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International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Intensified conflicts in Iraq and Libya have led to a downward revision in the 2014 growth projections for the MENAP oil exporters by ¾ of a percentage point compared with the May 2014 Regional Economic Outlook Update. At 2½ percent, growth in the oil exporters is expected to edge up only slightly from last year, supported by recovery in Iran and continued solid growth in the GCC countries. Growth is expected to strengthen to about 4 percent next year, assuming that security improves and oil production in non-GCC countries, particularly Libya and Iraq, recovers. In the current security environment, these projections are subject to heightened uncertainty. Declining oil revenues and rising government spending are weakening fiscal positions. Consolidation would build resilience against oil price declines and help countries share their oil wealth with future generations. Some non-GCC countries face the pressing need to draw on their savings over the near term to meet essential expenditures. Reducing the dependence of sustained economic growth on rising oil prices requires structural reforms that promote economic diversification and inclusive growth.

International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Sharp increases in oil prices, particularly after the beginning of the recent events in the region, have benefited the MENAP oil exporters’ fiscal and current account surpluses. Part of the increased oil revenues has been used to respond to social tensions. In managing the short-term uncertainties, oil exporters should not lose sight of their longer-term challenges: achieving strong and sustainable inclusive growth to provide employment for the rapidly growing labor force, especially for the youth; better fiscal management; and further development of the financial system.

International Monetary Fund. Middle East and Central Asia Dept.

Abstract

With the recovery in oil prices, MENAP oil exporters will experience visible improvements in fiscal and external balances during 2010–11. Non-oil activity is set to pick up, although more gradually, with lackluster private demand offset by supportive policies. In many countries, accommodative fiscal and monetary policies will continue to be appropriate over the coming year, but with a closer eye on emerging inflationary pressures. Beyond 2011, fiscal consolidation should be under way in virtually all countries to enable them to confront the medium-term challenges of ensuring a sustainable use of hydrocarbon revenues and supporting private-sector development. Financial sector priorities should focus on reducing cyclicality in bank lending, strengthening liquidity standards, addressing systemically important institutions, and improving bank resolution frameworks, while creating conditions for more forceful and effective supervision. Specific strategies will depend on each country’s stage of banking development and the degree to which it has been affected by the global financial crisis.

International Monetary Fund. Middle East and Central Asia Dept.

Abstract

MENAP oil importers withstood the 2008–09 global financial crisis well, having effectively used their limited room for countercyclical macroeconomic policy. As their economies have gained strength, these countries are now in a position to begin consolidating their fiscal positions. The overriding longer-term challenge remains that of creating enough jobs for a rapidly expanding population. To this end, improving the region’s competitiveness and reorienting trade toward faster-growing emerging markets are key, at a time when traditional European trading partners are growing more slowly.

International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Continued sociopolitical and security tensions, high public debt, and deep-rooted structural impediments continue to dampen the economic impetus provided by improvements in the external environment and progress in domestic political transitions—leaving growth expectations, broadly unchanged from the May 2014 Regional Economic Outlook (REO) Update, at 3 percent in 2014 and rising to 4 percent in 2015. Intensifying regional conflicts and rising geopolitical tensions augment downside risks. Progress is being made in clawing back inefficient generalized subsidies and rechanneling them to support growth through better-targeted social safety nets for the poor and growth-generating investment. Nevertheless, continued fiscal consolidation is needed to put public debt on a sustainable path and increase buffers for dealing with adverse shocks. Greater exchange rate flexibility, in some cases, would support the recovery and improve competitiveness. Beyond the near term, improved security and deep structural reforms—especially in education, the business environment, and labor market efficiency, supported by continued stabilization efforts and stepped-up international assistance—are needed to raise the region’s potential growth rates, create much-needed jobs, and improve living standards and inclusiveness.

International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Social unrest and change are sweeping through many countries in the region. While economic spillovers to other MENAP oil importers from the unrest that began in Egypt and Tunisia have so far been limited, popular protests across the region point to a need for more inclusive growth and broader ownership of the reform agenda. Unrest has clouded the near-term outlook and added to the urgency of addressing high unemployment and improving social safety nets. Over time, a more open business environment that leverages the region’s young and dynamic population would unleash faster and more sustainable improvements in living standards.

International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Economic growth in the Caucasus and Central Asia (CCA) is expected to decline from 6.6 percent in 2013 to about 5.5 percent in 2014–15. The forecast is ¾ percentage point weaker than in the May 2014 Regional Economic Outlook Update, mainly because of negative spillovers from an economic slowdown and increased geopolitical risks in Russia and weaker domestic demand in a number of CCA countries. Inflation pressures are rising because of weakened exchange rates. Risks are tilted to the downside; in particular, a deeper or more protracted Russian slowdown could further weaken remittances, exports, and investment. Over the near term, countries should stand ready to tighten monetary policy if inflation pressures persist. A pause in fiscal consolidation is justifiable in some cases in response to weaker growth prospects. Medium-term policy priorities center on building credible anchors for monetary policy, introducing greater exchange rate flexibility to buffer against shocks, and growth- and equity-friendly fiscal consolidation to preserve debt sustainability and ensure intergenerational equity. Bold structural reforms that lead to better institutions, good governance, and vibrant business environments are necessary for the region to achieve an economic model that is sustainable, more inclusive, and diverse.

International Monetary Fund. Middle East and Central Asia Dept.

Abstract

The ongoing social and political events in the region highlight the urgency of addressing youth unemployment. To boost job creation and enhance the employability of young people, policymakers can in the short term bring forward labor-intensive infrastructure investments, provide tax incentives or credit guarantees to viable labor-intensive small and medium-sized enterprises, and scale up promising training programs, or introduce new well-designed and effective ones. But these measures are no substitute for a comprehensive employment strategy that reorients education to better equip graduates with the skills that employers seek; improves the business and investment climate; and dismantles labor market rigidities that discourage firms from hiring. In parallel, governments should provide effective social protection for workers and job seekers.

International Monetary Fund. Middle East and Central Asia Dept.

Abstract

In virtually all countries in the Caucasus and Central Asia (CCA), the recovery, helped by the lagged effect of fiscal stimulus and a favorable external environment, has gained firm momentum. The outlook is broadly positive, but risks are largely on the downside and, in certain countries, it will take some time for per-capita disposable income to return to pre-2009 levels. Exit from fiscal stimulus has commenced in most CCA countries and will continue in 2011. Banking sector balance sheets remain impaired in several countries, including Kazakhstan, requiring continued policy attention. Some oil and gas importers face large current account deficits and rising external debt levels that need to be reined in to preserve external sustainability. To expand the macroeconomic policy tool kit, the effectiveness of monetary policy will need to be enhanced. Gradually moving toward greater exchange rate flexibility would help in this regard. The recent spike in international wheat prices is likely to adversely affect poor households that rely on wheat-related products. Over the medium term, removing barriers to intraregional trade will help raise the region’s growth potential.

International Monetary Fund. Middle East and Central Asia Dept.

Abstract

The sharper-than-envisaged rebound in the CCA in 2010 was led by commodity exports and public investment. To sustain and broaden this recovery, policies will have to confront three short-term challenges: first, countering second-round effects from food and fuel price increases, while protecting the poor; second, resisting expenditure pressures while improving the quality of spending, including by developing safety nets; third, strengthening bank balance sheets, risk management, and supervisory practices to reinvigorate credit growth and address vulnerabilities. Over the medium term, business environment improvements are needed to support diversified and broad-based growth and employment.