DOHA: The International Monetary Fund (IMF) has said that there is a strong need for the countries across the MENAP (Middle East, North Africa, Afghanistan, and Pakistan) to integrate further into the global economy and diversify their products and services. This will require greater access to finance for the private sector, especially small and medium-sized enterprises and upgrading workforce skills.
The IMF’s Regional Outlook released yesterday noted uncertainty surrounding oil prices, rising trade tensions, and the effects of ongoing conflicts and their spillovers have further constrained the region’s growth and remain risks going forward.
“To take full advantage of the growing global economy, the region should accelerate key economic reforms. The focus should be on improving the investment climate, boosting productivity, and strengthening governance,” said Jihad Azour, Director of the IMF’s Middle East and Central Asia Department.
High or rapidly increasing debt levels have forced countries to take significant measures to reduce deficits, by limiting government spending or mobilising revenue.
These steps will help the region keep its economic house in order, control debt and inflation, and create an environment conducive to sustainable and inclusive growth. However, they can also hold economic growth back.
As governments work to bring down their debt to manageable levels, they should look to broaden tax bases and improve the efficiency of spending, including the completion of energy subsidy reforms. This will help address ongoing fiscal challenges and generate savings that could be directed for priority spending, such as health, education, and public investment.
Strengthening monetary policy credibility will be essential to anchor inflation expectations. Under these circumstances, room to reduce interest rates to spur economic growth will be limited, even if inflation has been moderating.
Given their fixed exchange rate regimes, Gulf Cooperation Council countries will need to adjust monetary policy in line with the anticipated increases in policy rates in the United States, which would weigh on growth going forward.
Accelerating structural reforms is key for the region. Countries in the region should take advantage of the global recovery to accelerate structural reforms that will reduce their reliance on commodities and help build dynamic private sectors. Reforms should focus on measures that improve the business environment, such as Pakistan’s recent efforts to strengthen its bankruptcy framework.
Labour market and education reforms are also needed to boost productivity. It will be critical to strengthen governance and transparency to promote inclusive growth in the region. Some countries are taking positive steps in that direction. For instance, Afghanistan recently enacted legislation to criminalise acts of corruption, and anti-corruption laws have taken effect in Morocco, Somalia, and Tunisia.
