Regional Economic Outlook UPDATE
Low oil prices and deepening conflicts continue to weigh on economic activity in the MENAP region.
The growth prospects for most oil exporters have been revised down markedly since last October, amid a continued rout in the global oil market. Oil exporters’ g rowth is still projected to rise from 2 percent in 2015 to 3 percent this year; however, this is mainly due to increased oil production in Iraq and post sanctions Iran. In the GCC, economic activity is projected to slow further.
Ambitious fiscal consolidation measures are being implemented this year, but budget balances will deteriorate nonetheless given the sharp drop in oil prices. An additional and substantial deficit-reduction effort is required over the medium term to restore fiscal sustainability, and, in the GCC countries, to support the exchange rate pegs. An equally important priority is to ensure that the private sector can create enough jobs for a young and growing population at a time when public sector job creation will be constrained.
This will require deep structural reforms to improve medium-term prospects and facilitate economic diversification. Policymakers in most countries are increasingly determined to be proactive in addressing the challenges posed by the oil price malaise.
After four years of stagnation, economic activity in MENAP oil importers is starting to strengthen, albeit gradually and unevenly. Growth incre ased from 3 percent in 2011–14 to 3¾ percent in 2015 and is projected to remain around that level in 2016–17. Lower oil prices, less fiscal drag, and improved confidence owing to progress with recent reforms are supporting this recovery.
Yet s ecurity disruptions and social tensions persist, and adverse spillovers from regional conflicts —including economic pressures from hosting refugees—and, more recently, slowdowns in the GCC, strain the outlook.
Reforms of generalized energy subsidies have helped stabilize public debt and preserve macroeconomic stability, and improved targeted safety nets have helped protect the vulnerable. However, additional fiscal consolidation is still needed to put public debt firmly on a sustainable path and rebu ild policy buffers. In some cases, greater exchange rate flexibility would also help reduce vulnerabilities and improve competitiveness. Stepped-up structural reforms in business, labor and financial markets, and
trade are critical for boosting economic prospects, improving living standards, and creating much needed jobs.
- Apr 30, 2016