The Washington-headquartered IMF World Economic Outlook October 2012 report highlights the disparity in fortunes between the region’s oil- and non-oil-based economies.
While Middle East and North Africa (Mena) oil exporters reported 4 per cent economic growth in 2011 with this figure tipped to rise to 6 per cent in 2012, the region’s oil importers have experienced about 1.25 per cent growth during the 2011-12 period, according to IMF data.
Not surprisingly, with the fallout from the Arab uprisings continuing to have an impact on important tertiary sectors, such as tourism, the latter economies have cause for significant concern moving into 2013.
Weaker export demand from core markets, including Europe, will also fuel concerns about the fiscal position of North African countries. Meanwhile, the lack of foreign investment as a result of the eurozone crisis will weigh heavily on relatively inexperienced and susceptible leaders in Egypt, Libya and Tunisia.
“Meeting social demands when growth has slowed and political uncertainty has increased has resulted in higher budget deficits and declines in foreign exchange reserves in non-oil importers,” the report notes.
Still, despite these issues, the IMF predicts growth will recover to 3.75 per cent in oil importing countries next year, with the important caveat of greater social and political certainty.
For oil exporters, the prospect of falling oil prices poses the greatest threat to economic stability, particularly in the GCC states, which have committed to broad and costly long-term infrastructure and job creation plans.
“Despite significant accrued financial buffers, such declines could put at risk ongoing infrastructure investment and growth. On the upside, Iran-related and other geopolitical risks could lead to higher oil prices,” the report states.
The IMF report also urges all Mena countries to encourage greater private-sector involvement in their respective economies as a means of dealing with chronic unemployment and ensuring long-term social, political and economic stability.
“Achieving this goal will require institutional and regulatory reform … Maintaining macroeconomic stability while supporting strong, inclusive medium-term growth will be an important policy challenge. Increased spending on food and fuel subsidies, along with pressure to raise civil service wages and pensions, risks straining public finances,” the report states.
The IMF report inadvertently takes aim at Gulf monarchies that have spent heavily to appease discontent among their nationals in the wake of the Arab uprisings.
“[For] oil exporters, it will be critical to contain increases in spending on entitlements that are hard to reverse,” the report states. “Instead, the focus should be on productivity-enhancing spending on human capital and infrastructure investment, which could also support diversification of their economies. In oil importers, policy buffers have been diminished, creating pressures for fiscal consolidation.”