Infrastructure spending could revive economies

09 October 2014

Middle East and North Africa growth forecasts revised downward by IMF

Economic growth forecasts in the Middle East and North Africa (Mena) region have been downgraded by the Washington-based IMF, but increased public investment in infrastructure could put the region’s economy back on track.

The region’s growth rates for 2014 and 2015 have been revised downward to 2.6 and 3.8 per cent respectively, according to the fund’s latest World Economic Review. This is in line with the slowdown in predicted global growth rates, which have fallen by 0.1-0.2 per cent compared with the IMF’s July forecasts.

It is the third time this year that the IMF has reduced its global growth predictions, overestimating how quickly developed countries would escape the legacy of the financial crisis and the high volumes of outstanding private and public debt. Emerging market growth has slowed to rates below those reached before the financial crisis.

This year has also seen increased geopolitical risks, particularly the Ukraine-Russia conflict and the ongoing political instability and conflict in the Mena region.

Growing public investment in infrastructure is seen as one key way of raising the rate of global and regional growth, according to the IMF. The bank recommends the use of debt financing to support project development, saying it is a way of getting schemes up and running without increasing national governments’ debt-to-GDP ratios.

The Mena region, particularly the Gulf, is already pushing forward with many major infrastructure projects across all sectors, including power and water, oil and gas, and social infrastructure.

Projects are being developed through a mix of government investment, bank debt and foreign government support through the use of export-import agencies.

But the IMF’s recommendations are a warning to regional governments to maintain and even ramp up their infrastructure plans to reinvigorate the region’s economic growth prospects.

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