IMF's economic outlook for MENAP shows growth despite historic transitions

Hosted by the Dubai International Financial Centre (DIFC), the financial and business hub connecting the region's emerging markets with the developed markets of Europe, Asia and the Americas, the International Monetary Fund (IMF) launched yesterday its Regional Economic Outlook Update for the Middle East North Africa, Afghanistan, and Pakistan region (MENAP).
The Outlook, titled "Middle East and North Africa: Historic Transitions under Strain," takes into consideration the near-term risks to the macroeconomic stability of the Arab countries which have increased due to a combination of political transition, pressing social demands, and an adverse external environment. While these risks were contained to some extent during 2011, faltering growth, rising unemployment and continued fiscal and external pressures, IMF expects 2012 to be an equally challenging year.
According to the report, MENAP oil exporters benefited from high oil prices, which shielded them from the impact of the Euro zone crisis and its amplifications. The GDP growth of these countries decreased in 2011 to 4 percent but is projected to increase back up to 5 percent in 2012.
In 2011, the MENAP oil exporters' combined external current account surplus almost doubled approaching $400 billion. Continued government spending due to intensified social demands and higher oil prices will support to the nonoil sector, which is projected to grow at 4.5 percent in 2012.
As their oil production increased in 2011 to compensate for oil supply decreases, the GCC countries' GDP growth reached 8 percent last year. As stability returned to other oil producing countries, the GCC will return to normal oil production levels and its GDP growth will settle around 5.3 percent.
Masood Ahmed, director of the IMF's Middle East and Central Asia Department, said: "Middle East oil exporters are benefiting from high oil prices, and we expect GDP growth to strengthen and become more broad-based this year. Nonetheless, fiscal vulnerabilities to falling oil prices have increased, and structural challenges remain, such as the need to create jobs for growing working-age populations and to further diversify the economies."
Nasser Saidi, chief economist at DIFC, said: "As the transitions taking place across the region continue, and with the depressed global environment, it is inevitable that economic growth will be impacted, even though the GCC and other oil exporters are continuing to benefit from high oil prices. Job creation is the clear economic and social policy priority and highlights the importance of having an inclusive agenda that supports and accelerates the growth of the private sector, notably SMEs and family businesses. It also highlights the need for the effective mobilization of funds and the channeling of resources to meet the growing infrastructure and capital investment needs of the region. A cooperative and formal financing solution is required and I believe it is an opportune time to set up a dedicated Arab bank for reconstruction and development that could tailor solutions to the needs of individual nations in MENA, while catering for regional infrastructure projects that would support greater regional economic and financial integration."
2011 was a difficult year for MENAP oil importers. The social unrest and resulting decline in tourism and investment as well as higher energy prices and slower global growth, weakened economic activity and resulted in a decline in its growth to 2.2 percent.
With lingering concern over social instability and policy uncertainty, tourism, an important source of jobs and foreign exchange receipts, and private investment are likely to slowly recover this year. IMF expects the average real GDP growth for MENAP oil importers to increase slightly to 2.7 percent in 2012 with the main near-term downside risk being a potential large increase in oil prices which would impact these countries' external balances.
The IMF report also highlights the gross external and fiscal financing needs of MENA oil importers, which are projected at about $90 billion and $100 billion in 2012 and 2013 respectively, and the consequent need of a timely official financing.
Ahmed added: "2012 is another challenging year for many oil importing countries in the region, and in particular for those undergoing transition. Growth is faltering and unemployment is on the rise, and many countries are faced with diminished policy space, having eaten into their foreign exchange and fiscal buffers in 2011. A joint and sustained effort is needed to help these countries navigate through this challenging period and set out an economic vision that is fair and inclusive."