The Middle East and North Africa region has more to worry about than just recovery from the global crisis, reports Niveen Wahish It is not officially a crisis yet, but the ongoing revolutions and political unrest in the Middle East and North Africa (MENA) region is bound to take its toll on the region's economies. The World Economic Outlook (WEO), launched this week by the International Monetary Fund (IMF) in Washington, said in a report that the region's recovery from the global crisis faces an uncertain environment. Although, as the report says, the MENA region weathered the global crisis relatively well, new factors have now become part of the picture, namely "spreading social unrest, rising sovereign risk premiums, and elevated commodity import prices." The WEO projected GDP in the MENA region to grow at four per cent in 2011 and 4.1 per cent in 2012. The world economy is forecast to grow at about 4.5 per cent a year in both 2011 and 2012, but with advanced economies growing at only 2.5 per cent, while emerging and developing economies growing at a much higher 6.5 per cent. The WEO report said that recovery will vary across the MENA region, particularly with political discontent, high unemployment, and rising food prices causing social unrest in a number of countries, dampening their short-term growth prospects. Oil exporting members of the region will be better off. Their growth is expected to pick up to five per cent this year. "Higher commodity prices and external demand are boosting production and exports in many economies in the region. In addition, government spending programmes are continuing to foster recovery in many oil-exporting economies," according to the report. Oil importers will not be doing that well at around a two per cent growth rate forecast for 2011. Among them, Egypt will be the hardest hit with only a one per cent growth rate forecast for 2011, down from 5.1 in 2010, followed by Tunisia with a forecast of 1.3 per cent down from 3.7 per cent last year. Both countries are suffering disruptions to tourism and capital flows. The fiscal situation of countries in the region will equally suffer. Carlo Cottarelli, director of the Fiscal Affairs Department at the IMF, said this week at a press briefing in Washington that the political changes are causing a lot of uncertainty regarding the fiscal situation in the region. He said there will be a deterioration in the fiscal situation related to the political developments and also the shock of food prices, not only for Egypt, but for the whole region. He said that in the short term, "it may have been inevitable to increase the subsidies," but over the medium term, there is a "need for better targeting of these subsidies". Cottarelli said this applies not only to the MENA region, but to all developing countries suffering from escalating food prices. To deal with such situations, he recommended maintaining a strong safety net for the poor in these countries, and to find ways of financing the increased cost for the government through domestic revenues. "In many of these developing countries, there is still a lot of tax evasion from those who can actually afford to pay it," he noted. The WEO report sees that the "effects of political and social turmoil could be larger than currently expected, particularly if sustained unrest spills over to additional countries in the region." To the WEO, there are "daunting" key policy challenges across the region. "For oil importers, the main priority is to raise growth and tackle chronically high unemployment, especially among young people." In fact, the WEO report stressed that in most MENA economies, chronically high unemployment, especially among young people and the educated, is a long- standing challenge that must be tackled "urgently". It said a lasting solution to the region's unemployment problem will require a combination of permanently higher and inclusive economic growth, and reforms to improve the responsiveness of labour markets. For oil exporters, the WEO report said "focus should be to strengthen or develop financial systems and promote economic diversification."
