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The Need for Inclusive Growth: The
IMF Economic Outlook for the
MENA RegionMENA Region
May 4th, 2011
Middle East and Central Asia
Regional Economic Outlook April 2011
Afghanistan
Pakistan
IranIraq
Saudi ArabiaKuwait
LibyaAlgeria
MoroccoLebanon
Syria
Jordan
Tunisia
Saudi Arabia
Yemen
Oman
United Arab Emirates
Qatar
Bahrain
Sudan
LibyaAlgeria
Mauritania
Egypt
Djibouti
الوسطىوآسيااوسطالشرق٢٠١١ إبريلعدد – ا�قليميا�قتصادآفاق
Overview
Global growth: A multi-speed world
4
6
8
10World
Advanced Economies
Emerging and developing economies
WEO Real GDP Growth Projections(Percent change from a year earlier)
Upside risks:
• Buoyant EM activity
• Strong corporate
balance sheets
-4
-2
0
2
4
2005 2006 2007 2008 2009 2010 2011 2012
Source: IMF, World Economic Outlook.
balance sheets
Downside risks:
• Sovereign/financial
risks
• Oil supply concerns
Capital flows to emerging markets have
slowed
1.0
1.5
2.0
QE2 (Nov. 3)
Greece crisis
2
4
6
8
EMEA
LatAm
Asia excl. Japan
Global
TotalGreece crisis
QE2 (Nov. 3)
Emerging Bond Funds(Billions of U.S. dollars, weekly flows)
Emerging Equity Funds(Billions of U.S. dollars, weekly flows)
-1.0
-0.5
0.0
0.5
Jan-10 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11
3/23/2011
Ireland crisis
-8
-6
-4
-2
0
Jan-10 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11
Ireland crisis
4
6
8U.S.Other Industrial CountriesChinaEmerging and Developing EconomiesWorld GDP
Global Annual Growth of Oil Demand(Percent)
Oil prices driven by uncertainty in the
short-run
96
106
116
30.0
30.5
31.0
OPEC supply
Oil price (U.S. dollars per barrel, right scale)
Post Libya
Crude Oil Prices Rise Sharply(Millions of barrels per day)
-4
-2
0
2
2008Q4 09Q2 09Q4 10Q2 10Q4
Total
demand56
66
76
86
28.0
28.5
29.0
29.5
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11
Sources: International Energy Agency; IMF, World Economic Outlook; national authorities; and IMF staff calculations.
Food and non-oil commodity prices also
rising
150
175
200
Beverages
Food
Metals
BUT: Commodity exportersto benefit
Aluminum: Bahrain
Copper: Mauritania
Commodity Price Developments in the World(Price indices; 2007=100)
50
75
100
125
Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11
Cotton: Egypt, Pakistan
Food: Afghanistan, Egypt, Iran, Iraq, Morocco, Pakistan, Syria
Gold: Djibouti
Iron ore: Bahrain, Mauritania
Source: IMF, World Economic Outlook.
MENAP oil exporters: Opportunities for reforms
External environment
•Increased uncertainty
•Higher oil revenue
Political events
•Limited impact on output for most
•Large fiscal responses
IranIraq
KuwaitSaudi Arabia
Yemen
Oman
United Arab EmiratesQatar
Bahrain
Kuwait
Sudan
LibyaAlgeria
External balances improving with the oil
price
90
100
110
120
200
250
300
350
GCC
Other oil exporters¹
Oil price, APSP, U.S. dollars (right scale)
Current Account Balances(Billions of U.S. dollars)
255.6
69.9
135.5
303.8
100.1
-3.5
36.374.3
40
50
60
70
80
-50
0
50
100
150
2008 2009 2010 2011
Sources: National authorities; and staff calculations and projections.1Excludes Libya in 2011.
Oil price volatility brings uncertainty
80
100
120
140
160
Current Account Balance (billions of U.S. dollars)
$88/barrel¹
$107/barrel¹
$114/barrel¹
2011 Current Account Surpluses under Alternative Oil Price Scenarios(Billions of U.S. dollars)
-20
0
20
40
60
Algeria Bahrain Iran Iraq Kuwait Oman Qatar Saudi Arabia
Sudan U.A.E. Yemen
Current Account Balance (billions of U.S. dollars)
Sources: National authorities; and staff calculations.
¹Minimum, maximum oil prices between January 1, 2011 - March 22, 2011; and baseline forecast for 2011.
20
25
30
35
GCC
NON-GCC
Percent Change in Total Government Expenditures in U.S.
dollars(From 2010 to 2011)
Unprecedented responsiveness across
the region
Sources: National authorities; and IMF staff estimates.
0
5
10
15
20
BHR ALG UAE IRN KWT SDN QAT OMN IRQ YMN SAU
Fiscal balances improve, despite higher
spending
60
80
100
120
-20
-10
0
10
20
30 GCC overall fiscal balance
GCC non-oil fiscal balance
Other oil exporters overall fiscal balance
Other oil exporters non-oil fiscal balance
Overall and Non-oil Fiscal Balances1
(Percent of GDP )
However,
break-even
0
20
40
60
-70
-60
-50
-40
-30
-20
2008 2009 2010 2011
Crude oil price, APSP, US$ (right scale)
Sources: National authorities; and IMF staff estimates.
¹Excludes Libya in 2011
prices also
going up
Break-even prices going upBreak-Even Oil Prices in 2010
(U.S. dollars per barrel)
SDN
YMN
120
140
160
180
200Fiscal balanceBreak-Even Oil Prices in 2011
(U.S. dollars per barrel)
ALG
IRN
IRQ
KWT OMN
QAT
SAU
UAE
BHR
0
20
40
60
80
100
0 20 40 60 80 100 120 140 160 180 200
Fiscal balance
Current account
2010 WEO oil
price: US$ 76.2
2011 WEO oil
price: US$ 107.2
Growth is progressing amidst
uncertainty
2
4
6
8
10
Real GDP Growth(Annual percentage change)
-8
-6
-4
-2
0
2006 2007 2008 2009 2010 2011
Oil GDP
Non-oil GDP
Sources: National authorities; and IMF staff estimates.1Excludes Libya in 2011.
Non-oil growth holding up, with few
exceptions
6
8
10
12
2010 2011
Real Non-oil GDP Growth(Annual percentage change)
-2
0
2
4
Bahrain Kuwait Oman Qatar Saudi Arabia
United Arab
Emirates
Algeria Iran Iraq Sudan Yemen
Sources: National authorities; and IMF staff estimates.
10
15
20
25
30
Algeria BahrainIran IraqKuwait LibyaOman QatarSaudi Arabia SudanUnited Arab Emirates Yemen
Consumer price index; annual percentage change
Keep an eye on inflation pressures
-10
-5
0
5
10
2008 2009 2010 2011
Source: National authorities; and staff calculations and projections.
Financial sector depth: similar to peers
MENA
Emerging and developing
World average
Qatar
Tunisia
Bahrain
United Arab Emirates
Lebanon
Kuwait
Morocco
Jordan
Financial Depth Across Regions:
Banks and Stock Markets1
(2007-08)
Financial Depth in MENA Countries(2007-08)
0.0 0.1 0.2 0.3 0.4 0.5 0.6
Non-GCC
GCC
MENA Average
Private Credit by Deposit Money Banks/GDP, 2008
Stock Market Turnover Ratio, 2007
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4
Libya
Yemen, Rep.
Algeria
Syrian Arab Republic
Oman
Iran, Islamic Rep.
Saudi Arabia
Egypt, Arab Rep.
Qatar
Private Credit by Deposit Money Banks/GDP, 2008Stock Market Turnover Ratio, 2007
Sources: World Bank Database on Financial Development and Structure, 2010; International Financial Statistics; and authors' calculations.
Sources: World Bank Database on Financial Structure, 2008; and IFS.1Stock Market Turnover: Ratio of value of shares traded to market capitalization.
…but banks are falling short in key areas
Access to financial services is subpar
Businesses receive less bank financing
Banking sectors are less competitive,
due to:
Weak credit information environment
Measurablequality gap
Loan concentration is high
Population has low access to deposits
environment
Stringent entry restrictions
Lack of non-bank financing alternatives
Growth impact of banking depth is
weaker than in other regions
MENAP oil exporters: Opportunities for reforms
External environment
•Increased uncertainty
•Higher oil revenue
Political events
•Limited impact on output for most
•Large fiscal responses
IranIraq
Kuwait
Short-term challenge
•Inflation
Medium-term challenges
•Diversification and employment
•Strengthen resource management
•Financial sector development
Saudi Arabia
Yemen
Oman
United Arab EmiratesQatar
Bahrain
Kuwait
Sudan
LibyaAlgeria
MENAP oil importers: Navigating change
Afghanistan
Pakistan
MoroccoLebanon Syria
Jordan
Tunisia
Before the protests
•Mostly growing at steady pace
•Persistently high unemployment
Unrest and commodity price shocks
•Output disruptions in some countries
•Higher import costs
Policy space is tight
•Pressure to spend on social protection
•Higher risk premia and rising inflation
Mauritania
Egypt
Djibouti
With change comes challenges, but also
opportunities for more inclusive growth
Surge in commodity prices increases cost of imports
15
20
25Impact of higher prices in 2011¹
Total fuel and food imports, 2010
Current account deficit, 2011
Impact of Higher Fuel and Food Costs(Percent of GDP)
MRT JOR LBN MAR SYR TUN PAK EGY
0
5
10
Sources: National Authorities; and IMF staff estimates.1Direct impact -- holding policies and quantities constant -- of price increases of 32 percent
for fuel and 24 percent for food, as implied by WEO projection for 2011 compared to 2010.
Spillovers from regional instability:
Lower tourism and FDI, higher borrowing costs
5.8
7.3
12.1
24.4
Syria
Morocco
Jordan
Lebanon
300
400
Egypt
Lebanon
Sovereign Spreads(Basis points)
Tourism Receipts(Percent of GDP)
1.8
5.0
5.3
5.4
Oman
Bahrain
Egypt
Tunisia
0 5 10 15 20 25 30
by 41 percent in Jan-Feb 2011
Jan/Feb: Tourist arrivals
down 36 percent, tourist
nights down 16 percent y/y.
0
100
200
Jul-10 Sep-10 Nov-10 Jan-11 Mar-11
Tunisia
Morocco
Sources: IMF, World Economic Outlook; and World Travel and Tourism Council. Sources: Bloomberg; and Markit.
Tunisia
protests
escalate
Higher government spending
8
10
12Impact of higher fuel and food prices, holding all else constant
Additional fiscal measures
Overall fiscal deficit, 2011
New Fiscal Costs(Percent of GDP)
Sources: National authorities; and IMF staff calculations.
EGY JOR LBN MRT MAR PAK SYR TUN
0
2
4
6
Net impact on growth mostly limited
6
8
10
2009 2010 201120.9
Real GDP Growth(Annual percentage change)
Sources: National authorities; and IMF staff estimates.
AFG MRT DJI MAR JOR SYR PAK LBN TUN EGY
-2
0
2
4
8
12
16
20
Djibouti Egypt Jordan
Lebanon Mauritania Morocco
Syria Tunisia
Consumer price index; annual percentage change
Keep an eye on inflation pressures
-4
0
4
8
2008 2009 2010 2011
Source: National authorities; and IMF staff calculations and projections.
Short-term policy challenge: Ensuring social cohesion
while maintaining macroeconomic stability
Respond to
domestic pressures
Restore confidence
Social Cohesion Macroeconomic Stability
Create jobs
Manage impact of
higher food and
fuel prices
Policy challenge: Unemployment
20
25
30
35Youth unemployment, percent
Tunisia
EgyptMENA6
Central and South-
Eastern Europe (non-Latin America and South-East
Syria
Morocco
Lebanon
Jordan
Unemployment Rates by Region1,2
(20083)
4 6 8 10 12 14 16
5
10
15
Total unemployment rate, percent
Youth unemployment, percent
Eastern Europe (non-
EU) and CIS
Sub-Saharan
Africa
Latin America and
the Caribbean
East Asia
South Asia
South-East
Asia and the
Pacific
Developed
Economies and
EU
Sources: International Labor Organization; national authorities; IMF, World Economic Outlook; and IMF staff estimates.1MENA6 countries are Egypt, Jordan, Lebanon, Morocco, Syria, and Tunisia.2Total and youth unemployment rates for Morocco reflect data from Urban Labor Force Survey.3Or most recent earlier year for which data are available.
Creating jobs
Creating Jobs
Quick wins with long-run
benefits
Comprehensive job strategy
Bring forward labor-intensive infrastructure
projects
Provide tax incentives/
credit guarantees to viable SMEs
Scale up promising or introduce new well-designed
training programs
Foster high and inclusive
growth: business
climate, equal opportunities,
trade
Enhance skill
formation
Protect the worker and not the job
Heavy reliance on untargeted subsidies
Price subsidies are poorly targeted… … and costly.
Jordan--Fuel (2005)
Cross country¹--Fuel (2010)
Distribution of Subsidies Across Income Groups
6.06
8
MENAP Oil Importers: Subsidies and Deficits in 2010
(Percent of GDP)
Sources: Jordan-The Distributional Effects of Eliminating Subsidies for Petroleum Products, R. Gillingham & M. El-Said, IMF (2005), The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries, J. Del Granado, D. Coady & R. Gillingham, IMF (2010), Egypt's Food Subsidies: Benefits Incidence and Leakages, September 2010, World Bank.1Average across 21 countries.
Egypt--Baladi bread (2008/09)
Lebanon--Bread (2008)
Jordan--Fuel (2005)
0% 20% 40% 60% 80% 100%
Bottom 40 percent Top 60 percent
3.7
Subsidies General Government Deficit
0
2
4
Social Protection Instruments
Social Safety Net
Noncontributory transfers (e.g., cash
transfers, in-kind benefits, fee waivers)
Social Insurance
Contribution-based benefits
(e.g., unemployment insurance, old
age/disability pensions)
Taxonomy of Social Policy Interventions
Social Protection
Social Policy
Other Social Policies
Other interventions, such as
health, education, housing, or
labor policies
Price Subsidies
Source: IMF staff illustration.
Enhancing social protection
Immediate reaction to
commodity price shock
Preparation of
subsidy reformCost-effective social
protection framework
• Strengthen targeted
Short Term Medium Term
• Targeted measures
(existing or new)
• Stop-gap: tax cuts and
subsidies
• Build ownership
• Improve targeting
• Compensate losers
• Implement automatic
pricing mechanisms
• Strengthen targeted
income transfers
• Phase-out price subsidies
• Use fiscal space for other
priority spending
Opportunity to develop a
medium-term policy agenda for shared prosperity
Stable macroeconomic
environment
Social protection
for allJob creation
Socially- for all
Access to economic
opportunities
Transparency, accountability,
good governance
Socially-
Inclusive
Growth
Lebanon: Risks of Continued Stalemate
• Growth projected at 2.5 percent, inflation at 6.5 percent (average) in 2011
• Political impasse and regional turmoil weighing on commercial activity,
tourism, and real estate—the main drivers of the Lebanese economy
260
270
260
270
7.52.5
Coincident Indicator (quarterly, base 100 = 1993)
210
220
230
240
250
210
220
230
240
250
8.5
7.5
Lebanon: Challenges Ahead
• Fiscal
– Fiscal deficit projected to rise over 10% of GDP
• Monetary
– Could inflows slow down?– Could inflows slow down?
• Banks
– Sector vulnerable to AML-CFT issues?
For an online version of the full report, please visit:
www.imf.org/beirutwww.imf.org/beirut
orhttp://www.imf.org/external/pubs/ft/reo/2011/mcd/eng/mreo0411.htm
Break-even prices going up
SDN
YMN
120
140
160
180
200
Fiscal balanceBreak-Even Oil Prices in 2011
(U.S. dollars per barrel)
ALGIRNIRQ
KWTOMN
QAT
SAU
SDN
UAE
BHR
0
20
40
60
80
100
0 20 40 60 80 100 120 140 160 180 200
Fiscal balance
Current account
WEO oil price:US$107.2
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