Dubai: The tepid growth witnessed in 2011 in the region’s oil-importing countries persists. A moderate economic recovery is expected in 2013, but is subject to heightened downside risks, the International Monetary Fund said in its latest regional economic outlook on Sunday.
Oil importing countries from the region, particularly the Arab Spring countries that went through political changes and socio-economic strife are likely to face another difficult year ahead. For the Arab countries in transition, ongoing political transitions also weigh on growth. With uncertainty over the medium-term policy agendas in many countries, investors are holding back.
The IMF forecast gross domestic product in the countries excluding Libya would expand by 3.6 per cent in 2013, accelerating from an estimated 2 per cent this year and 1.2 per cent in 2011. In 2010, the year before the uprisings, GDP grew 4.7 per cent.
Because of sluggish global demand, the group’s current account balance of trade in goods and services will improve only marginally next year, to a deficit of 4.6 per cent of GDP from this year’s 5.4 per cent deficit, the IMF predicted. Tourism and trade with Europe, two big sources of foreign exchange are drying up.
In response to social demands and rising food and fuel prices, governments in the Arab countries in transition have significantly expanded spending on subsidies. Budget revenues have also fallen, with the consequence that fiscal balances have deteriorated.
“With average public debt at more than 70 per cent of GDP, fiscal vulnerabilities are high, and any significant fiscal slippages, slower-than-projected growth, or higher interest rates could put debt on an unsustainable path,” said Masood Ahmad, Director of the IMF’s Middle East and Central Asia Department.
For most of the Arab Spring nations, external current account deficits have widened from already high levels. Together with weak capital inflows, these have resulted in a sharp decline in official international reserves. Stronger growth is urgently needed to spur job creation and provide the population with tangible benefits. To that end, it is important that governments in the Arab countries in transition embark on policies to restore macroeconomic sustainability and structural reforms aimed at improving competitiveness.
“With fiscal pressures continuing to build, there is a growing urgency to act on macroeconomic stabilisation. But it is equally important that both stabilisation measures and the design of structural reforms are done in a way that minimises adverse impact on the poor and vulnerable,” said Ahmad.