Regional Economic Outlook for the Middle East and Central Asia
Regional Economic Outlook, May 2023
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- Published: May 3, 2023
Overview and outlook
- The economies of the Middle East and Central Asia (ME&CA) proved resilient in 2022, despite a series of global shocks.
- Growth is expected to slow in the Middle East and North Africa (MENA) in 2023—and potentially 2024—as:
- tight policies to fight inflation, reduce vulnerabilities, and rebuild buffers start to dent economic activity in many countries, and
- agreed oil production cuts curb growth in oil exporters.
- Inflation is projected to remain persistent.
- The outlook for Caucasus and Central Asia (CCA) countries depends heavily on external factors, namely:
- the impact of monetary tightening,
- growth in their main trading partners,
- the pace of private transfers, and
- inflows of migrants from Russia.
- Uncertainty is high, and risks to the baseline are tilted to the downside amid financial stability concerns—particularly in advanced economies amid contagion fears.
Policy trade-offs and priorities
- Policymakers will need to:
- calibrate the policy mix carefully to reduce core inflation without triggering financial stress and excessive tightening, and
- continue to provide targeted fiscal support to vulnerable groups while preserving debt sustainability and financial stability.
- Tight monetary and fiscal policies across the region amid tight global financial conditions call for accelerating structural reforms to bolster potential growth and enhance resilience.
Monetary policy: stance, transmission, and recommendations
- The monetary policy response of Middle East and Central Asian (ME&CA) countries to the 2021–22 surge in inflation has varied widely.
- The current stance is appropriately tight or neutral for many countries using a policy rate, but it needs further tightening in others.
- The response to the latest inflation shock has been in line with or, in some cases, even more forceful than during previous inflation episodes.
- Implementation challenges:
- In several countries monetary policy implementation continues to be undermined by a lack of coordination with fiscal policy or fiscal dominance.
- Monetary policy transmission is stronger in countries with floating or managed exchange rate regimes than in those with a peg; it operates mainly through the exchange rate channel, and the credit channel is relatively weak.
- In countries where state-owned banks play an important role in financial intermediation, quasi-monetary and quasi-fiscal activities by those banks weaken transmission.
- Recommendations to strengthen monetary policy effectiveness:
- Strengthen monetary policy frameworks and foster financial development.
- Activate additional transmission channels to enhance central bankers’ ability to fight inflation while reducing their economic costs.
- Increase exchange rate flexibility and use macroprudential policies to help strengthen monetary policy effectiveness.
- Reduce quasi-monetary and quasi-fiscal activities of state-owned banks where they impede transmission.
Regional Economic Outlook: The Middle East and Central Asia, May 2023.
Content in this bundle
- Sub-Saharan Africa Regional Economic Outlook; A New Shock and Little Room to Maneuver, April 2022
- Chapter 2
- May 2023 REO: Middle East and Central Asia — Key Messages
- Launch of the IMF’s May 2023 Regional Economic Outlook for the Middle East and North Africa
- may-2023-meca-regional-economic-outlook-statistical-appendix-eng
- reo-sei
- Full Report