Growth in the North Africa and Middle East (MENA) region's oil-importing countries did not exceed two per cent last year, with an average growth rate of 1.2 per cent, according to the IMF's World Economic Outlook (WEO) report, which was launched last week. The report attributed the modest growth rates to a number of factors, most notably the continued political uncertainty and bouts of social unrest across the Arab countries-in-transition, significant regional spillovers from the escalating conflict in Syria, persistently high commodity prices, particularly for food and fuel, and soft external demand from European trading partners. The report stated that in Egypt the uncertainty generated by a protracted political transition had held back growth and led to an increase in fiscal and external imbalances. “In the past two years, unemployment has risen, employment prospects have been limited and the cost of living has been increasing, leading to social tensions in these countries which made it harder to manage economic policy,” Masood Ahmed, the IMF's director of the Middle East and Central Asia Department, told reporters in a press briefing held last week in Washington. Ahmed said that the governments of the region's oil-importing countries had responded to the social pressures they had faced in the last two years by expanding expenditure on subsides and other social policies. “One consequence of that has been that their fiscal deficits have increased over this period to about eight per cent and the public debt has risen to about 75 per cent of GDP,” Ahmed said. The report showed that the weak domestic and external environment would continue to pose challenges for the MENA oil-importers during 2013/14. Growth is projected to be 2.7 per cent this year, a downward revision of growth forecasts in the October 2012 WEO, owing to slower progress in political transitions and the protracted recovery in the region's European trading partners. Nonetheless, should progress be made in the region's political and economic transitions, growth in oil-importers could accelerate to 3.7 per cent in 2014. Inflation is expected to rise during 2013/14, reflecting the monetisation of fiscal imbalances in several countries and cutbacks in commodity price subsidies, despite the moderating commodity import prices. The report further added that downside risks remained elevated for oil-importers, largely as a result of the domestic and regional political instability and social unrest. In addition, there was a risk that the conflict in Syria could spread to neighbouring countries and the broader sub-region, the report said. Besides the political risks, an increase in global food and fuel prices could reduce output and worsen the oil-importers' already large fiscal and external deficits, it added. According to Ahmed, there was an immediate short-term challenge for oil-importers in the urgent need to start the process of consolidating budgetary imbalances to ensure that macroeconomic stability could be maintained during the transitional period. However, he pointed out that it would be hard to achieve fiscal consolidation in many countries in the region without addressing the issue of subsidies, which account for 22 per cent of the budget in a number of countries. Beyond the short-term issues of consolidation, Ahmed said that there was a medium-term agenda for these countries, which was to create a more inclusive model of growth that would create jobs and hope for their young populations. “We believe that the region has an untapped potential for a prosperous future and it's a priority to start reform in order to realise such a potential,” Ahmed said. Conversely, the Report showed that the oil-exporting countries of the region had been growing at relatively healthy rates, with an average of 5.7 per cent driven largely by the almost complete restoration of Libya's oil production and strong expansions in the Gulf Cooperation Council (GCC) countries. However, economic growth is projected to fall to 3.2 per cent in 2013, as oil production growth pauses against a backdrop of relatively weak global demand and production. As a result, aggregate oil GDP is expected to stagnate in 2013, compared with growth of 4.5 per cent recorded in 2012. Meanwhile, sustained high government spending will continue to support buoyant non-oil GDP growth, expected to be 4.2 per cent this year. Overall, the report said that growth in the oil-exporters of the region was projected to strengthen to about 3.7 per cent in 2014 on the back of rising non-oil GDP growth and resuming oil GDP growth. The report meanwhile also indicated some of the challenges that are facing oil-exporting countries in the region. It said that increases in hard-to-reverse government expenditures such as wages should be contained in order to build resilience to a possible sustained decrease in the oil price. Fiscal consolidation was more pressing for some low-income oil-exporters, particularly Yemen, which were already burdened by constrained fiscal positions, the report said.
