Middle East and Central Asia
Regional Economic Outlook: Middle East and Central Asia
November 2013
© International Monetary Fund
The near-term economic outlook for the Middle East and North Africa region has weakened. In the oil-importing countries, many of which are Arab countries in transition, regional conflict, heightened political tensions, and delays in reforms continue to weigh on growth. In this context, the immediate policy priorities are to restore confidence and create jobs, make inroads into fiscal consolidation to restore debt sustainability and rebuild buffers, and embark on structural reforms needed to support private sector-led, job-intensive growth. Most oil-exporting countries continue to enjoy steady growth in the non-oil sector, supported in part by high levels of public spending. Although headline growth has declined because of domestic oil supply disruptions and lower global demand, a recovery in oil production is expected to lift growth next year. Increased vulnerability to a sustained decline in oil prices and intergenerational equity considerations underscore the need for countries to strengthen their fiscal buffers. Key medium-term challenges remain economic diversification and faster private-sector job-creation for nationals.
Economic activity in the Caucasus and Central Asia is expected to continue to expand rapidly. Growth will be driven by a recovery in the hydrocarbon sector and firm growth in domestic demand, supported in part by robust remittance inflows. Considerable downside risks weigh on this outlook, however, stemming in particular from slower-than-expected growth in Russia, an important trading partner and source of remittance inflows. Countries should take advantage of the favorable near-term economic conditions to rebuild fiscal policy buffers that were eroded after the global crisis and set in motion a process of structural transformation into dynamic emerging economies.
| Contents | |
| Acknowledgments | |
| Assumptions and Conventions | |
| Country Groupings | |
| World Economic Outlook | |
| MIDDLE EAST, NORTH AFRICA, AFGHANISTAN, AND PAKISTANÂ | |
| MENAP Region Highlights | |
| 1. MENAP Oil Exporters: Heightened Risks to Oil and Fiscal Positions | |
| Growth Outlook Defined by Volatile Oil Production | |
| A Reduction in Oil Revenues Is a Key Risk | |
| Fiscal Space and Intergenerational Equity | |
| Stepped-up Policy Action Is Needed for Growth and Job Creation | |
| MENAP Oil Exporters: Selected Economic Indicators | |
| 2. MENAP Oil Importers: Complex Political Dynamics and Security Challenges | |
| Tension and Conflict Impair Economic Activity   | |
| Downside Risks Are Significant | |
| External and Fiscal Positions Are Highly Vulnerable | |
| Medium-Term Growth Prospects Are Weak | |
| A Package of Reforms and External Financing Is Needed | |
| Getting the Pace and Composition of Fiscal Consolidation Right | |
| Where Conditions Allow, Monetary Policy Should Be Supportive | |
| Structural Policies to Raise Growth Potential | |
| International Support | |
| MENAP Oil Importers: Selected Economic Indicators | |
| CAUCASUS AND CENTRAL ASIA | |
| CCA Highlights | |
| 3. Caucasus and Central Asia: Need to Increase Resilience and Accelerate Reforms to Become Emerging Markets | |
| Commodities, Remittances Support Rapid Economic Expansion | |
| Risks to the Near-Term Outlook Are Tilted to the Downside | |
| Infl ation Stays Largely within a Comfortable Range | |
| Slowly Recuperating Financial Sector Needs Strong Oversight | |
| External Positions Call for More Exchange Rate Flexibility | |
| Fiscal Consolidation Is Needed to Increase Buffers and Stabilize Debt | |
| Toward Becoming Vibrant Emerging Markets | |
| CCA: Selected Economic Indicators | |
| Annex 1. Prospects for the Global Oil Market | |
| Annex 2. International Linkages and Spillovers for MENAP and CCAÂ | |
| Moderate Yet Growing Linkages to the Rest of the World | |
| Increasing Synchrony of Output Cycles | |
| Lower-than-Anticipated Growth in Emerging Markets Is an Important Risk | |
| Slowdown in the Euro Area Would Mainly Affect the Maghreb | |
| Effects of Tighter Global Financial Conditions Should Be Manageable | |
| Annex 3. Anchoring Fiscal Policy in Oil-Exporting Countries | |
| The Role of Fiscal Policy for MENAP and CCA Oil Exporters | |
| Annex 4. Minimizing the Impact of Fiscal Consolidation on Growth, and Enhancing Equity | |
| Mobilizing Tax Revenues | |
| Reorienting Spending | |
| Supporting Measures and Policies | |
| Statistical Appendix | |
| References | |
| IMF Publications on the Middle East and Central Asia 2013Â | |
| Boxes | |
| Figures | |
| Tables | |
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