The International Monetary Fund on Monday cautioned that even though soaring energy prices have benefited regional economies, the trend is not likely to stay for long, and governments should utilise this window of opportunity to invest in infrastructure, food and energy security.
Launching the Regional Economic Outlook (REO) for the Middle East and Central Asia (ME&CA) region, the IMF forecast 2022 real GDP across the region to grow at 5 per cent, increasing from 4.1 per cent in 2021.
However, growth is likely to be slower in 2023 at 3.6 per cent as the impact of worsening global conditions is felt.
The situation is looking slightly brighter for oil exporters, who are likely to post a 5.2 per cent growth for 2022, up from 4.5 per cent in 2021. Growth may slow in 2023 at 3.5 per cent as OPEC+ production wanes, oil prices ease and global demand slows.
Crude producers are projected to accrue a cumulative oil windfall of about $1 trillion over 2022-26, the IMF said.
“Oil exporters’ external accounts, including the UAE, are expected to further improve in 2022-23 as energy prices remain considerably higher than their 2020-21 levels. Primary non-oil fiscal balances are also slated to improve with most Gulf Cooperative Council (GCC) nations expected to continue to save a substantial share of their oil revenues,” the IMF added.
Jihad Azour, Director of the IMF’s Middle East and Central Asia Department, said: “In the near-term, the priorities for all countries are to maintain or restore price stability while protecting the vulnerable, respond to tightening global financial conditions while ensuring fiscal and financial stability, and ensure food and energy security.
“The worsening global environment, tightening macroeconomic policies, and the limited policy space in several countries raise the urgency of pressing ahead with structural reforms to bolster economic growth while transforming economies to become more resilient, sustainable, diversified and inclusive.”
While worsening global conditions have weighed on regional economies, economic activity has remained resilient so far, even though inflation has been a surprise, Azour said.
Tepid outlook
Things don’t look so bright for emerging, middle- and low-income economies, the IMF cautioned.
Emerging markets and middle-income economies are projected to grow at 4.9 per cent this year, up from 3.6 per cent in 2021, and growth is likely to slow to 3.9 per cent in 2023.
Low-income countries struggling with high commodity prices, limited progress in vaccination rollouts and “country-specific fragilities” are likely to grow at 0.8 per cent this year.
Inflation shock
The IMF raised a red flag on inflation, highlighting that has brought many regional economies on the brink of a cost-of-living crisis.
“Headline inflation for the region is projected at 14.2 per cent on average in 2022 and is expected to remain in double digits in 2023 for the fourth consecutive year,” the IMF official said.
The risks
While MENA economies are yet to feel the full impact of the global crisis, the region has its own uncertainties to deal with, the IMF said.
“Persistently high food commodity prices and pervasive food shortages increase risks of food insecurity, social unrest and fiscal pressures,” the IMF said, “while tighter-than expected financial conditions risk fueling a funding crunch in the region’s emerging markets.”
Way forward
The IMF urged governments to act to mitigate the cost-of-living crisis brought on by high inflation and tighter than expected financial conditions.
The IMF advised governments to restore price stability by tightening monetary policy in countries where “inflation is becoming broad-based or where there are signs of a de-anchoring of inflation expectations.”
It also suggested scaling up agricultural production by securing access to fertilizers and securing access to climate-resilient agriculture.
It also warned that countries should avoid regressive and costly energy subsidies and tax exemptions.
“Maintaining debt sustainability will be critical and may necessitate accelerating fiscal adjustment in countries with limited fiscal space.”
