Pakistan, MENA region: Economies face fragile recovery, says IMF

ISLAMABAD: Economies in the Middle East and North Africa (MENA) region and Pakistan face a fragile recovery amid global geo-economic fragmentation, conflicts, climate-related shocks, and country-specific challenges, said the International Monetary Fund (IMF).

The Fund in its latest report, “Regional Economic Outlook, Navigating the Evolving Geo-economic Landscape” stated that MENA oil importers and Pakistan continue to grapple with conflicts (Gaza, Sudan), uncertainty, and high gross financing needs.

As these gradually abate and oil prices ease, near-term growth will recover from 1.5percent in 2024 to 3.9percent in 2025. Yet, structural gaps will hold back productivity growth in some economies over the forecast horizon, the Fund added.

The pace of reform has slowed, and there remains room for improvement, including in liberalising interest rates (Egypt, Morocco, Oman, Pakistan), expanding private sector ownership in the banking sector (Algeria, Egypt, GCC countries, Morocco, Tunisia), and developing capital markets.

The fund stated that average growth in the MENA region is projected to remain sluggish at 2.1 percent in 2024, before accelerating to 4 percent next year, tempered from the April MENA forecasts of 2.7 and 4.2 percent, respectively. However, experiences vary markedly across the region.

MENA oil exporters have generally navigated the global landscape well, even as geopolitical tensions continue to provide headwinds to the broader region. Still, the twin surpluses that have helped cushion shocks have started to narrow, as ambitious investment strategies are implemented to diversify the economy and voluntary oil production cuts weigh on growth and revenues.

Growth among several MENA oil importers continued to be held back by conflict, uncertainty, and country specific challenges. Stronger growth in some economies in the first quarter of 2024 reflected improvements in agriculture following infrastructure investment (Mauritania), greater security and favourable weather conditions (Somalia), and economic recovery after extensive flooding and an increase in manufacturing, particularly related to apparel and pharmaceutical products (Pakistan).

For MENA, Emerging Market and Middle-Income Economies (EM&MIs) and Pakistan, growth is projected to slow to 2.4 percent in 2024 before strengthening to 3.6 percent in 2025 (in line with April projections) and further improve modestly over the medium term as current headwinds gradually subside and reform implementation takes hold.

Positive outlooks for Morocco and Pakistan are supported by the normalisation of agricultural output and an improvement in the industrial and service sectors.

The report noted that financing needs are expected to remain sizable. Total gross public financing needs for MENA EM&MIs and Pakistan are projected to reach $268.2 billion in 2025 (the equivalent of above 100 percent of fiscal revenues), marking an increase from $260.6 billion in 2024.

In turn, financing needs are likely to be met by $235.9 billion in domestic and $32.3 billion in external debt issuance in 2025, indicating a continued high dependence on domestic financing.

Nonetheless, structural reforms and official financing are projected to help increase gross foreign reserves in some countries (Egypt, Jordan, Morocco, and Pakistan).

Elsewhere, for countries grappling with persistently elevated inflation (Egypt, Kazakhstan, Pakistan, Tunisia, and Uzbekistan), monetary policy should remain tight, the report noted.

Since early 2020, the IMF has approved over $47.7 billion in financing to countries across MENA, Pakistan, and the CCA. Since the start of 2024, more than $13.4 billion in new funding has been approved for programmes in Egypt (augmentation under the Extended Fund Facility), Jordan (Extended Fund Facility), and Pakistan (Extended Fund Facility).—TAHIR AMIN

AFP adds: Gaza, Lebanon and Sudan will take decades to recover from the conflicts raging on their soil, the International Monetary Fund (IMF) said on Thursday after downgrading the region’s growth forecast.

Israel’s military actions against Hamas in the Gaza Strip and Hezbollah in Lebanon, and Sudan’s civil war would have enduring impacts, the IMF said.

“The damage caused by these conflicts will leave lasting scars at their epicentres for decades,” the global lender said in a statement.

The IMF has lowered its predicted growth for the Middle East and Central Asia to 2.1 percent for 2024, a drop of 0.6 percent due to the wars and lower oil production.

Depending on the conflicts, growth should rise to 4.0 percent next year, according to the IMF’s Regional Economic Outlook which was compiled in September.

“This year has been challenging with conflicts causing devastating human suffering and lasting economic damage,” Jihad Azour, the IMF’s Middle East and Central Asia Department director, told reporters in Dubai.

“The recent escalation in Lebanon has greatly increased the uncertainty in the whole MENA region.” IMF forecasts for Lebanon, where conflict with Israel has sharply escalated this month, have been suspended. But “conservative” estimates show a 9.0-10 percent contraction this year, Azour said.

“The impact (on Lebanon) will be severe and it will depend how long this conflict will last,” said the former Lebanese finance minister.

Saudi-led oil cuts through the OPEC+ cartel, aimed at propping up prices, “are contributing to sluggish near-term growth in many economies”, the IMF said.

For the region’s oil exporters, “medium-term growth is projected to moderate, as economic diversification reforms will take time to yield results”, it added.

Downside risks continue to dominate, the lender said, including fluctuating commodity prices, conflicts and climate shocks.

Copyright Business Recorder, 2024