Dubai: Economic growth in the region’s oil importers is expected to recover in 2013, but only at a moderate pace, projected at close to 3 per cent, the International Monetary Fund (IMF) said in its latest regional economic outlook.
The rate is far below what is required to address high rates of unemployment in these countries, the fund warned.
The IMF report noted that investor confidence remains weak because of political uncertainty and social unrest in Arab countries in transition and regional spillovers from the Syria conflict.
The IMF said a challenging external economic environment continues to put pressure on international reserves in many oil importers. It added that sluggish global growth and recession in the Euro-area are holding back a quicker recovery in exports and tourism.
Meanwhile, high global food and energy prices are contributing to rising import bills. With high fiscal deficits and reduced international reserve buffers, the IMF said many oil importers have no time to waste in embarking on difficult policy choices, considerable fiscal consolidation implemented in a growth-friendly and socially balanced way and greater exchange rate flexibility.
This should help maintain macroeconomic stability, instill confidence, preserve competitiveness and mobilize external financing, thus putting in place important preconditions for a healthy economic recovery, the IMF said.
“Recent subsidy reforms, paired with measures to implement more targeted social protection, are making inroads into reducing fiscal and reserve pressures in some countries in the region. However, countries will need to further rationalize subsidies while at the same time putting in place better-targeted mechanisms to protect the poor,” said Masoud Ahmad, director of the IMF’s Middle East and Central Asia department.
Economists said socio-political compulsions in most Arab economies going through political transition are expected to hinder the speed of structural reforms.
“Addressing issues like subsidies has to be done in phases. In most Middle East countries that are going through political transition, political stability is the most urgent concern. In the medium term, issues such as fiscal stability and inefficiencies could be addressed,” said Farouk Soussa, chief economist for the Middle East at Citibank.
Looking beyond the near-term challenges, it will be necessary for many countries across the region to press on with structural reforms to achieve inclusive growth and create permanent jobs, the IMF report noted.
“A lot of political and economic problems in the region are directly linked to inclusiveness and that needs to be addressed effectively to achieve desired efficiencies and productivity levels,” said Giyas Gokkent, chief economist at the National Bank of Abu Dhabi.