Cheap Oil Means a New Reality for Middle East, North Africa Region

  • Intense conflicts and low oil prices continue to weigh on the region’s economic prospects
  • Oil exporters should focus on fiscal reforms and diversifying away from oil
  • Higher growth expected in oil importers, but unemployment remains high
  • The IMF’s Regional Economic Outlook Update for the Middle East and Central Asia, released on April 25, projects that growth this year will be about 3 percent. Although slightly higher than in 2015 (see table), the modest pick-up largely reflects increased oil production in Iraq and post-sanctions Iran.

    Growth in most other oil exporters, however, is projected to slow further this year as they tighten public spending in response to lower oil prices. The latest report has downgraded 2016’s growth projections in almost all MENAP oil exporters relative to the projections made last October.

    Economic recovery among MENAP oil importers, meanwhile, remains fragile and uneven. Growth is projected to slow to 3.5 percent in 2016 because of adverse spillovers from slowing growth in oil-exporting neighbors and intensifying regional conflicts.

    “Therefore, it is crucial that all countries step up their efforts to design and implement reforms to boost economic prospects, create jobs, and improve inclusiveness of growth, before they run out of time,” IMF Middle East and Central Asia Department Director Masood Ahmed said at the report’s launch in Dubai.

    The cost of conflicts

    Conflicts—particularly in Iraq, Libya, Syria, and Yemen—continue to intensify, resulting in massive numbers of displaced people and severe economic damage. Since October 2015, more than 600,000 people have fled Syria alone, bringing the total number of Syrian refugees to almost five million. The mounting costs of conflicts have put enormous pressure on government budgets and infrastructure, driving up inflation and diverting resources away from much-needed social spending, the report mentioned. The conflicts are also having repercussions in neighboring countries, who are hosting large numbers of refugees, and tackling disruptions in trade and tourism, worsening security, and decreasing levels of investor confidence.

    Ahmed emphasized that the international community needs to scale up and better coordinate its support to help refugees and stabilize the affected countries. “There are large financing needs, with host countries requiring additional financing on affordable terms to fund crisis-related projects,” he said.

    Lost revenues for oil exporters

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