Economic Realities: IMF Sheds Light on MENA Amidst Regional Strife
In a press briefing led by the International Monetary Fund’s (IMF) Jihad Azour, the latest projections for economic growth in the Middle East and North Africa (MENA) were unveiled, revealing the impact of the recent conflict in Gaza and Israel on the regional economy.
The conflict, causing not only a tragic loss of lives but also sending shockwaves across the MENA region, is exacerbating existing economic challenges. The special update to the Regional Economic Outlook reflects the adverse consequences of the conflict, occurring at a time when the region was already grappling with slowing growth, high debt levels, and persistent inflation.
Revised Growth Projection
The 2024 growth projection for the MENA region has been revised downward by 0.5 percentage points from October forecasts. GDP is now expected to grow by 2.9 percent in 2024, following weak growth of 2.0 percent in 2023.
Factors Weighing on Activity
Several factors are identified as significant contributors to the economic challenges in the region:
Conflict in Gaza and Israel: The IMF estimates a contraction of about -6 percent in the growth of West Bank and Gaza in 2023, marking a 9.2 percentage point downgrade from October projections. Neighboring countries such as Egypt, Lebanon, and Jordan also face a challenging economic outlook.
Oil Production Cuts: Cuts in oil production by several oil-exporting countries, particularly in the Gulf Cooperation Council (GCC), are impacting overall GDP growth.
Tight Policy Settings: Restrictive macro policies are deemed essential to address high debt and elevated inflation in certain countries.
Since October, uncertainty and downside risks for the region have sharply increased. The duration and potential escalation of the conflict remain uncertain, while the heightened security situation in the Red Sea raises concerns about its impact on trade, shipping costs, and undersea internet cables.
The appropriate policy response varies based on countries’ exposure to the conflict, existing vulnerabilities, and policy space. Crisis management and precautionary policies are crucial where the impact is acute or risks are elevated. Countries elsewhere need to fortify safeguards, with monetary policy focusing on price stability, fiscal policy tailored to country needs, and structural reforms essential for long-term resilience.
IMF’s Commitment to Support
The IMF is actively supporting the region, providing policy advice, technical assistance, and financing. Noteworthy measures include:
- Approval of $27 billion in financing to the MENA region since early 2020.
- Approval of a new four-year Extended Fund Facility, unlocking $1.2 billion for Jordan.
- Approval of programs for Egypt, Mauritania, and Morocco since the start of 2023.
- Successful reaching of the Completion Point under the HIPC initiative by Somalia.
- Increased local presence in the region with the reopening of the Middle East Regional Technical Assistance Center and the establishment of a new regional office in Riyadh, Saudi Arabia.
The IMF’s commitment aims to strengthen engagement and partnership with the MENA region, offering crucial support in navigating economic challenges and fostering resilience.