When economic rules do not apply

16 May 2019
As the IMF has found, the idea of a single, Middle East economy is unworkable

The Middle East’s increasing diversity is frustrating for those giving the region economic advice, as the update of the IMF’s forecasts, released in April, shows.

There are huge differences among countries in the region, which encompass energy exporters with both small and large populations, and just as many energy-hungry oil importers.

While the region includes some of the world’s richest nations, Mauritania, Somalia and Yemen are among the poorest. Populations vary enormously: Bahrain has just 1.5 million people; Egypt has nearly 100 million.

Then there is the impact of the unrest and civil war that directly affect at least seven of the 23 countries in the IMF’s Middle East regional classification. About the same number are indirectly affected.

Any analysis is further complicated by the US sanctions on Iran, which have ensured that the country’s output was 1 million barrels a day lower in March than it was last summer.

The most coherent group of countries is the GCC, which will account for almost half of the region’s GDP in 2019, but even within this group there are big variations.

The wealthiest country’s per capita GDP is forecast to be $70,000 this year; Oman’s will be under $20,000. Within the UAE, the difference between per capita GDP in Abu Dhabi and the figure for Ras al-Khaimah may be even wider.

Real GDP growth in the GCC is forecast to rise to 2.1 per cent in 2019, despite expectations that oil prices will fall. The group’s six members also have a forecast aggregate current account surplus equivalent to 5 per cent of combined GDP.

Yet the IMF expects both Bahrain and Oman to record larger budget and current account deficits this year. Bahrain’s government debt rose to almost 100 per cent of its GDP in 2018.

The situation among non-GCC Middle East nations is even more perplexing due to the impact of political turbulence. Four of them have not released GDP data since 2016.

The IMF has developed a new indicator named the ‘reported social unrest index’ to track regional political trends that economic data cannot quantify. It measures the share of news reports that mention forms of social unrest about seven Middle East countries, including Algeria and Sudan, where long-standing heads of state have been toppled this year. Unsurprisingly, the index has risen sharply in 2019.

The IMF is an authoritative source of data that helps policymakers, citizens and investors make decisions. Its recommendations are solid. But the region’s growing complexity is making general proscriptions increasingly redundant.

There is no such thing as a single Middle East economy.

Edmund (Eddie) O'Sullivan


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