As the global economy regains its momentum, the economic prospects for the Middle East and North Africa look all the brighter. Aided by the pick-up in oil prices, capital inflows and a resurgence in domestic consumption, output for the region is forecast to expand by 4.4 per cent in 2010, up from 2.4 per cent in 2009. But this positive outlook is clouded by some stress in the banking systems and sluggish credit activity across the region.
Policymakers must balance reactivating credit with the need to strengthen regulation
Masood Ahmed, IMF
The region’s oil exporters – Algeria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Sudan, the United Arab Emirates and Yemen – were hit hard in 2009. Crude oil prices fell to $40 a barrel, real estate and asset prices plunged and external financing dried up. The combined current account surplus of these countries fell to $53bn in 2009, after having risen to $362bn in the previous decade. Overall oil gross domestic product (GDP) contracted by 4.7 per cent.
But continued government spending, along with central bank liquidity support and capital injections into the banking sector, helped mitigate the impact of the global economic downturn. As a result, non-oil economic activity expanded by some 3.6 per cent in 2009.
These countries are now emerging from the crisis, thanks to a resumption of capital inflows and a rebound in crude oil prices to more than $80 a barrel. Higher oil prices and output are projected to boost their combined current account surplus to $140bn and oil-GDP growth to 4.3 per cent. Non-oil sector activity is also forecast to grow by 4.1 per cent. However, this is still heavily dependent on continued fiscal stimulus, since private investment and credit to the private sector remain sluggish.
|Middle East & North Africa GDP growth|
|(Annual percentage change)|
|Oil exporters – 1||5.6||4.4||1.5||4.3||4.5|
|Emerging markets – 2||6||6.5||4.7||4.7||5.2|
|1= Includes Algeria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Sudan, UAE and Yemen|
|2=Includes Afghanistan, Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Syria and Tunisia|
|GDP=gross domestic product. Source: IMF; national authorities|
Following an extended period of high growth through mid-2008, credit in these countries slowed by an average of almost 30 percentage points by the end of 2009. In addition, losses on non-performing loans have yet to be fully recognised and this contributes to banks’ reluctance to extend credit. Policymakers must now balance the goal of reactivating credit with the need to strengthen financial regulation and enhance supervision of financial institutions, particularly in countries where excessive risk-taking occurred.
Over the medium term, they also face the delicate task of unwinding financial sector support and phasing out fiscal stimulus once a solid recovery is achieved.
The region’s emerging markets – Afghanistan, Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Syria, and Tunisia – fared relatively well in 2009. Their limited financial and trade ties, combined with positive spillover from fiscal expansions in neighbouring oil exporting countries, helped offset the impact of the global slowdown. Overall growth fell fairly modestly to 4.7 per cent in 2009, down from 6.5 per cent in 2008.
Output growth in these countries is projected to stay flat, at 4.7 per cent, in 2010 but, with trade rebounding and investment and bank credit beginning to pick up, it is forecast to increase to 5.2 per cent in 2011.
These growth rates, however, fall short of those in other emerging markets and remain below the levels needed to combat high rates of unemployment. The main challenge for these countries will be to improve their competitiveness, to raise growth and generate employment for a rapidly expanding workforce.
With continued weakness in European demand and competition from other emerging markets, sustaining robust, export-led growth will require a sharper focus on macroeconomic and structural reforms to raise productivity.
Among these, bringing about an improved business climate and reorienting education and training to equip workers with the skills demanded by today’s marketplace will feature highly on the agenda for most Middle Eastern and North African countries.