Front Matter

Front Matter

Author(s):
International Monetary Fund. Middle East and Central Asia Dept.
Published Date:
October 2010
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    ©2010 International Monetary Fund

    Cataloging-in-Publication Data

    Regional economic outlook : Middle East and Central Asia. – [Washington, D.C.] : International Monetary Fund, 2010.

    p. ; cm. – (World economic and financial surveys, 0258-7440)

    “Oct. 10.”

    Includes bibliographical references.

    ISBN 978-1-58906-952-7

    1. Economic forecasting – Middle East. 2. Economic forecasting – Asia, Central. 3. Middle East – Economic conditions. 4. Asia, Central – Economic conditions. I. International Monetary Fund. II. Series: World economic and financial surveys.

    HC415.15.R445 2010

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    Contents

    Preface

    The Middle East and Central Asia Regional Economic Outlook (REO) is prepared biannually by the IMF’s Middle East and Central Asia Department (MCD). The analysis and projections contained in the MCD REO are integral elements of the Department’s surveillance of economic developments and policies in 30 member countries. It draws primarily on information gathered by MCD staff through their consultations with member countries.

    The analysis in this report was coordinated under the general supervision of Masood Ahmed (Director of MCD). The project was directed by Ratna Sahay (Deputy Director in MCD) and Ralph Chami (Chief of MCD’s Regional Studies Division). Special thanks to Peter Montiel for helping develop the themes for this REO.

    The primary contributors to this report are Yasser Abdih, Adolfo Barajas, Tobias Rasmussen, and Axel Schimmelpfennig. Other contributors include Maria Albino-War, Ali Al-Eyd, Martin Banjo, Anjali Garg, Dominique Guillaume, Jiri Jones, Udo Kock, Kamiar Mohaddes, Kenji Moriyama, Nienke Oomes, Paul Ross, Dmitriy Rozhkov, Abdelhak Senhadji, Gabriel Sensenbrenner, Anke Weber, Niklas Westelius, Jaroslaw Wieczorek, and Oral Williams.

    Jaime Espinosa and Anjali Garg provided research assistance and managed the database and the computer systems. Jasmine Lief, with support from Sonia Lowman, was responsible for word processing and document management. Christine Ebrahimzadeh edited the manuscript and managed the production of the publication in close collaboration with Joanne Blake and Martha Bonilla of the External Relations Department.

    Assumptions and Conventions

    A number of assumptions have been adopted for the projections presented in the Regional Economic Outlook: Middle East and Central Asia. It has been assumed that established policies of national authorities will be maintained; that the price of oil will average US$76.20 a barrel in 2010 and US$78.75 in 2011; and that the six-month London interbank offered rate (LIBOR) on U.S. dollar deposits will average 0.6 percent in 2010 and 0.8 percent in 2011. These are, of course, working hypotheses rather than forecasts, and the uncertainties surrounding them add to the margin of error that would in any event be involved in the projections. The 2010 and 2011 data in the figures and tables are projections. These projections are based on statistical information available through September 22, 2010.

    The following conventions are used in this publication:

    • In tables, ellipsis points (…) indicate “not available,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrepancies between sums of constituent figures and totals are due to rounding.

    • An en dash (–) between years or months (for example, 2009–10 or January–June) indicates the years or months covered, including the beginning and ending years or months; a slash or virgule (/) between years or months (for example, 2009/10) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY2010).

    • “Billion” means a thousand million; “trillion” means a thousand billion.

    • “Basis points (bps)” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).

    As used in this publication, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.

    Country and Regional Groupings

    The October 2010 Regional Economic Outlook: Middle East and Central Asia (REO), covering countries in the Middle East and Central Asia Department (MCD) of the International Monetary Fund (IMF), provides a broad overview of recent economic developments in 2009 and prospects and policy issues for the remainder of 2010 and 2011. To facilitate the analysis, the 30 MCD countries covered in this report are divided into two groups: (1) countries of the Middle East, North Africa, Afghanistan, and Pakistan (MENAP)—which are further subdivided into oil exporters and oil importers; and (2) countries of the Caucasus and Central Asia (CCA). The country acronyms used in some figures are included in parentheses.

    MENAP oil exporters comprise Algeria (ALG), Bahrain (BHR), Iran (IRN), Iraq (IRQ), Kuwait (KWT), Libya (LBY), Oman (OMN), Qatar (QAT), Saudi Arabia (SAU), Sudan (SDN), the United Arab Emirates (UAE), and Yemen (YMN).

    MENAP oil importers comprise Afghanistan (AFG), Djibouti (DJI), Egypt (EGY), Jordan (JOR), Lebanon (LBN), Mauritania (MRT), Morocco (MAR), Pakistan (PAK), Syria (SYR), and Tunisia (TUN).

    CCA countries comprise Armenia (ARM), Azerbaijan (AZE), Georgia (GEO), Kazakhstan (KAZ), the Kyrgyz Republic (KGZ), Tajikistan (TJK), Turkmenistan (TKM), and Uzbekistan (UZB).

    In addition, the following geographical groupings are used:

    The CIS (Commonwealth of Independent States) comprises Armenia, Azerbaijan, Belarus, Kazakhstan, the Kyrgyz Republic, Moldova, Mongolia, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan. Georgia and Mongolia, which are not members of the CIS, are included in this group for reasons of geography and similarities in economic structure.

    The GCC (Gulf Cooperation Council) comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

    The Maghreb comprises Algeria, Libya, Mauritania, Morocco, and Tunisia.

    The Mashreq comprises Egypt, Jordan, Lebanon, and Syria.

    Highlights

    With the global economy on the mend, prospects for the Middle East and Central Asia region have improved.1 Almost every country in the region is projected to grow faster in 2010 and 2011 than in 2009. Given this pickup in growth, most of the region’s countries plan to exit from fiscal stimulus by 2011, while maintaining an accommodative monetary policy stance for some time. However, some countries may need to tighten macroeconomic policies earlier, given signs of inflationary pressures or lack of fiscal space.

    As the region recovers from the Great Recession, policy attention should center on strengthening banking sectors and addressing medium-term challenges. In the MENAP oil exporters, further efforts at financial sector development and economic diversification top the agenda. In the MENAP oil importers, raising growth and creating jobs for expanding populations are key. In the CCA, the priority is to resolve banking sector problems, and, in some countries, to reduce external debt and current account deficits.

    MENAP Oil Exporters: Well Placed to Focus on Medium-Term Challenges

    MENAP oil exporters’ fiscal and external balances will improve markedly in response to rising oil prices (up from US$62 per barrel in 2009 to US$76 in 2010 and US$79 in 2011) and oil production levels. The combined external current account surplus of these countries is expected to increase to US$120 billion in 2010 and US$150 billion in 2011 from US$70 billion in 2009. In the Gulf Cooperation Council (GCC) alone, the improvement is estimated at about US$50 billion from 2009 to 2011.

    Oil GDP growth—projected at 3½–4½ percent in 2010 and 2011—is likely to stay below precrisis levels. Moreover, while external financing conditions have improved, domestic credit is picking up only slowly, and investment demand is subdued. As such, growth in non-oil activity remains lackluster at 3¾–4½ percent, indicating a need for continued policy support through 2011 in most countries.

    Most countries with fiscal space—mainly the GCC, Algeria, and Libya—target additional fiscal stimulus in 2010 and 2011. But some, including Saudi Arabia, are seeing inflation picking up, which may call for a tempering of stimulus in 2011. Iran, Sudan, and Yemen have less fiscal space and have already embarked on fiscal consolidation. In most countries, monetary policy remains expansionary to revive private-sector credit growth, although some central banks are starting to unwind their quantitative easing.

    Over the medium term, all oil producers—to differing degrees—will need to pursue fiscal consolidation to safeguard the sustainable use of hydrocarbon revenues, while promoting diversification and employment creation. Measures to support these goals include reorienting spending toward social and development needs, revisiting energy subsidies, and diversifying the revenue base.

    Banking system development requires continued attention. Nonperforming loans remain elevated in a number of countries. Regulatory frameworks and supervision should be strengthened in line with global efforts to reduce regulatory cyclicality, strengthen liquidity and capital buffers, address systemically important institutions, and enhance bank resolution practices. Saudi Arabia’s countercyclical provisioning provides an example of successful implementation of such macroprudential policies.

    MENAP Oil Importers: Adjusting to New Global Growth Patterns

    MENAP oil importers have weathered the global recession well, and are close to their long-term growth trend. Most countries are set to grow by 3½–5½ percent in 2010–11. Pakistan suffered from devastating floods in July/August, which will hold back growth this year.

    The region has also remained resilient to recent turbulence in global financial markets. Private-sector credit is picking up, though banks in some countries still need to address elevated nonperforming loan ratios.

    Governments across the region are appropriately withdrawing stimulus in 2010 and 2011, and gearing fiscal policy toward further reducing government debt.

    Over the next decade, the Maghreb and Mashreq alone will need to create more than 18 million jobs to absorb new labor market entrants and eliminate chronic and high unemployment. This would require an average annual growth rate of more than 6 percent—given the labor market’s weak responsiveness to growth—compared with the 4½ percent achieved in the past decade.

    The key to addressing these challenges is to raise competitiveness. Governments need to strengthen business environments and enhance the functioning of labor markets by improving educational outcomes and ensuring that wages better reflect market conditions. In addition, at a time when the region’s traditional trading partners in Europe are growing more slowly, MENAP oil importers should view fast-growing emerging market economies not only as competitors for export markets, but also as partners for profitable collaboration along global supply chains.

    Caucasus and Central Asia: Challenges Beyond the Crisis

    Growth is projected to rebound to 4–6 percent in 2010 and 2011 in most CCA countries, but it will take time for disposable income to recover to precrisis levels. The exceptions are Turkmenistan and Uzbekistan, where growth is expected to reach about 10 percent, and, on the other side, the Kyrgyz Republic, which suffered a growth setback due to the political and ethnic conflict in spring 2010.

    Most CCA countries are exiting from fiscal stimulus in 2010 or 2011. For the oil and gas importers, this move should help restore policy room to respond to future shocks. Fiscal consolidation—in particular in Armenia and Georgia—is also needed to address high external debt levels and current account deficits, some of which are the result of the policy response to the crisis. Turkmenistan and Uzbekistan continue to provide fiscal stimulus in 2010, despite strong growth (and already high inflation in Uzbekistan).

    Monetary policy has limited effectiveness in the CCA economies, as witnessed in 2008–09. This is mainly because of low financial market development and high dollarization. A number of countries are implementing reforms to strengthen the monetary policy tool kit, for example, by developing government securities markets. Countries should also allow for greater exchange rate flexibility to promote dedollarization.

    Banking sectors in a number of CCA countries are not yet out of the woods. Nonperforming loans are high or rising in Kazakhstan, the Kyrgyz Republic, and Tajikistan. These countries need to adopt comprehensive and transparent resolution strategies to restore banking sector health. They will also need to enforce stricter lending standards to safeguard asset quality, which, along with macroeconomic stability, will put banking sectors on a sounder footing.

    World Economic Outlook1

    The global economic recovery is proceeding broadly as expected, but downside risks remain elevated. Global activity expanded at an annual rate of about 5 percent during the first half of 2010, and is forecast to expand by about 4½ percent through 2011, with a temporary slowdown during the second half of 2010 and the first half of 2011 (see table).

    Economic prospects remain uneven across countries and regions. Output of emerging and developing economies is projected to expand at rates of 6½–7 percent in 2010–11. In advanced economies, growth is projected to average only 2½ percent, implying continued substantial slack. Low consumer confidence and reduced household incomes and wealth are holding consumption down in many advanced economies. Their recoveries will remain fragile for as long as improving business investment does not translate into higher employment growth. However, household spending is going well in many emerging market economies, where investment is propelling job creation. At the same time, financial conditions have improved again—after having suffered a major setback during the first half of 2010 with the European sovereign debt crisis—but underlying sovereign and banking vulnerabilities remain a significant challenge amid concerns about risks to the global recovery.

    Overview of the World Economic Outlook Projections(Percent change)
    Year over Year
    Projections
    2008200920102011
    World output2.8-0.64.84.2
    Advanced economies0.2-3.22.72.2
    Of which: United States0.0-2.62.62.3
    European Union0.8-4.11.71.7
    Emerging and developing economies6.02.57.16.4
    Of which: MENAP4.62.34.24.8
    CCA6.53.65.75.4
    Commonwealth of Independent States5.4-3.25.35.2
    Of which: Russia5.2-7.94.04.3
    World trade volume (goods and services) Commodity prices2.9-11.011.47.0
    Oil136.4-36.323.33.3
    Nonfuel27.5-18.716.8-2.0
    Sources: IMF, World Economic Outlook and Regional Economic Outlook (October 2010).

    Simple average of prices of U.K. Brent, Dubai, and West Texas Intermediate crude oil. The average price of oil in U.S. dollars a barrel was $61.78 in 2009; the assumed price based on future markets is $76.20 in 2010 and $78.75 in 2011.

    Average (measured in U.S. dollars) based on world commodity export weights.

    In general, the pace of recovery is expected to be faster in economies that had smaller output losses during the crisis, stronger precrisis fundamentals, more room for policy maneuver, and deep links with fast-growing trading partners. China’s increasingly wide trading network is driving growth prospects in numerous economies, especially commodity exporters. Strong internal dynamics are supporting near-term growth in other emerging economies, too. However, economic prospects are subdued in major advanced economies, where much-needed policy adjustments—in the form of financial sector repair and reform and medium-term fiscal consolidation—have only just begun. This will weigh on growth in emerging economies, raising the need to boost domestic sources of demand. At the same time, capital will continue to flow toward strong emerging and developing economies, induced by relatively good growth prospects and favorable interest rate differentials.

    A sustained, healthy recovery rests on two rebalancing acts: internal rebalancing, with a strengthening of private demand in advanced economies, allowing for fiscal consolidation; and external rebalancing, with an increase in net exports in deficit countries, such as the United States, and a decrease in net exports in surplus countries, notably emerging Asia. The two interact in important ways. Increased net exports in advanced economies imply higher demand and higher growth, allowing more room for fiscal consolidation. Strengthened domestic demand helps emerging market economies maintain growth in the face of lower exports.

    A number of policies are required to support these rebalancing acts. In advanced economies, the repair and reform of the financial sector needs to accelerate to allow a resumption of healthy credit growth. Also, fiscal adjustment needs to start in earnest in 2011. Specific plans to cut budget deficits in the future are urgently needed now to create room for fiscal policy maneuver. If global growth threatens to slow by appreciably more than expected, countries with fiscal room could postpone some of the planned consolidation. Meanwhile, key emerging economies will need to further develop domestic sources of growth, with the support of greater exchange rate flexibility.

    1 See IMF, World Economic Outlook and Global Financial Stability Report (both October 2010) for more information.

    The Middle East and Central Asia region comprises Middle East, North Africa, Afghanistan, and Pakistan (MENAP) oil-exporting countries; MENAP oil-importing countries; and the Caucasus and Central Asia (CCA).

    Note: Translations of these Highlights into Arabic, French, and Russian follow on pages 5, 6, and 9.

    Principaux points des Perspectives économiques régionales

    L’économie mondiale ayant entamé un redressement, les perspectives des pays du Moyen-Orient et d’Asie centrale se sont améliorées1. D’après les projections presque tous les pays de la région devraient connaître en 2010 et 2011 une croissance plus forte qu’en 2009. Compte tenu de cette amélioration, la plupart des pays comptent cesser leur politique de relance budgétaire en 2011, tout en maintenant une politique monétaire accommodante pendant quelque temps. Certains pays pourraient toutefois être contraints de durcir leur politique macroéconomique plus tôt, en raison de signes de tensions inflationnistes ou d’un manque de marge de manœuvre budgétaire.

    À mesure que la région sort de la Grande Récession, l’attention doit être centrée sur le renforcement des secteurs bancaires et la gestion des défis à moyen terme. Dans les pays exportateurs de pétrole de la région MOANAP, les objectifs prioritaires consistent à poursuivre les efforts de développement du secteur financier et de diversification de l’économie. Dans les pays importateurs de pétrole de la région MOANAP, il sera essentiel d’accélérer le rythme de la croissance et de créer des emplois pour des populations en expansion. Dans la région CAC, les priorités sont de résoudre les problèmes du secteur bancaire et, dans certains pays, de réduire la dette extérieure et les déficits courants.

    Pays exportateurs de pétrole de la MOANAP : bien positionnés pour se centrer sur les défis à moyen terme

    Les soldes budgétaires et extérieurs des pays exportateurs de pétrole de la MOANAP vont s’améliorer sensiblement sous l’effet de la hausse des cours du pétrole (de 62 dollars EU le baril en 2009 à 76 dollars EU en 2010, puis 79 dollars EU en 2011) et des niveaux de la production pétrolière. L’excédent courant combiné de ces pays devrait passer à 120 milliards de dollars EU en 2010 et 150 milliards de dollars EU en 2011, contre 70 milliards de dollars EU en 2009. Dans les pays du Conseil de coopération du Golfe (CCG) à eux seuls nous tablons sur une progression d’environ 50 milliards de dollars EU en 2011 par rapport à 2009.

    La croissance du PIB pétrolier —prévue à 3½–4½ % en 2010 et 2011 — devrait rester en-deçà de son niveau d’avant la crise. Par ailleurs, bien que les conditions de financement extérieur se soient améliorées, le crédit intérieur ne se redresse que lentement et la demande d’investissements est morose. De ce fait, la croissance de l’activité non pétrolière demeure terne à un niveau de 3¾–4½ %, ce qui signifie qu’il faudrait poursuivre une politique d’accompagnement jusqu’à la fin de 2011 dans la plupart des pays.

    La plupart des pays qui disposent d’une marge de manœuvre budgétaire — CCG, Algérie et Lybie principalement — comptent poursuivre la relance budgétaire en 2010 et 2011. Mais certains, dont l’Arabie saoudite, voient l’inflation s’accélérer, ce qui pourrait obliger à tempérer la relance en 2011. L’Iran, le Soudan et le Yémen ont moins de marge de manœuvre budgétaire et ont déjà entrepris un rééquilibrage de leurs finances publiques. Dans la majorité des pays, la politique monétaire demeure expansionniste, afin de raviver la croissance du crédit au secteur privé, encore que certaines banques centrales aient commencé à mettre fin à leur politique d’assouplissement quantitatif.

    À moyen terme, tous les pays exportateurs de pétrole devront — à des degrés variables — rééquilibrer les finances publiques pour préserver l’utilisation durable des rentrées pétrolières, tout en encouragent la diversification de l’économie et la création d’emplois. Les mesures allant dans ce sens consistent notamment à réorienter les dépenses en faveur des impératifs sociaux et des besoins de développement, à revoir les subventions à l’énergie et à élargir l’assiette des revenus.

    Il convient de poursuivre l’effort de développement des systèmes bancaires. Le niveau des créances improductives reste élevé dans un certain nombre de pays. Il importe de renforcer la réglementation et la supervision dans le droit fil des efforts de la communauté mondiale pour réduire la cyclicalité réglementaire, renforcer la liquidité et les volants de fonds propres des banques, faire face aux problèmes des institutions d’importance systémique et améliorer les pratiques de résolution bancaire. Le provisionnement contracyclique mis en place par l’Arabie saoudite illustre comment ce genre de politiques macroprudentielles peut être appliqué avec succès.

    Pays importateurs de pétrole de la MOANAP : ajustement à la nouvelle géométrie de la croissance mondiale

    Les pays importateurs de pétrole de la MOANAP ont traversé la récession mondiale dans de bonnes conditions et sont proches de leurs taux de croissance tendancielle à long terme. La plupart d’entre eux devraient connaître des taux de croissance de 3½–5½ % en 2010–11. Le Pakistan a été éprouvé par les inondations dévastatrices de juillet/août, ce qui amputera sa croissance cette année.

    La région a aussi continué à bien résister aux récentes turbulences des marchés financiers mondiaux. Le crédit au secteur privé est en augmentation, bien que les banques de certains pays continuent à accuser des ratios élevés de créances improductives.

    Les gouvernements de la région ont décidé à juste titre de mettre fin à la relance budgétaire en 2010 et 2011, et concentrent leur politique budgétaire sur la réduction de la dette publique.

    Au cours de la prochaine décennie, le Maghreb et le Mashreq à eux seuls vont devoir créer plus de 18 millions d’emplois pour absorber les nouveaux-venus sur le marché du travail et mettre fin à une situation de chômage chronique et élevé. Il faudrait pour cela un taux de croissance annuel moyen supérieur à 6 % — compte tenu de la faible réactivité du marché du travail à la croissance — contre 4½ % au cours de la décennie écoulée.

    Pour relever ce défi, il est essentiel d’accroître la compétitivité. Il faut que les autorités s’emploient à améliorer le climat des affaires et le fonctionnement des marchés du travail en faisant en sorte que les systèmes éducatifs soient plus performants et que les salaires reflètent mieux la situation du marché. Par ailleurs, vu la croissance plus lente des partenaires commerciaux traditionnels en Europe, les pays importateurs de pétrole de la région MOANAP devraient considérer les pays émergents dynamiques non pas seulement comme des concurrents pour les débouchés à l’exportation, mais aussi comme des partenaires pour une collaboration fructueuse dans les chaînes d’approvisionnement mondiales.

    Pays du Caucase et d’Asie centrale: les défis au-delà de la crise

    Les projections laissent entrevoir un rebond de la croissance de 4–6 % en 2010 et 2011 dans la plupart des pays de la région CAC, mais il faudra un certain temps avant que le revenu disponible revienne à ses niveaux d’avant la crise. Les exceptions sont l’Ouzbékistan et le Turkménistan, où l’on s’attend à un taux de croissance d’environ 10 %, et, d’autre part, la République kirghize, dont la croissance a été très éprouvée par le conflit politique et ethnique du printemps 2010.

    La plupart des pays de la région CAC entendent mettre fin à la politique de relance budgétaire en 2010 ou 2011. Dans le cas des pays importateurs de pétrole ou de gaz, cela devrait permettre de récupérer une certaine marge de manœuvre pour faire face aux chocs futurs. Le rééquilibrage des finances publiques — en particulier en Arménie et en Géorgie — est par ailleurs indispensable pour réduire le niveau élevé de la dette public et des déficits courants, qui résultent dans certains cas des mesures prises pour faire face à la crise. Le Turkménistan et l’Ouzbékistan ont opté pour la poursuite de la relance, bien que la croissance soit forte (et l’inflation déjà élevée en Ouzbékistan).

    La politique monétaire n’a qu’une efficacité limitée dans les pays de la CAC, comme on a pu le constater en 2008–09. Cela s’explique principalement par le faible niveau de développement des marchés financiers et par la forte dollarisation. Un certain nombre de pays mettent en œuvre des réformes afin d’améliorer leur panoplie d’instruments de politique monétaire, par exemple en mettant en place des marchés de titres publics. Il faudrait par ailleurs que les pays donnent plus de souplesse à leur régime de change afin d’encourager la dédollarisation.

    Les secteurs bancaires d’un certain nombre de pays de la région CAC ne sont pas encore sortis d’affaire. Le niveau de créances improductives est élevé ou croissant au Kazakhstan, en République kirghize et au Tadjikistan. Ces pays vont devoir adopter des stratégies exhaustives et transparentes de résolution des faillites pour remettre sur pied le secteur bancaire. Il leur faudra aussi faire appliquer des normes de prêt plus strictes pour préserver la qualité des actifs, ce qui, parallèlement à la stabilité macroéconomique, donnera aux secteurs bancaires une assise plus solide.

    La région Moyen-Orient et Asie centrale regroupe les pays exportateurs de pétrole de la région MOANAP (Moyen-Orient, Afrique du Nord, Afghanistan et Pakistan), les pays importateurs de pétrole de la région MOANAP et les pays du Caucase et d’Asie centrale (CAC).

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