Middle East and Central Asia
Regional Economic Outlook: Middle East and Central Asia
October 2011
©2011 International Monetary Fund
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The Arab Spring holds the promise of improved living standards and a more prosperous future for the peoples of the Middle East and North Africa region. At the same time, the region is witnessing uncertainty and economic pressures from domestic and external sources, which will likely be exacerbated by the recent worsening of the global economy. The main challenge in the short term will be to manage expectations while maintaining economic stability. To that end, better-targeted subsidies and transfers will help free up resources for investment in infrastructure, education, and health. Policies aimed at fostering inclusive growth will also help cement the longer-term benefits of the ongoing changes in the region. In the Caucasus and Central Asia, the economic outlook is broadly positive. Exports and remittances—key growth drivers in 2010—are continuing to grow solidly, helping the recovery gain firm momentum. At the same time, uncertainties over the robustness of the global recovery constitute a downside risk to the growth outlook. Key challenges facing the region over the medium term are to create jobs and foster high and inclusive growth.
| Contents | |
| Acknowledgments | |
| Assumptions and Conventions | |
| Country and Regional Groupings | |
| World Economic Outlook | |
| Middle East, North Africa, Afghanistan, and Pakistan (MENAP) | |
| MENAP Highlights | |
| 1. MENAP Oil Exporters: Benefiting from High Oil Prices amid Growing Risks | |
| Gradual Recovery Continues | |
| Fiscal Expansion Continues, with New Vigor in the Social Sector | |
| Fiscal, External Balances Improve despite Higher Spending | |
| Financial Conditions Point to Increased Regional, Global Risk | |
| Banks Gain Strength, but Credit Recovery Remains Subdued | |
| Inflationary Pressures Modest amid High Commodity Prices | |
| Echoes of 2008, but with Key Differences in Risk Tolerance | |
| Designing Fiscal Policy for the Long Haul | |
| Monetary Policy for Stability and Growth | |
| Structural Reforms Should Continue | |
| Annex 1.1. Medium-Term Outlook on the Production of Oil and Natural Gas | |
| 2. MENAP Oil Importers: Meeting Social Needs, Restoring Economic Confidence | |
| Sharp Downturn to Last through 2012 | |
| Inflation Remains Stable as Food and Fuel Subsidies Rise | |
| External Balances Are Worsening | |
| Financial Markets Have Taken a Hit | |
| Spending Escalates with Universal Subsidies Rising Sharply | |
| Fiscal Deficits Increasingly Financed from Domestic Sources | |
| The Road Ahead Is Challenging | |
| The Way Forward to Inclusive Growth | |
| Annex 2.1. MENA Oil Importers: Addressing Informality and Promoting Inclusion | |
| Annex 2.2. A Closer Look at Governance and the Business Environment in MENAP | |
| Caucasus and Central Asia (CCA) | |
| CCA Highlights | |
| 3. Caucasus and Central Asia: Safeguarding the Recovery (version in Русский) |
|
| Recovery Gaining Speed | |
| Growth Outlook Broadly Positive, but with Downside Risks | |
| Inflation Remains Elevated in Several Countries | |
| Policy Options and Challenges | |
| Oil and Gas Importers | |
| Oil and Gas Exporters | |
| Medium-Term Challenges: Jobs and Inclusive Growth | |
| Annex 3.1. Commodity Price Inflation and Monetary Policy in the CCA | |
| Boxes | |
| 1.1 | Libyan Revolution: Economic Impact and Challenges Ahead |
| 1.2 | Sudan and South Sudan: Beyond the Breakup |
| 1.3 | Labor Markets in the GCC |
| 2.1 | Mitigating the Impact of High Energy Prices: Oil Importers as Commodity Exporters |
| 2.2 | Global Linkages and Regional Spillovers from the Slowdown in Europe |
| 2.3 | MENAP Oil Importers: Domestic Fuel Pricing |
| 2.4 | Who Benefits from Energy Subsidies? Evidence from Jordan and Mauritania |
| 3.1 | Regional Spillovers from Russia’s Economic Recovery |
| 3.2 | Remittances and Tax Revenues in CCA Countries |
| 3.3 | Unemployment in the South Caucasus: The Challenge of Making Growth More Inclusive |
| 3.4 | Business Environment and Governance in the CCA |
| Figures | |
| 1.1 | On the Back of High Oil Prices, the Recovery Continues |
| 1.2 | Strong Fluctuations in Oil Sector GDP, Non-Oil Remains Steady |
| 1.3 | Non-Oil Fiscal Deficits Have Been Widening in Most Countries |
| 1.4 | Most Oil Exporters Have Ramped Up Spending |
| 1.5 | Despite Higher Spending, Fiscal Balances Improve in Most Countries |
| 1.6 | Current Account Balances Improve Further |
| 1.7 | Sovereign Risk Levels Still Elevated |
| 1.8 | GCC Countries: Spillover Coefficient from Financial Distress in Other MENA Countries |
| 1.9 | Stock Market Indices Still Not Back to Pre-Lehman Levels |
| 1.10 | Financial Stability Improving, but Vulnerabilities Still Present |
| 1.11 | GCC Credit Growth Is Still Mostly Subdued ... Although Deposits Are Picking Up |
| 1.12 | Some Inflationary Pressures in the Oil Exporters ... But Inflation Still Subdued in the GCC |
| 1.13 | Fiscal Break-Even Oil Prices Have Been Creeping Upward |
| 1.14 | International Issuance of Bonds, Loans, and Equity |
| 1.15 | High Loan Concentration in MENA |
| 2.1 | Real GDP Growth Stalls in 2011 |
| 2.2 | Private and Public Investment Have Declined |
| 2.3 | Real GDP Growth Forecasts Revised Downward |
| 2.4 | Inflationary Pressures Muted |
| 2.5 | Real Policy Interest Rates Near Zero |
| 2.6 | Oil Import Bills Rising |
| 2.7 | MENAP Oil Importers Tourism Activity |
| 2.8 | International Capital Market Issuance |
| 2.9 | Stock Market Indices Lower |
| 2.10 | Sovereign Bond Spreads Higher |
| 2.11 | Higher Expenditures on Subsidies and Transfers |
| 2.12 | Fiscal Deficit Forecasts Revised Up |
| 2.13 | Public Debt Stable, Real Rates Close to Zero |
| 2.14 | All Firms Are Not Created Equal |
| 3.1 | Exports of Goods |
| 3.2 | Remittance Inflows |
| 3.3 | Real GDP |
| 3.4 | Food Price Inflation |
| 3.5 | Headline CPI Inflation |
| 3.6 | Fiscal Balance |
| 3.7 | Headline Inflation |
| 3.8 | Core Inflation |
| 3.9 | Current Account Balance |
| 3.10 | Net Foreign Direct Investment |
| 3.11 | Oil and Gas Exporters: Non-Oil Fiscal Balance |
| 3.12 | Headline Inflation |
| 3.13 | Core Inflation |
| Table | |
| 1.1 | New Spending Measures Announced in 2011 |
| Statistical Appendix | |
| 1 | Real GDP Growth |
| 2 | Nominal GDP |
| 3 | Oil Exporters: Oil and Non-Oil Real GDP Growth |
| 4 | Oil Exporters: Crude Oil Production and Exports |
| 5 | Consumer Price Inflation |
| 6 | Core Consumer Price Inflation |
| 7 | Broad Money Growth |
| 8 | General Government Fiscal Balance |
| 9 | General Government Total Revenue, Excluding Grants |
| 10 | Oil Exporters: General Government Non-Oil Fiscal Balance |
| 11 | Oil Exporters: General Government Non-Oil Revenue |
| 12 | General Government Total Expenditure and Net Lending |
| 13 | Total Government Gross Debt |
| 14 | Selected MENAP Countries: Total Government Net Debt |
| 15 | Exports of Goods and Services |
| 16 | Imports of Goods and Services |
| 17 | Current Account Balance (Billion U.S. dollars) |
| 18 | Current Account Balance (Percent of GDP) |
| 19 | Gross Official Reserves |
| 20 | Total Gross External Debt |
| 21 | Capital Adequacy Ratios |
| 22 | Return on Assets |
| 23 | Nonperforming Loans |