Euro zone crisis weighs on Middle East investment: IMF

Uncertainty over the euro zone debt crisis is now showing signs of restraining business and household spending in the Middle East, a top IMF official said on Sunday after weekend meetings of the International Monetary Fund and World Bank.
The IMF's director for the Middle East and North Africa, Masood Ahmed, told Reuters the uncertainty was adding to already existing concerns over political transitions in Arab Spring nations, and a heavy election and legislative calendar in 2013 in the region.
He said the message from the region's finance leaders during the IMF meetings in Tokyo was that Europe's debt crisis was seeping into businesses and household spending plans.
"It's not simply a question of the direct impact in terms of the rest of the world buying less of their products or sending less investment, but they feel the uncertainty (over Europe's debt crisis) is also spilling over into their economies," Ahmed said in an interview. Ahmed said the region was mostly immune to the effects of European banks reducing their debt because of limited financial ties with euro zone markets.
"Even where there are subsidiaries of European banks in the region, these subsidiaries are generally funded from local sources, so the deleveraging of European banks hasn't had the same impact," Ahmed added. Ahmed said some companies in the region were finding it more expensive to refinance debt. In some cases, refinancing of syndicated loans was being converted into refinancing through bonds because banks were less keen to lend.
Ahmed said the transition to democracy underway in Morocco, Tunisia, Jordan, Egypt, Yemen and Libya was still not complete. Over the next 12 months, many of these countries will hold elections or plan constitutional revisions.
"For many investors and decision-makers, they are holding back waiting for this process to define the future policy directions," said Ahmed. A sharp drop in tourism revenues and business activity after the Arab Spring forced many countries to increase government spending to avoid further protests. Higher food and fuel prices have also meant that government subsidies have risen.
Ahmed said increased spending had drawn down reserves and it was time for governments to reduce spending and make investments more effective.
"We're saying you have to consolidate now because financing pressures and the reserve buffers have been used up, and if you don't consolidate there is a risk of increasing your vulnerabilities. The last thing you want is to have a crisis in the middle of a political transition," he added. Some 60 percent of benefits on subsidies are going to the top 30 to 40 percent of the population who do not need it, Ahmed said, urging government to target subsidies to the poorest.