With few exceptions, the economies of the Middle East and North Africa region are in the red, Niveen Wahish reports In its annual World Economic Outlook (WEO) released this Tuesday in Washington, the International Monetary Fund (IMF) highlights economies which have lost more than minus two per cent of their growth rate compared to pre-2008 crisis levels, in red. That includes a good part of the countries, mostly the oil importers, of the Middle East and North Africa region (MENA), with growth projected to drop to 1.4 per cent in 2011 and 2.6 per cent in 2012. Oil importing countries of the region include Egypt, Morocco, Syria, Tunisia, Lebanon and Jordan. But the situation is toughest for Egypt, Syria and Tunisia. "Activity in a few economies will be constrained by domestic social unrest and an associated slow recovery in tourism receipts and remittances," the report said. Oil exporting countries are forecast to be better off with 4.9 per cent for 2011 and 3.9 for 2012. Growth for those countries is led by Qatar, Iraq and Saudi Arabia. The region's oil exporters also include the Islamic Republic of Iran, Algeria, the United Arab Emirates, Kuwait and Sudan. But for exporters or importers alike, as the report says, "commodity price movements and social unrest continue to shape the region's experience and prospects." The report also noted that "elevated oil prices thus far have boosted the fortunes of the region's oil exporters, while creating challenges for oil importers." Also, "activity in several MENA economies is being adversely affected by social unrest and ongoing conflict, which are weighing heavily on tourism receipts, capital flows and investment." What oil importing countries urgently need according to Rupa Duttagupta, deputy division chief, research department at IMF is "to bring in place stability and then build the finances required to put fiscal policies on a sustainable footing, then use the stability to put in place the broad institutions and structural reforms needed for a more inclusive growth." Duttagupta was speaking at the press conference on the WEO. In fact, Phil Gerson, advisor in the Fiscal Affairs Department, said the challenge to all the countries of the region is to move to a growth model that allows for more inclusive growth; that is for growth that addresses the problems of high unemployment, particularly among the young. "That requires a whole different model of growth in some sense and ways to try to maximise human capital development and to try to focus on investment in areas that are consistent with developing in the non-oil sector of the economy." Gerson was speaking at a press conference on the IMF's Fiscal Monitor report. Gerson acknowledged that oil importers face the dilemma of trying to stabilise public finances at a time when expenditure demands are quite high. "One of the things they need to do is to move away from a system of generalised subsidies that are not sufficient or not targeted directly to those who are most in need, to move to a system of much more targeted subsidies where the money being spent is going directly to those who need it," he said. Moreover, he stated that "there is also scope for greater revenue mobilisation within some of those countries to try to stabilise the short-term fiscal situation." But it will not be an easy job. "The outlook is subject to large downside risks. External risks relate to the unfolding weaker outlook in the United States and Europe, which could sharply depress activity and hence commodity prices or further slow external financing flows to the region," the WEO said. Meanwhile, the effect of the turmoil in the region on the global scene is limited to its effect on the fluctuation of oil prices. Continued or a sudden increase in instability in the MENA region will pose a risk for the world, one which would reflect most clearly on oil prices in particular, Duttagupta said.
