Challenges facing regional economies are growing, warns IMF

11 November 2012

Economic growth for Mena region set to fall to 3.6 per cent in 2013

The economies of the Middle East and North Africa (Mena) region are facing growing challenges as a result of the social pressures to maintain spending levels and should act now to address them, the IMF has warned.

Although the pressures faced by the oil exporting countries and the oil importing countries of the region are very different, both have difficult and potentially unpopular policy choices to make.

Oil importers are increasingly financing higher current expenditures at the expense of investment spending that would provide the bedrock of future economic growth and job creation, says Masood Ahmed, director of the IMF’s Middle East and Central Asia department. “[Oil importing countries] are financing increased current expenditure, which goes mainly on subsidies, at least in part by mortgaging their future growth,” he adds. In addition they face growth rates that are below what is needed to reduce employment levels.

Ahmed says that the need for oil importing countries to tough decisions on tackling budget deficits and taking action on reform of subsidies, the labour market, and business regulations is getting stronger all the time. He urged governments of those countries, many of which have experienced unprecedented protest movements over the past two years, to begin to educate the public about the need to make tough choices and realise that the dividends of political transitions are not quickly realised.

Although oil exporting countries like the GCC are in a much more healthy financial position, they need to start taking action to address rising spending levels and increasingly vulnerability to the oil price. “The key policy message [for oil exporters] is to take advantage of this period to pull back expansionary fiscal policies,” Ahmed says. Rising government spending is also crowding out the private sector, the IMF says.

According to the IMF’s latest forecast the GDP of oil importing countries is set to rise from 2.1 per cent in 2012 to 3.3 per cent next year, while for oil exporters it will fall from 6.6 per cent to 3.8 per cent largely due to the impact of increased oil production in 2011-12 that will not repeated in 2013.

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