Low Oil Prices, Conflict Weigh on Middle East’s Prospects

Region to see modest growth this year, amid rising uncertainty

Oil exporters face fiscal challenge and need to diversify their economies

Oil importers see gains, but should seize opportunity provided by low oil prices to enact needed reforms

The IMF’s Regional Economic Outlook for the Middle East and Central Asia, released on October 21, projects that growth this year will be modest, at 2½ percent. Economic activity could pick up to 4 percent next year, however, if regional conflicts ease and sanctions on Iran are alleviated, the report said (see table).

The region’s current circumstances make economic diversification away from oil all the more urgent, as low oil prices are likely to persist, the report emphasizes.

“Achieving fiscal sustainability over the medium term will be especially challenging given the need to create jobs for the more than 10 million people anticipated to be looking for work by 2020 in the region’s oil-exporting countries,” IMF Middle East and Central Asia Department Director Masood Ahmed said at the report’s unveiling in Dubai.

Deepening conflict

Two key factors are shaping the region’s outlook, Ahmed said.

First, conflicts are both spreading and deepening, exacting a horrendous human toll on the region as well as a significant impact on economic activity. Syria’s GDP has declined by 45-60 percent since the start of the conflict, while Yemen’s has dropped by nearly 30 percent in the past year.

These conflicts have given rise to large numbers of displaced people and refugees, on a scale not seen since the early 1990s. In countries hosting refugees, Ahmed said, economic, social, and political pressures have risen sharply. And the conflicts are having other cross-border spillover effects, including setbacks to trade and tourism, worsening security, and deteriorating investor confidence.

Ahmed called for a “concerted effort” by the international community to help refugees and stabilize the affected countries, while providing additional financing to countries hosting large numbers of refugees.

Uncertain outlook for oil exporters

The second factor shaping the region’s outlook is the slump in oil prices, which many experts now believe will remain in place for the foreseeable future.

“For the region’s oil exporters, the fall in prices has led to large export revenue losses, amounting to a staggering $360 billion this year alone,” Ahmed told reporters. While many countries are drawing on their fiscal cushions and are...