Middle East and North Africa Regional Economic Outlook Oil, Conflicts, and Transitions May 5, 2015
Agenda Global Environment MENAP Oil Exporters MENAP Oil Importers
Global growth remains moderate and uneven World U.S. Euro Area Emerging markets China Russia 2014 3.4 2.4 0.9 4.6 7.4 0.6 2015 3.5 3.1 1.5 4.3 6.8-3.8 2016 3.8 3.1 1.7 4.7 6.3-1.1 Sources: National authorities; and IMF staff calculations. 3
120 100 Oil prices expected to remain low but high uncertainty Oil Price Prospects (Brent crude oil; U.S. dollars per barrel) 140 120 100 80 80 60 40 October 2014 REO May 2015 REO Update Jan'13 Jul'13 Jan'14 Jul'14 Jan'15 Jul'15 Jan'16 Jul'16 Jan'17 Jul'17 Jan'18 Jul'18 Jan'19 Jul'19 60 95% confidence interval 86% confidence interval 68% confidence interval 40 Futures, Feb. 11, 2015 20 2013 2014 2015 2016 Sources: Bloomberg; and IMF Research Dept. Commodities team calculations. ¹Derived from prices of Brent futures and options on Feb. 11, 2015. 4
320 Other commodity prices have also declined, although not by as much as oil prices Commodity Prices (2005=100) 270 220 170 Food 120 Metals Crude oil (APSP) Natural gas (Asia) 70 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Sources: IMF, WEO Global Assumptions; and Bloomberg, L.P. 5
The U.S. dollar has appreciated, pushing up MENAP currencies Real Effective Exchange Rate (Index, January 2013=100) 115 U.S. Dollar GCC Non-GCC MENAPOI 110 105 100 95 90 2013M1 2013M5 2013M9 2014M1 2014M5 2014M9 2015M1 Source: IMF INS database. 6
Continuing conflicts weigh on confidence and economic activity in the region Turkey Tunisia Lebanon [1.5m] Libya Egypt Algeria Niger Syria Iran Iraq [245k] Jordan [600k] Kuwait Bahrain Qatar Saudi Arabia Chad Sudan Refugees (numbers in brackets) Disruptions to bilateral and transit trade Declining tourism Yemen To Djibouti and Somalia Note: The country names and borders on this map do not necessarily reflect the IMF's official position. 7
Agenda Global Environment MENAP Oil Exporters MENAP Oil Importers
Export revenues are now projected to be $380 billion (16 percent of GDP) lower in 2015 Iraq Iran Algeria Libya Saudi Arabia Kuwait Bahrain Qatar UAE Oman Oil Export Revenue Loss Limited (< 5% of GDP) Medium (5%-20% of GDP) Yemen Substantial (>20% of GDP) Sources: National authorities; and IMF staff calculations. 9
Fiscal positions are weakening, and surpluses are turning into deficits in the GCC Fiscal Balance, 2012-20 (Percent of GDP) 15 10 5 0 GCC GCC fiscal surplus of 4½ percent of GDP to turn into deficit of 8 percent of GDP in 2015 Non-GCC fiscal deficits to widen from 5 to 9 percent of GDP in 2015 4½ -5-10 -15 Non-GCC -8-5 -9 2012 2013 2014 2015 2016 Sources: National authorities; and IMF staff calculations. 10
Growth robust on still-strong government spending Real GDP Growth (Percent) 5 4 2014 2015-16 Average 3 2 1 0 GCC Non-GCC Oil Exporters Sources: National authorities; and IMF staff calculations. 11
Country-specific growth paths diverge Real GDP Growth (Percent) 10.0 7.5 2014 2015 5.0 2.5 0.0-2.5-25.0-5.0-24 Sources: National authorities; and IMF staff calculations. 12
Financial buffers will not last forever Number of Years Financial Reserves Will Last Kuwait U.A.E. Qatar Iraq Libya Algeria Saudi Arabia Oman Iran Bahrain Yemen 0 5 10 15 20 25 30 35 13
A new, diversified growth model is needed 100 80 60 40 20 0 Non-Oil Exports as a Share of Total Exports, 2012-2014 Average More Diversified 60 50 40 30 20 10 0 Non-Oil Revenues as a Share of Total Fiscal Revenues, 2012-2014 Average (Percent) 38 39 31 18 20 12 12 5 7 50 56 14
Private sector needs to drive the economy and create jobs for nationals GCC Nationals Employed by the Public Sector (Percent of Nationals Employed by the Public Sector) BHR OMN SAU KWT QAT 0 20 40 60 80 100 Wages and Subsidies in Government Budgets (% of Total Spending) 90 80 70 60 50 40 30 20 10 0 Sources: National authorities; and IMF staff calculations. 1 2006 is earliest for Qatar. UAE data only available for 2009. 15
Structural reform agenda centers on reducing red tape in GCC and broad-based reforms in non-gcc Labor Corruption Bureaucracy Infrastructure Trade Education Legal Finance Regulations GCC 75% 59% 23% 79% 70% 62% 75% 63% 69% Bahrain 82% 59% 23% 79% 75% 63% 73% 63% 71% Kuwait 20% 59% 23% 58% 35% 40% 56% 45% 50% Oman 67% 59% 23% 77% 73% 46% 77% 59% 67% Qatar 94% 77% 23% 84% 66% 86% 83% 66% 74% Saudi Arabia 57% 59% 23% 79% 60% 62% 74% 62% 55% United Arab Emirates 95% 77% 65% 99% 80% 79% 80% 72% 75% Non-GCC Exporters 4% 2% 21% 24% 18% 22% 26% 13% 9% Algeria 4% 16% 23% 26% 7% 24% 36% 18% 11% Iran 1% 5% 23% 52% 7% 35% 40% 31% 6% Libya 8% 0% 19% 21% 54% 19% 16% 6% 2% Yemen 4% 0% 3% 1% 30% 7% 16% 8% 24% Sub-Saharan Africa 50% 16% 19% 14% 32% 28% 36% 28% 35% Latin America 26% 16% 23% 43% 38% 49% 38% 50% 52% Emerging Europe 44% 42% 23% 50% 58% 54% 47% 51% 66% Developing Asia 55% 42% 23% 37% 42% 43% 47% 49% 39% Advanced Economies 84% 83% 84% 87% 84% 82% 78% 64% 89% 11% Lowest 20th Percentile 66% 60th-80th Percentile 20% 20th-40th Percentile 90% Top 20th Percentile 47% 40th-60th Percentile Sources: World Bank; World Economic Forum; PRS Group; and IMF staff calculations. 16
MENAP Oil Exporters The slump in oil prices will result in large revenue losses ($380 billion in 2015 compared to earlier projections). Nonetheless, GCC and non-gcc growth is projected to remain steady in 2015 (3½ and 1¼ percent respectively). Fiscal consolidation is needed over the medium term to ensure fiscal sustainability and intergenerational equity. A move to a new growth model led by a diversified private sector would help sustain economic growth. 17
Agenda Global Environment MENAP Oil Exporters MENAP Oil Importers
After four years, the weak recovery is picking up steam Real GDP Growth (Percent) 5 Real GDP Growth (Percent) 5 EGY MAR PAK 4 4 AFG JOR 3 2015 3 TUN SDN LBN 2 2 1 1 1 2 3 4 5 2010 2011 2012 2013 2014 2015 2016 2014 Sources: National authorities; and IMF staff calculations. 19
Improving confidence is helping raise investment and consumption Consumer Confidence (0 to 4 scale; higher is better) 2.2 2.1 2.0 1.9 1.8 1.7 1.6 1.5 1.4 CDS Spreads (in basis points) 1,000 900 800 700 600 500 400 300 200 100 0 EGY LBN MAR PAK TUN Sources: ICRG; national authorities; and IMF staff calculations. 20
Subsidy reforms have created space for growth-enhancing spending Change in Expenditure¹ (Percent of GDP) 3.0 2.5 2.0 1.5 Wages Capital 1.0 0.5 Generalized Subsidies 0.0-0.5-1.0-1.5 Other Change 2010-13 Change 2013-15 Generalized Subsidies Sources: National authorities; and IMF staff calculations. ¹Excludes Pakistan. 21
Lower oil prices are reducing oil import bills External gains from lower commodities prices, 2015 (Percent of GDP) 6 5 4 3 2 1 0-1 -2-3 -4 Oil Other commodities * Data limitations preclude estimating non-oil commodities' windfall for starred countries. Non-oil windfall refers to gain/loss from changes in other commodity prices, including mining, metals, and agricultural products. Sources: World Bank WITS database; Haver; IMF WEO; national authorities; and IMF staff calculations. 22
Gains from lower oil prices are being used to strengthen reserves and reduce public debt External Commodity Windfall, International Reserves and Public Debt, 2015 (Percent of GDP, unless specified otherwise, revision between October 2014 REO and May 2015 REO Update) 2 1 0-1 -2-3 1.6 0.7 External windfall¹ Change in reserves, in months of imports Change in public debt MENAP Oil Importers -2.1 Sources: National authorities; and IMF staff calculations. ¹Based on 2015 oil price assumptions of $58.14 (April 2015 WEO) compared to $99.36 (October 2014 WEO). 10 23 International Reserves, 2015 (Months of imports) 9 8 7 6 5 4 3 2 1 0 5 10 15 May 2015 REO Update October 2014 REO Sources: National authorities; and IMF staff
Declining productivity and investment have been weakening medium-term growth prospects Real GDP Growth (Percent) Differences with EMDC (Percentage points) 9 8 7 6 5 MENAP Oil Importers EMDC 2003-2014 Average 1.5 1.0 0.5 0.0-0.5 Labor Capital 4 3-1.0-1.5 Growth 2-2.0 Productivity 1-2.5 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020-3.0 2003-14 Sources: IMF, World Economic Outlook; Global Employment Trends; and IMF staff estimates. Note: EMDC denotes Emerging Markets and Developing Countries. Sources: IMF, World Economic Outlook, UN ILO, national authorities, and IMF staff estimates. 1 Average potential growth of MENAP Oil Importers less that of EMDC average. 24
High unemployment and lack of inclusiveness constrain economic potential Unemployment (Percent) 40 35 30 25 20 15 10 5 0 S. Asia E. Asia Pakistan World LAC SSA CEE AE Total unemployment MENAPOI Total unemployment (comparators) Youth unemployment Lebanon Morocco MENA Egypt Jordan Tunisia Sources: UNDP; International Labor Organization; national authorities; and IMF staff calculations. 25
Multifaceted reforms are needed to improve economic prospects and create jobs Labor Corruption Bureaucracy Infrastructure Trade Education Legal Finance Regulations MENAP OI 11% 29% 23% 30% 29% 37% 44% 38% 40% Egypt 3% 16% 23% 30% 11% 14% 38% 37% 26% Jordan 35% 59% 23% 51% 34% 66% 59% 48% 56% Lebanon 15% 5% 23% 16% 56% 54% 20% 38% 50% Mauritania 2%.. 15% 11% 7% 17% 13% 26% Morocco 23% 42% 23% 62% 50% 37% 51% 46% 47% Pakistan 9% 16% 23% 17% 29% 29% 44% 42% 25% Tunisia 11% 42% 23% 45% 9% 46% 48% 38% 40% Sub-Saharan Africa 50% 16% 19% 14% 32% 28% 36% 28% 35% Latin America 26% 16% 23% 43% 38% 49% 38% 50% 52% Emerging Europe 44% 42% 23% 50% 58% 54% 47% 51% 66% Developing Asia 55% 42% 23% 37% 42% 43% 47% 49% 39% Advanced Economies 84% 83% 84% 87% 84% 82% 78% 64% 89% Sources: World Bank; World Economic Forum; PRS Group; and IMF staff calculations. 11% Lowest 20th Percentile 66% 60th-80th Percentile 20% 20th-40th Percentile 90% Top 20th Percentile 47% 40th-60th Percentile 26
MENAP Oil Importers Growth expected to rise in the near term on the back of improved confidence. Security challenges and conflicts cloud the outlook. Lower oil prices helping reduce vulnerabilities but incomplete passthrough limits impact on growth. Where vulnerabilities are high, saving oil windfall would help. Otherwise, oil windfall can finance growth-enhancing spending. Conditions are favorable for further subsidy reforms, exchange rate flexibility, and structural reforms to raise medium-term growth and make it more inclusive. 27
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