IMF sees regional economic growth slowing

Economic growth rates in the Middle East and North Africa region will contract to 2.1 percent, according to the International Monetary Fund’s regional outlook, down from a forecast of 3.1 percent six months ago.


Growth is expected to rise to 3.8 percent in 2014 as global conditions improve and oil production increases, according to the outlook. 


“Difficult political transitions and increased regional uncertainties arising from the complex civil war in Syria and the ongoing developments in Egypt weigh on confidence in the oil-importing countries,” the IMF said in its report. “Meanwhile, domestic supply disruptions and weak global demand are reducing oil production, notwithstanding recent upward pressure on oil prices arising from increased geopolitical risks.”


The less than robust growth rates and even an uptick in the figures will not be enough to reduce high unemployment rates or begin to improve living standards in the region, as political turmoil continues to weigh on recovery.


“In this setting, the region risks being trapped in a vicious cycle of economic stagnation and persistent sociopolitical strife, underlining the urgent need for policy action that will enhance confidence, growth, and jobs,” the report read.


Egypt and the IMF have been in staggered negotiations for the past two and a half years over a support package to prop up the country’s ailing economy, but no deal has been reached. Officials nevertheless say that the institution stands ready to support Egypt.


“We have some technical work already underway and we will be very ready and keen to support them when they think the time is right in terms of financing,” Masood Ahmed, the IMF’s Director for the Middle East and North Africa, said on Monday at the launch of the report in Dubai.


Egypt has been hesitant to carry out economic reforms recommended by the IMF because they of their social and political sensitivity, namely subsidy cuts and tax restructuring.


In the aftermath of the January 25 uprising, the IMF began talks with Egyptian authorities, first for a $3.2 billion package, which was then increased to $4.8 billion as the country’s financing needs swelled amid worsening economic conditions and bouts of political turmoil.


Those funding needs eased when a flush of Gulf aid pledges flowed in after the ouster of President Mohamed Morsi to the tune of $12 billion from Saudi Arabia, Kuwait and the United Arab Emirates.


Last month, Egypt asked the IMF to discuss possible technical aid for a VAT tax system, Reuters reported.


Experts say that while Egypt’s pressing need for cash has eased, it still needs IMF support on the technical front if it is to go ahead with announced reforms that have been in the pipeline for years.


In a later interview with Reuters, Ahmed said there were no concrete discussions or plans for the IMF to cooperate with the Gulf in assisting Egypt. “Certainly for the coming months, financing that they have is going to be more than adequate. For the near term their financing needs are definitely well met,” he said.


In early November, an IMF delegation visited Egypt to discuss technical aid for a VAT system. It was the first visit since Morsi’s ouster.


In late October, relations were strained when Central Bank governor Hisham Ramez criticized the manner in which Egypt was invited to the IMF’s annual meeting in Washington.


For overall regional economic development, the IMF said, “Reforms need to be focused on a multitude of areas, including improving business regulation and governance, expanding access of businesses and consumers to finance, enacting labor market policies that support job creation and employment opportunities, and protecting the vulnerable through well-targeted social assistance.”


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