Changes happening in North Africa and the Middle East region present opportunities for this area to build a foundation that is socially inclusive and set for vibrant growth. In the short term however, nations are faced with multiple challenges including rising commodity prices and economic disruptions, according to the April 2011 IMF report on the Regional Economic Outlook for the region covering MENAP (or Middle East, North Africa, Afghanistan and Pakistan).
Over the coming periods this political unrest could actually boost the regional economies by creating inclusive growth, improving the government and presenting positive and equalized opportunities for a youthful, growing population. The short term outlook is full of challenges and includes pressures to look after unemployment and strengthen the social support measures, according to the director of the Middle East and Central Asia Department in the IMF, Masood Ahmed. Ahmed made these statements in a Dubai conference held to release the report. Oil importing nations in the region are facing an immediate challenge of maintaining unity among the social structure and keeping the macroeconomic conditions stable despite numerous pressures.
In the report growth of 3.9 percent is projected for the MENA region. Within those projections, economic conditions in oil exporting nations like Yemen, the UAE, Sudan and Saudi Arabia, as well as Qatar, Oman, Kuwait, Iraq, Iran, Bahrain and Algeria are projected to see 4.9 percent growth due to rising oil prices and production. Libya is excluded from the projections. Oil importing nations, like Tunisia, Syria, Pakistan, Morocco, Mauritania, Lebanon and Jordan, as well as Egypt, Djibouti and Afghanistan, are only expected to see 2.3 percent growth. The two driving factors in the current state of affairs include regional unrest and continuing uncertainties, as well as surging prices for fuel and food.
Oil exporters will see a substantial increase in their external current account balance due to rising oil prices and higher oil production. This combined total should be more than double reaching $380 billion this year (with Libya excluded). The economies are projected to see an expansion of 4.9 percent growth in real GDP this year (with Libya excluded). As a whole, the group’s non oil GDP will remain steady at 3.5 percent. However, due to the higher levels of spending in the GCC, non oil GDP in that region should grow by 5.3 percent this year, up from 4.2 percent last year. Even with increased expenditures the fiscal conditions in the GCC are expected to improve as rising oil revenues more than offset the additional public spending. Oil exporters in the region are still facing challenges on structural issues despite the generally positive outlook. Their economies need to be diversified more, job creation is needed, financial development needs to be pushed further and public resource management needs to be improved.
Oil importing nations, on the other hand, are facing a challenging year economically managing pressures from both external and internal sources. As trade deteriorates due to rising costs for fuel and food the import bill in these nations is projected to grow by around $15 billion, which accounts for almost 3 percent of the average GDP according to the IMF. These conditions will translate into one of two results – higher inflation or a weaker fiscal balance – depending on how far the subsidies extend.
The political unrest is expected to affect both investments and tourism in oil importing nations. Combine these conditions with rising funding costs and pressure to increase spending around the region and it results in added fiscal pressures. This pressure on both the financial stability and macroeconomic climate will negatively impact a growth agenda that is more socially inclusive as well as dampen job creation, unless they are addressed quickly. To do so, governments must overcome limited fiscal conditions and consider balancing, at least in part, some of the added expenditures in areas of high priority with cuts in other areas.
In the short term the added spending is needed and understandable for greater social cohesion, but it does put stress on public finances. Nations need support from external sources to better manage the transitional period, according to Ahmed. In the midterm, policies aimed at alleviating social tension should not be funded through deficits but financed by raising revenues and targeting the social safety nets to take the place of subsidies too general to benefit the poorer segment of the population effectively. Also, a proactive approach to reducing wasted public spending is helpful.
Across the region conditions of slow growth in the last few years have resulted in job creation that is unable to match the swelling workforce. Also, the IMF report stated that a growing sense of a business environment that leans towards the benefit of a few privileged citizens exists in the region. Going into the future there remains much to be done in terms of job creation, as well as enhancements to the employment skills and training undergone by the youth living in this region where many nations report youth unemployment at rates higher than 20 percent.
In the near future those policymakers need to focus on developing infrastructure projects that involve heavy labor, present tax benefits to businesses in the small to mid-sized range and bring about quality training programs. Even these measures are not a substitute for a thorough strategy that transforms and redirects the education to better provide graduates with the skills they need to obtain employment. Ahmed noted that this strategy would need to aim for an improved business climate and target the dismantling of rigid regulations in the job market that prevents businesses from hiring.
The IMF report stated that every nation in the region would need to develop their own development course, although all need to be concerned with common goals. These goals include stabilizing the macroeconomic climate to boost confidence and draw investments, creating adequate amounts of jobs within the private industry to lower current jobless rates and meeting the needs of a rapidly growing labor force, as well as presenting economic opportunities to the citizens allowing them to reach their goals. The vulnerable need to be provided with social protection and the strong institutions in the region should be transparent, accountable and governed well.
The IMF report also stated that this region includes many strong factors, including a youthful and dynamic population, massive amounts of natural resources, a geographic location that has many advantages and the ability to access key markets easily. Ahmed concluded by stating that the coming months may present challenges and inevitable setbacks, but the current momentum and movement towards change can be built on.Paul Holdsworth, Staff Writer, Gulf Jobs Market News