Doha: The latest International Monetary Fund (IMF) World Economic Outlook projections suggest that economic performance in the Middle East and North Africa (Mena) region remains mixed. On the one hand, growth in the oil importing countries of the Mena region remains subdued as political uncertainty and lack of investment is holding back growth.
On the other hand, oil exporting countries, including the Gulf Cooperation Council (GCC), continue to grow rapidly, boosted by large infrastructure projects. According to QNB Group, this dual speed development will continue over the next two years, with the GCC countries as the locomotive for growth in the Mena region and the main source of investment and financing.
According to the latest QNB Group forecasts, the overall Mena economy will grow 2.1 percent in 2013 and 3.8 percent in 2014. The overall figure masks a significant difference in performance between oil exporters, including the GCC countries, and oil importers. Last year’s subdued 2.7 percent growth in Mena oil importers is expected to fall to 1.6 percent in 2013 and recover to 3.2 percent in 2014. However, this will not be sufficient to begin making sizable progress into creating sufficient jobs to reduce these countries’ large unemployment rates.
Meanwhile, oil exporters’ healthy growth rates are projected to moderate this year to 3 percent as they scale back increases in oil production amidst modest global energy demand. Continued large infrastructure investment is expected to lead to a rise in economic growth to 4.5 percent in 2014.
Economic conditions remain impaired across most Mena oil importers, with continued social unrest in Arab Spring countries, and an economic environment characterised by modest global growth, persistently high food and fuel prices, and weak domestic confidence.
Eroded international reserves are unlikely to improve in the short-term, absent a boost in exports, foreign direct investment (FDI), or remittances. Moreover, with low fiscal buffers and depleted reserves, considerable fiscal consolidation will be needed in some cases, in order to maintain macroeconomic stability, instill confidence, preserve competitiveness, and mobilise external financing. Specifically, countries will need to implement more cutbacks in subsidies, coupled with the need to design policies that help contain the wage bill.
In addition, the Mena countries in transition continue to face political uncertainty with the challenge of delivering on the expectations for jobs and fostering economic cohesion, which is also holding back growth. In particular, the Syrian crisis has had a strong negative impact on growth in the Mashreq region, with a large size of refugees straining the fiscal resources of countries like Iraq, Jordan, Lebanon, and Turkey to a lesser extent.
For instance, the 750,000 Syrian refugees that have already entered Lebanon (nearly 19 percent of the population) have had a substantial impact on the already weak fiscal position of the Lebanese budget.
Equally damaging have been the setbacks to the political transitions as well as escalation of violence in Libya, Egypt and Tunisia, which have further deterred much needed economic reforms and deterred FDI.
On the other hand, Mena oil exporters continue to experience robust growth on account of the almost near restoration of Libya’s oil production along with strong expansions in the Gulf Cooperation Council (GCC) countries. According to QNB Group, GCC economic growth is expected to rise to 4.7 percent in 2014 from 3.7 percent this year on the back of the non-oil sector benefitting from large infrastructure projects.
In addition, GCC countries also continue to provide external financing for the rest of the Mena region in the form of official grants, soft loans, and large FDI. This is critical for a smooth economic recovery in the Mena region, according to QNB Group. Indeed, this will provide enhanced access to export markets for the region’s products and services which will also be critical for cultivating competitiveness and jobs.
Looking ahead, Mena countries will continue on their path of economic transition owing primarily to the benign GCC outlook which will continue to act as the locomotive for regional growth. That said, caution must be given to the external environment in oil importing countries which remains volatile, with spillovers from the Syria conflict.
Finally, important as it is now to focus on maintaining economic stability, it is critical for Mena governments not to lose sight of the fundamental medium-term challenge of modernizing and diversifying the region’s economies, creating more jobs, and providing fair and equitable opportunities for all.