Tough year lies ahead for MENA, warns IMF

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The MENA region faces “uncertain” economic prospects this year, according to the International Monetary Fund (IMF).

“2022 is a very important year for the MENA region,” said Jihad Azour, director, Middle East and Central Asia Department at the IMF.

“Policies are going to be very important and we are going to see challenges arising from the changes that the global economy is experiencing.

“Uncertainties are high and it’s very important that we remain very vigilant.” 

The war in Ukraine is expected to dominate the 2022 outlook for the MENA region, compounding the headwinds from faster-than-expected normalisation of monetary policy in advanced economies and the slowdown in China, which is a significant market for exports for many of the region’s oil-producing countries. 

According to the IMF’s Regional Economic Outlook report for April 2022, Divergent recoveries in turbulent times, the MENA region’s GDP growth is projected to ease to 5 percent in 2022 from 5.8 percent in 2021, which still marks an “upward revision” of 0.9 percentage points (pp) from October 2021.

As for the GDP growth for GCC countries, the IMF forecast it would accelerate to 6.4 percent in 2022 from 2.7 percent in 2021.

However, inflation in the Gulf countries is projected to record 3.1 percent in 2022, compared to 2.2 percent in 2021, the report showed. 

This rise is contributing to declining monetary policy space, adding to the difficulties posed by limited fiscal policy space.

Careful review needed

In order to address these challenges, the IMF is calling for regional governments to review their policy frameworks and carefully coordinate their fiscal, monetary and financial policies.  

“One dimension that is very important today is how governments deploy their policy toolkit because it’s not simply a case of using one instrument – they have to use both exchange rate and monetary policy tools, and fiscal also plays an important role,” Azour said. 

“This integrated policy dynamic that countries use to address any shocks points to the need to use the crisis as a way to modernise and upgrade some of the policy management.

“I think crises always serve as really important stress tests for systems.”

The IMF’s MENA director said current events have brought the need for structural reform into sharp focus. 

“If we look forward to the next three to five years we expect challenges to remain relatively high compared to what we saw in the past and we don’t expect a huge level of liquidity coming back in the near future,” Azour said. 

“Therefore, this is the time to fix the foundations and address some of the structural issues concerning state-owned enterprises which is affecting the competitiveness of the economy, for example, by not creating jobs and posing an additional fiscal risk to the state.”

Azour added that this year is going to be a “very busy and challenging year” for the region’s decision-makers.

“However, it could also be a foundation year where, as a result of fixing some of the important dimensions in economic management, they are protected regardless of the types of headwinds they’re facing,” he said.