In today’s report on the region, the IMF said these countries will need to continue with plans to diversify their economies and implement policies that support jobs and productivity, like education and infrastructure reforms.
The call for continued economic reform comes as higher oil prices and improved export prospects help improve growth slightly for the region.
IMF Middle East and Central Asia department director Jihad Azour said: “This more favorable global environment, together with some firming of commodity prices, is providing some welcome breathing space for the region after what has been a difficult period.”
The study acknowledged that civil conflict and high unemployment continue to weigh on the region’s economic outlook.
Today’s report follows an announcement by the World Bank in April that it had slashed its growth forecast for the Middle East and North Africa by almost one percentage point, due to war and low oil prices.
Azour added: “Our projections indicate that growth will be too low to create enough jobs or improve living standards.”
He stressed that both oil exporters and importers are therefore “facing two critical policy imperatives: fiscal consolidation and structural reforms”.
According to the IMF, the region’s oil importers are projected to increase economic growth from 3.7% in 2016 to 4% percent in 2017—thanks in large part to policies that have reduced fiscal deficits and improved the business climate.
Among the region’s oil exporters, non-oil growth is projected to accelerate as well from 0.4% in 2016 to 2.9% in 2017, although production cuts following the OPEC+ agreement will temporarily reduce overall growth.
The IMF report states the expected increases will not be enough to dent the region’s high unemployment rate, which stands at about 12%.
It concludes that public spending reductions will constrain economic activity for the region’s oil-exporting countries and therefore “there is a strong need for structural reforms that promote private sector activity and boost productivity”.
Despite the narrowing of fiscal deficits in oil exporters, deficit-reduction efforts must continue, according to the IMF.
For the broader region, the average fiscal deficit fell from 9.25% of GDP in 2013 to about 7% of GDP in 2016, thanks in large part to reduced fuel subsidies (Egypt, Morocco, Sudan) and efforts to increase revenue and strengthen tax collection (Pakistan).
However, public debt remains high, with some oil-importing countries’ debt-to-GDP ratio exceeding 90%.
The IMF says continued fiscal adjustment is needed, supported by efforts to strengthen tax revenue by broadening the tax base, and complete subsidy reforms - this will allow more public spending on infrastructure and education to support growth.
