ShareKUWAIT: Despite a series of global shocks, Middle East and North Africa regions surprised on the upside last year with the GDP growing by 5.3 percent, reflecting strong domestic demand and the rebound in oil production, said Jihad Azour, director of the IMF’s Department for the Middle East and Central Asia, while summarizing the findings of the Asian Economic Outlook Report during the IMF 2023 Annual Meetings in Washington. However, growth is projected to slow in 2023 to 3.1 percent due to tight policies to restore microeconomic stability, agreed OPEC plus production cuts, and the fallout from the recent deterioration in global financial conditions, he said.
“In MENA our exporters’ growth is projected to slow from 5.7 percent in 2022 to 3.1 percent this year with the main driver of growth shifting from oil to non-hydrocarbon activities in most countries. Growth is also set to slow in the region emerging markets, falling from 5.1 percent to 3.4 percent. Meanwhile, low-income countries will continue to lag with growth at 1.3 percent this year, as they struggle with high commodity prices, macroeconomic instability, and country-specific fragilities,” Azour said during his presentation.
These IMF projections reflect developments prior to the OPEC plus oil production cuts that were announced a few weeks ago. The cuts will lower growth for the GCC region, but will have a positive outcome on fiscal and external positions as high oil prices offset the impact of lower growth. Higher oil prices are, however, likely to increase fiscal and external strains for MENA importers. After surging last year, inflation is forecast to remain unchanged at around 15 percent this year, before declining modestly in 2024. Let me now turn to the outlook for the Caucasus and Central Asia. Inflation Headline inflation is projected to ease in 2023, reflecting lagged impact of monetary policy tightening and easing global commodity prices but, to remain at around 12 percent this year before slowing further in 2024.
Talking about the recent financial market instability and the risks ahead, Azour said, so far, spillovers to the region’s banks have been limited, reflecting no direct exposure to Silicon Valley Bank, and limited exposure to Credit Suisse. The region’s financial markets have moved in line with global trends though countries with large debt burden have seen a larger impact. That said, the risks to our baseline are high; and let me highlight three key risks. First, further financial sector instability in advance economy could lead to contagion and more adverse credit conditions, depressing global growth, and exacerbating financial market volatility and debt sustainability concerns for many emerging markets in the MENA region.
Second, tighter for longer global financial conditions could prompt investors to reassess debt sustainability, pushing the most vulnerable economies to the brink of debt distress. The decline of productivity affects the growth of the oil sector. Also the non-oil sector in oil exporting countries, especially GCC countries, would continue to accomplish good growth rates, about 4.5 percent in 2023 and 2024, as well as medium levels, about 4 percent for the following years. In terms of the production reduction, it has negative impact on growth but it will still remain at reasonable rates. On the other hand, the higher prices, that are expected, would have a positive impact on the reserves of such countries.
Saudi economy The Saudi economy in 2022 had the highest growth of the G20 economy, 8.7 percent, which is the highest growth rate by a country member of the G20. There are two main reasons for the positive growth in the Kingdom. First, the reforms were adopted in the last few years that proved to be very effective in diversifying the economy and in allowing the non-oil sector to grow and diversifying revenues for the government. “Saudi Arabia at this point can diversify very quickly and invest in promising sectors on the middle and long range like, technology services and environment friendly sectors.
In Saudi Arabia and other Gulf countries, on the other hand, we need to take into consideration the changes in oil prices. So, we cannot have financial policies that may encourage this volatility of the oil prices,” he pointed out. Recently, the IMF approved a new program as part of its partnership with Morocco. And this attests to the hard work Morocco has done. The upcoming Annual Meetings in Marrakesh, in October, will provide a platform for wide-ranging policy discussions on challenges facing the region and also the world, he said.
Regarding Tunisia, the IMF has been working with Tunisia for about a decade and has supported this country during difficult times. Namely, during the COVID-19 crisis, Tunisia was the first country in the region to benefit from IMF support. Inflation keeps hurting the economic stability and the livelihood of people, and that has exceeded 30 percent. And this is where it is important to maintain monetary policy that addresses and arrests inflation.
And we encourage the authorities to use the monetary policy instruments specially interest rate in order to address the issue of inflation that would have a negative impact on the macroeconomic stability, but also high social cost. Talking about Egyptian economy, he said the country’s economy has huge potential, and private sector is very dynamic, and there is a need to provide more space for the private sector. Redesign the role of the state to focus on priority sectors and allow through leveling the playing field, the capacity for the Egyptian private sector to create growth and create more foreign currencies, Azour added.
