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International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Uncertainty has become increasingly prevalent amid ongoing conflicts, shipping disruptions, and lower oil production. In turn, an uneven recovery is emerging, with growth this year at varying speeds across the Middle East and Central Asia (ME&CA). In the Middle East and North Africa (MENA), conflicts continue in several economies, providing stark reminders of their devastating human toll and long-term economic scarring. Some emerging market and middle-income countries (EM&MIs) face financing pressures and persistently high inflation. While some oil exporters continued with additional voluntary oil production cuts, they are strengthening nonhydrocarbon activity. In the Caucasus and Central Asia (CCA), growth momentum remains robust despite diminishing real and financial inflows related to the war in Ukraine, and hydrocarbon importers are generally growing faster than exporters due to stronger domestic demand. Across ME&CA, inflation is close to historical averages or targets for many economies and is projected to continue easing.

International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Across the Middle East and Central Asia, the combined effects of global headwinds, domestic challenges, and geopolitical risks weigh on economic momentum, and the outlook is highly uncertain. Growth is set to slow this year in the Middle East and North Africa region, driven by lower oil production, tight policy settings in emerging market and middle-income economies, the conflict in Sudan, and other country-specific factors. In the Caucasus and Central Asia, although migration, trade, and financial inflows following Russia’s war in Ukraine continue to support economic activity, growth is set to moderate slightly this year. Looking ahead, economic activity in the Middle East and North Africa region is expected to improve in 2024 and 2025 as some factors weighing on growth this year gradually dissipate, including the temporary oil production cuts. But growth is expected to remain subdued over the forecast horizon amid persistent structural hurdles. In the Caucasus and Central Asia, economic growth is projected to slow next year and over the medium term as the boost to activity from real and financial inflows from Russia gradually fades and deep-seated structural challenges remain unsolved. Inflation is broadly easing, in line with globally declining price pressures, although country-specific factors—including buoyant wage growth in some Caucasus and Central Asia countries—and climate-related events continue to make their mark. Despite some improvement since April, the balance of risks to the outlook remains on the downside. In this context, expediting structural reforms is crucial to boost growth and strengthen resilience, while tight monetary and fiscal policies remain essential in several economies to durably bring down inflation and ensure public debt sustainability.

International Monetary Fund. Middle East and Central Asia Dept.

Abstract

The conflict in Gaza and Israel is another reminder of the recurring challenges related to conflicts in the Middle East and Central Asia (ME&CA). Conflicts cause immense human suffering across the ME&CA regions, with thousands of lives lost during the last decade and many more facing fragility and food insecurity. This chapter analyzes the economic effects of conflicts and their most salient channels, comparing ME&CA economies with those elsewhere over 1989 to 2022. The main findings point to marked adverse effects on near- and long-term economic performance, as well as higher inflation and lower consumption, investment, exports, and fiscal revenues. Moreover, these effects can become entrenched by damaging institutions and contributing to the fragility of conflict-affected economies. The negative economic impact of conflicts in ME&CA tends to be larger and more persistent than in the rest of the world. Specifically, after a severe conflict in an ME&CA country, per capita output is still about 10 percent lower on average after a decade. In other regions, this decline is less than 3 percent on average and recouped within five years. This likely reflects a mix of factors, including the average higher intensity of conflicts in the region, the adverse marginal effect of conflicts increasing with intensity, and the prevalence of exacerbating preexisting conditions, such as lower average institutional quality. Conflicts also tend to have greater negative impacts on bordering countries, with an immediate drop in output per capita of about 1.5 percent and a further drop of about 6 percent about a decade later (although estimated with a higher level of uncertainty).2 Furthermore, when conflicts in bordering countries are nonstate-based, the adverse impact on output per capita is higher, at 10 percent seven years after the conflict onset.

International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Policy space in many countries in the Middle East and Central Asia (ME&CA) region has diminished following an extended period of shocks, particularly among the region’s emerging market and middle-income countries (EM&MIs). Amid high public debt and inflation, fiscal consolidation and tight monetary policy are needed in many countries in the region. In this context, structural reforms offer a way to not only increase potential growth, but also accrue near-term growth benefits. In addition, reforms can be instrumental in accelerating economic diversification among oil exporters. In a novel analysis for the region, this chapter shows that most structural reforms help lift output, with the impact growing over time. Governance reforms— particularly, enhancing the rule of law and government effectiveness—are especially important and can also generate positive output effects during periods of weak growth or relatively limited policy space. Improving the government’s ability to implement policies and regulations to promote private sector development also contributes to fostering growth through improved investment and productivity. Moreover, prioritizing governance reforms before other reforms can magnify their overall growth dividends, and the strategic packaging of reforms—for example, by combining external sector and credit market reforms—can amplify positive output effects. Importantly, the design of structural reforms will need to include political considerations and distributional impacts.

International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Central banks in the Middle East and Central Asia face difficult trade-offs and policy challenges at a time when core inflation, though gradually declining, remains above central bank targets in many countries. In 2 this context, a prolonged period of tighter monetary policy to reduce inflation could have unintended consequences for financial systems in the region. This chapter assesses the state and resilience of banking sectors in the Middle East and Central Asia to credit and liquidity risks that could emerge in a “higher-for-longer” interest rate environment. The results suggest that banking systems would be resilient in an adverse scenario of higher interest rates, corporate sector stress, and rising liquidity pressures. However, pockets of vulnerability exist in some countries, particularly among state-owned banks, and capital losses could emerge that, while manageable, could limit lending and add to downside risks to output. Policies to mitigate downside risks center on strengthening macroprudential frameworks, containing the vulnerabilities stemming from the sovereign-bank nexus, enhancing clear and timely communication, establishing emergency liquidity tools to stem systemic financial stress, and developing resolution regimes to reduce the buildup of zombie firms.

International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Amid rising trade restrictions globally, several shocks—Russia’s war in Ukraine, the conflict in Gaza and Israel, and disruptions in the Red Sea—are altering trade patterns across the Caucasus and Central Asia (CCA) and the Middle East and North Africa (MENA). Since 2022, the CCA region has witnessed a notable uptick in overall trade activity, reflecting heightened transit trade and trade diversion. Some MENA countries have also seen shifts in trade patterns, particularly in energy products. More recently, tensions in the Red Sea have disrupted trade in several MENA countries. As the geoeconomic landscape evolves and uncertainties take hold, countries in the region could continue benefiting from an increase in trade flows or face trade and economic output losses, depending on the fragmentation scenarios considered. Amid this uncertainty, reducing risks and harnessing the gains from trade will require that countries reduce trade barriers, upgrade infrastructure, and strengthen regulatory frameworks. Meanwhile, mitigating disruptions from Red Sea tensions while building resilience to trade shocks could be achieved by diversifying shipping routes and, over the medium term, by developing alternative trade corridors and diversifying trade.

International Monetary Fund. African Dept. and International Monetary Fund. Middle East and Central Asia Dept.

Abstract

On the occasion of the World Bank-IMF Annual Meetings’ return to the African continent after 50 years-specifically to Marrakech, Morocco-this Special Issue on Africa discusses economic developments for the entire continent.1 After four years of crises and at the close of another difficult year, recent events, including the devastating earthquake in Morocco, severe floods in Libya, and the impact of Cyclone Freddy in Malawi, have underscored the continent’s ongoing vulnerability to natural disasters and the need to build resilience. In the near term, there are tentative signs that the outlook in many countries in Africa is improving. Inflation is generally easing, economic activity is starting to pick up, and fiscal imbalances are gradually moderating. However, significant challenges remain, and it is too early to celebrate. For too many countries, inflation is still too high, debt vulnerabilities remain elevated, and medium-term growth rates are too low. Recent episodes of political instability also underscore the fragility of conflict-affected states. Against this background, Africa’s policymakers should prioritize efforts to boost resilience by ensuring macroeconomic stability and accelerating structural reforms to foster stronger, more inclusive growth. The international community should maintain and enhance a cooperative approach to the provision of global public goods. In the case of Africa, it is essential to support the region’s most vulnerable climate- and conflict-affected states.

International Monetary Fund. African Dept. and International Monetary Fund. Middle East and Central Asia Dept.

Abstract

On the occasion of the World Bank-IMF Annual Meetings’ return to the African continent after 50 years—specifically to Marrakech, Morocco—this Special Issue on Africa discusses economic developments for the entire continent. After four years of crises and at the close of another difficult year, recent events, including the devastating earthquake in Morocco, severe floods in Libya, and the impact of Cyclone Freddy in Malawi, have underscored the continent’s ongoing vulnerability to natural disasters and the need to build resilience. In the near term, there are tentative signs that the outlook in many countries in Africa is improving. Inflation is generally easing, economic activity is starting to pick up, and fiscal imbalances are gradually moderating. However, significant challenges remain, and it is too early to celebrate. For too many countries, inflation is still too high, debt vulnerabilities remain elevated, and medium-term growth rates are too low. Recent episodes of political instability also underscore the fragility of conflict-affected states. Against this background, Africa’s policymakers should prioritize efforts to boost resilience by ensuring macroeconomic stability and accel-erating structural reforms to foster stronger, more inclusive growth. The international community should maintain and enhance a cooperative approach to the provision of global public goods. In the case of Africa, it is essential to support the region’s most vulnerable climate- and conflict-affected states.

International Monetary Fund. External Relations Dept.

This paper presents a description of the Project Analysis Course offered by the World Bank’s Economic Development Institute (EDI). The main objective of EDI is to give individuals a general understanding of all the main elements involved in preparing, evaluating, and executing development projects. At the end of the course, EDI expects graduates to be able to help design project studies or to participate in the overall evaluations on which final decisions are heavily based.

Mr. Paulo A Medas

Abstract

Corruption remains one of the main obstacles to sustainable and inclusive economic development. Its consequences for the functioning of the economy and people’s lives can be large. When prevalent, corruption undermines the core activities of the state through several channels. It distorts fiscal policy and operations, including the collection of taxes and how those taxes are used; hampers central bank operations and financial supervision; weakens the quality of market regulations; and undermines the rule of law. Corruption is particularly harmful for fiscal policy as it undermines the ability of governments to deliver effective policies and services that promote equitable and long-term economic growth. Governments need to invest in comprehensive and persistent efforts to strengthen institutions and adopt aggressive anticorruption strategies.