International Monetary Fund
May 10 2009
Middle East, North Africa Weathering Global Crisis
IMF Survey online
May 10, 2009
Growth in Middle East and North Africa to slow to 2.6 percent in 2009
Region affected by lower export earnings, investment flows, and
remittances
But high levels of reserves and government spending in oil exporters
dampen impact The global financial crisis has not spared the Middle
East and North Africa region, but good economic fundamentals,
appropriate policy responses, and sizeable currency reserves are
helping to mitigate the impact of the shock, the IMF says in its
latest assessment of conditions in the region.
Growth in the region could slow to 2.6 percent in 2009 from 5.7
percent in 2008 before recovering to about 3.6 percent in 2010.
"Given the global reach of the current economic crisis, countries in
the Middle East and North Africa have also been impacted
negatively. However, they are likely to fare better than countries in
other regions of the world’in part because of prudent financial and
economic management, but also because oil exporters in the region can
draw upon their large reserves,’ said Masood Ahmed, Director of the
IMF’s Middle East and Central Asia Department, at a May 10 briefing in
Dubai, which focused on the outlook for Middle East and North Africa,
Afghanistan, and Pakistan.
These reserves will help `cushion the impact of the global slowdown in
their own economies and the economies of their neighboring countries
with which they have growing economic links,’ added Ahmed. The media
will also be briefed on the outlook for the Caucasus and Central Asia
on May 11 in Yerevan, Armenia.
Nearly all the region’s 22 countries will be affected by the global
crisis in important but different ways, the report notes.
Oil exporters slow down but continue to shore up global demand
The Middle East’s oil-exporting countries’Algeria, Bahrain, Iran,
Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Sudan, the United Arab
Emirates, and Yemen’are feeling the impact mainly through the sharp
fall in oil prices and the tightening of credit conditions.
Amid high oil prices and strong investor interest the region, these
countries grew by nearly 6 percent per year between 2004 and
2008. With lower global demand for oil, however, GDP growth rates are
forecast to decline to 2.3 percent in 2009 from 5.4 percent in 2008.
Despite the decline in oil revenues, however, most oil exporters in
the region are maintaining government spending at a high level. This
spending is providing an important stimulus to both domestic and
global demand. In countries with less fiscal space’such as Iran,
Sudan, and Yemen’governments will need to prioritize their
expenditures, especially if oil prices remain at their current level.
Lower oil prices and high spending are expected to cause a turnaround
in the oil exporters’ external current account position from a surplus
of $400 billion last year to a deficit of nearly $10 billion in 2009
(assuming oil prices remain at current levels).
Financial sector spillovers prompt policy response
The global financial crisis has also led to a tightening of credit
conditions in oil-exporting countries, particularly in the Gulf
Cooperation Council (GCC) states and other countries whose financial
systems are more integrated with global markets. With asset prices
falling rapidly and liquidity conditions tightening’in part from the
withdrawal of speculative capital, which started earlier in
2008’governments in the region responded by taking measures to
stabilize interbank markets, ease liquidity conditions, and support
commercial banks.
Oil importers also face slowdown
Middle Eastern oil importers’Afghanistan, Djibouti, Egypt, Jordan,
Lebanon, Mauritania, Morocco, Pakistan, Syria, and Tunisia’have
largely escaped the direct effects of the crisis, because of the
postive impact of lower oil prices and their limited links to global
financial markets. But as the worldwide recession has deepened, these
countries face weaker prospects for exports, foreign direct
investment, tourism, and remittances.
As a result, real GDP growth for these countries is projected to drop
to 3.2 percent in 2009 from 6.2 percent in 2008. This group has mainly
been affected by slowdown in their trading partners’Europe, the United
States, and GCC countries’which has led to a fall in exports and
foreign direct investment, according to the report. Tourism and
remittances are also likely to be affected, although the data so far
show them to be quite resilient.
Oil-importing countries that trade mainly with the GCC could be
protected to some degree by oil exporters’ continued spending. But a
protracted recession in trading partners could have a significant
impact on the growth of oil importers, and unemployment and poverty
could rise, Ahmed said. The projected fall in inflation to 9.7 percent
in 2009 from 14.4 percent in 2008 for this group of countries should
alleviate some of the pressure on the poor.
Countries in this group represent a range of different economic
structures and levels of development, and depend upon different types
of foreign inflows. Some countries are better integrated with world
financial markets (for example, Egypt, Jordan, Lebanon, and Pakistan),
but others, such as Afghanistan, are more dependent on official
development assistance.
Policy challenges
Given the region’s unique characteristics, economic policy should
concentrate on the following key measures, Ahmed stressed:
¢ Maintain or increase public spending where possible. Countries
where public debt levels are not a concern would do well to maintain
or enhance public spending. This is true for most oil exporters, but
also for countries like Morocco, Syria, and Tunisia.
¢ Strengthen financial systems. Countries should keep a close eye
on their banking systems and, where appropriate, conduct `stress
tests’ to assess recapitalization needs and deal with troubled
financial institutions.
¢ Ease monetary policy as inflationary falls. As inflationary
pressures recede, some countries will have more room for an easing of
monetary policy to support investment and growth.
¢ Strengthen social safety nets. In this period of economic
slowdown, it will be crucial to target government resources and
develop policies to protect the poor and vulnerable segments of
society.
urvey/so/2009/CAR051009A.htm