By Masood Ahmed
(Version in عربي)
This week I’ve been traveling extensively across the region, both listening and learning. I am writing this from Dubai, where we have just launched our Regional Economic Outlook. And earlier this week, I had the opportunity to participate in the GCC Ministerial Meeting in Abu Dhabi and the World Economic Forum’s special meeting on Economic Growth and Job Creation in the Arab World in Jordan.
My core takeaway from all these events is that the underlying sense of optimism in the promise of the Arab Spring is very much there, but there is also a growing recognition that managing the short-term transition will be even more difficult with the persistence of economic pressures and rising social expectations.
Not an easy year
2011 has not been an easy year for many countries in the Middle East and North Africa. The combination of domestic unrest and external uncertainty has resulted in a marked downturn in economic activity, and this is expected to pick up only gradually over the coming year.
At the IMF, we project growth for the region’s oil-importing countries (Afghanistan, Djibouti, Egypt, Jordan, Lebanon, Morocco, Pakistan, Syria, and Tunisia) at a mere 1.9 percent in 2011, followed by a pickup to 3.1 percent in 2012. These numbers are well below the historical averages for the region and also much below the growth rate needed to keep already high unemployment from rising further.
Many countries will also enter 2012 with less of a margin for maneuver, having drawn down some of their reserve cushions during 2011. On average, government deficits are widening by about 1.5 percent of GDP in 2011–12, and external reserves have dropped markedly in 2011—by nearly 40 percent in Egypt, and 5–10 percent in Jordan, Syria, and Tunisia.
The key challenge for the coming year, then, will be to ensure social cohesion while maintaining macroeconomic stability. To that end, ensuring adequate financing is a top priority. The external financing needs of the oil importers are estimated to exceed $50 billion in 2012. Capital markets will likely provide only a small part of these funds—and at a higher cost. So, for many of these countries, regional partners and the broader international community will also be called upon to provide financial support.
The IMF is ready to do its part. As we announced earlier in the year, we could make available upon request about $35 billion to support the home-grown economic programs of the region’s oil importers.
Financing is only part of the answer and can only facilitate some difficult decisions that policymakers in these countries are having to make, even during this period of transition. For example, I was impressed by the proposals under discussion in Egypt to try to limit butane gas subsidies to households who really need this support; and by the many ideas that were generated at the World Economic Forum meeting on how to foster short-term job creation without incurring longer-term commitment for the public purse that would be difficult to unwind when the economic situation improves.
Important as the short-term challenge is, it is only the first phase of a multi-year transformation that will make the economic systems in many of these countries more inclusive and institutions more accountable and transparent.
Oil economies benefiting from high prices
To get a full picture of the region’s economic situation it is important to recognize that most of the oil-exporting countries (Algeria, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, Sudan, the United Arab Emirates, and Yemen) are continuing to show solid growth, partly because they are benefiting from the high price of oil, and partly because they have stepped up their production of oil in response to shortfalls in production from Libya. The increase in oil production is making an important contribution toward global energy market stability at a time when the world economy is facing many challenges.
Our growth estimate for these economies (excluding Libya) is 4.9 percent in 2011 and 3.9 percent in 2012.
At the same time, risks cloud the outlook, in particular a possible sharp downturn in global economic activity resulting from advanced economies’ difficulties in addressing their debt and fiscal challenges. If these risks materialize and global growth deteriorates sharply, oil exporters would be adversely affected, most likely through a fall in oil prices.
Because of high oil prices, many oil exporters have been able to expand spending and continue to support diversification of the non-oil sector. They have increased spending to address pressing social needs—for example, to offset the impact of higher food prices or to fill gaps in such critical services as housing and health.
But the flipside of higher spending has been a widening of non-oil fiscal deficits among oil exporters, making some of these countries more vulnerable to swings in oil prices. As a result, in several countries, some degree of fiscal consolidation—measures to rein in spending or increase non-oil revenue to bring down the non-oil fiscal deficit—will merit consideration in the medium term.
I welcome your comments and perspective on these issues. Also, please see our new Arabic blog: http://blog-montada.imf.org/