Energized Reform Agenda Could Spur Growth in Middle East, Central Asia

  • Oil price shocks, conflicts affecting Middle East and Central Asian economies
  • Region’s long-term growth prospects lag those in rest of world
  • Raising productivity, building up physical capital key to raising growth
  • Closing gaps with global peers in these three areas could double long-term growth rates in most countries in the region. For the oil exporters in the Gulf Cooperation Council (GCC) countries and the Caucasus and Central Asia (CCA), the resulting boost to growth would be lower—but still large enough to offset recent declines in long-term growth rates, which threaten future living standards, the study says.

    The right policies therefore have the potential to lift the region out of its growth slump, the authors say.

    Unprecedented challenges

    The Middle East and Central Asia is facing unprecedented challenges stemming from sustained low oil prices that have dampened oil revenues, deepening conflicts, and rising geopolitical and security tensions (see Chart 1).

    “Headwinds to long-term growth prospects of the Middle East and Central Asia are unlikely to disappear soon. Improving economic prospects has become an urgent priority for the region,” IMF Deputy Managing Director Mitsuhiro Furusawa said at the report’s unveiling at the Paul H. Nitze School of Advanced International Studies in Washington, D.C.

    The study identifies the structural reforms that are most critical for raising long-term economic growth in the region. Drawing on an empirical analysis of country experiences with different types of reforms, it examines the effectiveness of these reforms in strengthening the underlying, supply-side drivers of economic growth, such as capital, labor, and productivity.

    Identifying critical reforms to raise productivity growth and, in some countries, build up physical capital—such as machinery, buildings, and computers—is key to unlocking the region’s growth (see Chart 2). Higher productivity and physical capital not only raise long-term economic growth directly but also help absorb the region’s rapidly growing labor force into productive economic activities. The reforms that ignite higher productivity also support the creation of physical capital.

    Among a broad array of reform areas, the study points to a competitive business environment and worker talent as the key steps toward boosting productivity in the region, while financial market development is vital for physical capital accumulation.

    Multiple shocks

    Why is raising the...

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