Growth Gains Strength in Middle East and North Africa, but Sluggish Credit Impedes Stronger RecoveryPress Release 25 May 2010 12:22 pm
Economic prospects for the countries of the Middle East and North Africa have improved with the resumption of capital inflows and rising crude oil prices. But stress in the banking and financial sectors along with slow credit activity are weighing on the rebound, the International Monetary Fund (IMF) said in its latest Regional Economic Outlook (REO).The REO for the Middle East and North Africa, Afghanistan, and Pakistan (MENAP) was presented today at the Dubai International Financial Center.
“The outlook for the region has improved considerably from 2009. Growth is gathering momentum in 2010, helped by the pickup in capital inflows and resurgence in domestic consumption,” said IMF Middle East and Central Asia Director Masood Ahmed. “However, this positive perspective is clouded by some stress in the banking system and lethargic credit activity across the region,” he noted.
Oil exporters emerging from the crisis
MENAP oil exporters—Algeria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Sudan, United Arab Emirates, and Yemen—were hit hard in 2009. Their combined current account surplus fell to US$53 billion in 2009, after having reached US$362 billion in 2008. Oil GDP for these countries contracted by 4.7 percent, triggered by plummeting oil prices. However, massive stimulus measures helped mitigate the impact of the crisis, and non-oil economic activity still managed to expand by 3.6 percent in 2009.
The report sees a strong recovery in the coming year, aided by an increase in capital inflows and crude oil prices. Higher oil prices and output are projected to boost the current account surplus to $140 billion and oil-GDP growth to 4.3 percent. Non-oil sector activity, supported by sustained fiscal stimulus in some countries, is also forecast to grow by 4.1 percent.
The region’s oil exporters still face challenges in their banking systems, however, where credit to the private sector remains sluggish and losses on nonperforming loans have yet to be fully recognized”, Ahmed said. Following an extended period of high growth through mid-2008, credit in these countries slowed by an average of almost 30 percentage points by end-2009 (Figure 1). Governments will have to balance the goal of reactivating credit with the need to strengthen financial regulations and enhance supervision, particularly in countries where there is evidence that excessive risk-taking occurred.