The IMF warned in a bi-annual economic outlook report that prospects for the region are “clouded by elevated levels of uncertainty”.
“Such uncertainty may increase investors’ perception of risk for the whole region, leading to capital outflows and exchange rate pressure,” the global lender said on Monday.
The IMF forecasts the economy in Iran, the second largest in the region behind Saudi Arabia, will shrink by 6.0 percent this year after contracting by 3.9 percent in 2018.
“Clearly the re-imposition of sanctions and the removal of the waivers will have additional negative impact on the Iranian economy both in terms of growth and in terms of inflation, where inflation could reach 40 percent or even more this year,” Jihad Azour, director of the IMF’s Middle East and Central Asia department said.
US sanctions against Iran have denied its government more than $10bn in oil revenue, a US official said earlier this month.
The Iranian currency, the rial, lost more than 60 percent last year, disrupting Iran’s foreign trade and boosting annual inflation.
Lower growth, volatile oil prices, high debt and conflicts constrain the outlook for #MENA economies. We just published Middle East, North Africa, Afghanistan & Pakistan Regional Economic Outlook https://t.co/X99DmJ13Pd pic.twitter.com/Y4GpT9N80d
— IMF (@IMFNews) April 29, 2019
Rise of conflict, and oil price fluctuation
Overall regional economic growth was expected to remain subdued at 1.3 percent this year from 1.4 percent in 2018.
For oil exporters growth was down at 0.4 percent for 2019, while importing countries were expected to increase at 3.6 percent this year, from 4.2 percent in 2018.
Gulf Cooperation Council (GCC) countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates – were forecast to slightly buck the trend, improving to 2.1 percent growth from 2.0 in 2018.
The IMF said economic growth in the broader region was negatively impacted by rising conflict, corruption, slow reforms, high levels of debt and continued oil price fluctuations.
“Social tensions are rising in the context of lower growth and reform fatigue, threatening macroeconomic stability,” it said.
After the first wave of Arab Spring uprisings in 2011, the region is now witnessing fresh upheaval in Algeria and Sudan and fighting has intensified in Libya and Yemen.
As a result, reforms in the region have become more urgent to decrease dependence on oil and create millions of jobs, especially for the youth.
“For oil exporters, they are important to be less dependent on the volatility of oil price and for diversifying their economies,” Azour said.
He said reforms are also vital for oil importers to face a rising level of debt which has reached over 80 percent of GDP on average.
Resuming fiscal reforms would help #MENA oil-exporters insulate their economies from the adverse impact of oil price volatility last seen during the 2014-15 price shocks. Regional Economic Outlook Middle East, N. Africa, Afghanistan & Pakistan https://t.co/X99DmJ13Pd pic.twitter.com/5zqmuQ1D9P
— IMF (@IMFNews) April 29, 2019
The region, in addition to Pakistan and Afghanistan, needs to create some 25 million jobs over the next five years to maintain current unemployment rates, he said. For the GCC countries that figure stands at 5 million.
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