IMF says MENA to grow despite uncertainties

DIFC, in partnership with the Dubai School of Government, hosted the launch of the International Monetary Fund (IMF) Outlook for MENA, Afghanistan, and Pakistan. The event discussed Managing New Challenges in an Uncertain Environment.

Two developments mark the IMF’s outlook for the region: unrest in parts of the Arab world and the surge in global fuel and food prices. As a result, the near-term economic outlook is subject to unusually large uncertainties stemming from the fluid political and security situation in a number of countries.

According to the report, higher oil prices and production volumes will lead to higher growth in 2011 for most of the region’s oil exporters. Average real GDP growth for oil exporters, excluding Libya, is projected to reach 4.9% in 2011 compared with 3.5% in 2010 and its previous estimate of 4.5%.

Meanwhile, the IMF has raised its projection for GCC growth in 2011 from 5.2% to 7.8%, as oil production expands to stabilise global oil supply in the face of supply disruptions elsewhere.  This follows 5% growth in 2010. GCC non-oil growth is set to accelerate by more than 1% point to 5.3% in 2011.

“The changes in motion in the Middle East and North Africa are historic. Over time, they could give a boost to the economies in the region by setting a more inclusive growth agenda, improving governance, and providing greater and more equal opportunity for its young and growing population,” Masood Ahmed, Director of the IMF’s Middle East and Central Asia Department, said at the launch conference of the report in Dubai. “However, the near-term outlook is challenging, and the immediate priority for oil-importing countries in particular is to maintain social cohesion and macroeconomic stability in the face of multiple pressures,” he added.

Dr Nasser Saidi, Chief Economist and Head of External Relations at DIFC commented: “We are in the midst of a period of momentous change, of risk and uncertainty but also of promise and opportunity. Recent events have uncovered demographic, political, governance and economic vulnerabilities in a number of MENA countries.  The recent surge in inflation has exacerbated these vulnerabilities.

Economic policy should address these vulnerabilities through structural reforms aiming at raising growth rates through more inclusive growth with greater “pull up” effects, with job creation and higher productivity growth based on a growing role for the private sector, including through participation in infrastructure and development projects.  We have the natural and financial resources to implement reforms and improve govenance.

Higher energy prices will allow the GCC countries to play a key role in greater regional integration and as an engine of growth for the non-oil MENA countries. We will need to ensure that the strides made by the region’s governments in recent years towards economic liberalisation, diversification and integration are not rolled back for short-term popular gains.”

The IMF’s outlook for oil importers is mixed. For Egypt and Tunisia, this year’s growth is projected to be 2.5–4% points lower than in 2010, reflecting disruptions to economic activity during the protests, a decline in tourism, and lower investment. Political uncertainty is also weighing on Lebanon’s economy, and growth in Pakistan is still held back by the effects of last year’s floods. In most other countries, however, growth has continued to pick up, with Jordan, Mauritania, and Morocco benefiting from high prices for phosphate and iron ore.

Beyond the immediate challenges, the report sees the recent uprisings as a great opportunity to lay the foundations for a socially inclusive growth agenda for the Middle East. The IMF urges each country to find its own home-grown path for change that is broadly owned.

However, the organisation stresses that all will need to respond to some common goals to realise the region’s longer-term potential: a stable macroeconomic environment to provide confidence and attract investment; enough private-sector jobs to absorb the currently unemployed and a fast-growing labour force; access to economic opportunity for citizens to realise their potential; social protection for the vulnerable; and strong and transparent institutions that ensure accountability and good governance. “The aim is not just sustained high growth, but also growth that is more inclusive and results in broadly shared development gains.” Masood Ahmed said.