Mideast Growth Outlook to Improve Overall, Bold Reforms Still Needed

Oil exporters post solid non-oil growth, but need to strengthen budgets and diversify economies

Oil importers see tepid growth due to weak confidence, sociopolitical frictions, and conflict in Syria

Transition countries need bold reforms to spur growth and create well-paying jobs

The IMF projects that growth in the region will average about 3¼ percent in 2014 as global conditions improve (see table).

“Overall growth prospects in the region remain considerably below what is needed to make a dent in the high unemployment, particularly among youth,” said IMF Middle East Department Director Masood Ahmed who unveiled the report in Dubai today. Most countries in the region need to address some of the key constraints to unleashing their growth potential and to build consensus on the needed reforms, Ahmed added.

Oil exporters post solid growth

The IMF expects growth in the region’s oil exporters—Algeria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, the United Arab Emirates, and Yemen—to strengthen to 3½ percent this year from 2 percent in 2013.

Higher production in Iraq and countries of the Gulf Cooperation Council (GCC) amid strengthening global demand will offset oil disruptions in Libya. Robust non-oil growth will continue owing to high public spending and strong private credit, the report says. Lower global demand—from slower growth in emerging markets or lower inflation in advanced economies—or rising oil supply from unconventional sources (shale gas) could reduce oil prices, however.

The IMF cautioned that fiscal positions in this group of countries are eroding. Non-GCC oil exporters and two GCC countries (Bahrain and Oman) will run fiscal deficits this year, which makes them increasingly vulnerable to a sustained decline in oil revenues (see chart 1). In addition, most oil exporters do not save enough of their oil windfalls for future generations, says the report.

“Governments will need to find ways to rein in hard-to-reverse current expenditures, especially wages and subsidies. At the same time, they should target high-quality capital investments and social programs,” Ahmed told reporters. “Structural reforms that bolster economic diversification and private-sector job creation for nationals are also high on the agenda,” he added.

Oil importers see tepid growth

Despite some positive signs—rising public investment and strengthening exports due to improved global growth, especially in Europe—the region’s...