and Central Asia Regional Economic Outlook — Key Messages
- Launch of the IMF’s October 2022 Regional Economic Outlook for the Caucasus and Central Asia
- Statistical Appendix
- Full Report