Regional

Economic
Outlook
Middle East , North Africa ,
Afghanistan & Pakistan
(MENAP)
 Presented to:
Professor DR. Ghulam Saghir

Presented by:

SABA WAHEED(L1F18MBAM0187)
LARIAB NADEEM(L1F18MBAM0236)
AMNA TAHIR (L1F18MBAM0176)
AQSA RANA (L1F18MBAM0247)
Global Developments :Implications
• This year projected slow 3.3% because prospects for growth
have deteriorated over the past year & forecast for 2019 is over
half a percentage lower than projected one year ago
• Weaker external demand, particularly from key trading partners
represents a key challenge to countries across the middle east &
central Asia
• The decline in oil prices will also adversely impact oil-exporting
countries.
• Lower prices will impact output & fiscal position which is
another common challenge for countries across the region
particularly for oil exporters (A,B,O)
Evolution of Oil Prices
Exposure to External Risks
• Trade tension between US and China may continue at length.
• Elevated oil price volatility may continue in uncertain global environment.
• Global Financial conditions have eased recently but are likely to remain volatile
& market sentiment could change abruptly
• Geopolitical risks are high
• In MENAP oil exporters procyclical fiscal policies have proved less supportive of
growth , underscoring economic weaknesses
• In MENAP oil importers public debt burdens have increased significantly over
past decade raising near-term vulnerabilities & limiting policy options to
address persistent structural weakness.
MENAP OIL-EXPORTING COUNTRIES: Impact of
Lower & more Volatile Oil Prices
• Growth in oil exporters of MENAP region is projected to remain
subdued relative to 2018 amid lower oil prices, restrained oil
production & slowing global growth
• Oil prices turned highly volatile in the end of last year
• Renewed oil prices volatility reflects supply disruptions , global
growth concerns technological changes & geopolitical
uncertainties .
MODERATE GROWTH:

• Growth of MENAP oil exporter is project at 0.4% in 2019

• Non GCC oil exporter growth is said to contract by 1.7% after

contracting 1.1% 2018

• Temporary rise last year ,year over year inflation is expected

to decline in 2109 as the impact of the introduction of (VAT)
(UAE) & exchange rate depreciation on inflation fades

• Lower projected oil prices will also weigh on current account

balances adding to pressures from OPEC + production
commitments & us sanctions against Iran
 Tighter Financial Condition Weigh on Growth &
Banks:
• Headwinds from tighter domestic financial & monetary conditions also act as a
drag on non-oil growth in some countries
• Pressures from tighter global financial condition led to Net capital outflows in
the region during the second half of 2018 contributing to lower domestic
liquidity growth
• With lower oil prices higher interest rate & weaker demand conditions credit
is expected to decline in most countries
Fiscal Consolidation Slows

• Fiscal consolidation in region begin in 2014 following the decline in oil

prices but slowed with the rebound in oil prices last year
• It is projected to slow further despite lower projected oil prices Expect in
Algeria , Iraq & Saudi Arabia
• There are signs that the relationship between government spending &
growth has weakened in recent years, owing to predominance of external
shocks & that potential growth is likely lower relative to the period of high
oil prices , high investment , buoyant sentiment & a stronger external
environment
• Fiscal break- even prices remain significantly above the current oil price
trajectory ,even though most countries have recently lowered these
Deeper Reformers For Revival of Growth:
• MENAP oil exporters must resume gradual fiscal adjustment to rebuild buffers
while deepening & broadening structural reforms to diversify economies &
promote higher & more inclusive growth
• To minimize potential short term growth impact for necessary fiscal
consolidation the designs of the adjustment strategy must be carefully
considered
• MENAP oil exporters should seek to insulate spending from oil prices
developments & avoid a return to procyclical fiscal policies of past that create
undue volatility in economic activities
• In parallel the modest oil price outlook ,countries should intensify efforts to
diversify economics away from hydrocarbon dependence
• Governance weakness in the region call for urgent engagement on corruption &
governance issues
• Like , fostering development , increasing productivity of SMEs , increase access
to financing by availability of adequate funding adapted to SME, enhancing
human capital , physical infrastructure , etc
 MENAP OIL-Importing Countries : Managing
vulnerabilities when Economic Outlook is
uncertain
• Growth in oil importers of MENAP region is projected to remain relatively
modest ,constrained by persistent structural rigidities
• Elevated public debt in many countries limits the fiscal space needed for
critical social & infrastructure spending & leaves the economy vulnerable to
less financial conditions

Balance Near-term Vulnerablities & Medium-term

challenges:
Real GDP growth in MENAP oil importers is projected to
remain moderate in 2019, reflecting the weaker external
environment as well as domestic factors
• Growth is expected to pick up
slighty over the medium term &
structural rigidities are too low
to effectively reduce the
unemployment as demographic
pressure rise
• At the same time public debt has
increased ,constraining policy
options to address these
challenges
• Policymakers increasingly face
trade-off between rebuilding
buffers to strengthen near-term
risks ,as debt dynamics become
less favorable
Modest & Uneven Growth Continues:

• Real GDP growth in MENAP oil importers is expected to slow from

4.2% in
2018 to 3.6% in 2019 before rebounding to 4.3% during 2020-2023

• Weaker growth in Pakistan is pulling down the regional aggregate

growth this
year with large macroeconomic imbalances & ongoing policy
adjustment
challenges expected to slow

• Pakistan’s growth from 5.2% in 2018 to 2.9% in 2019

• Uncertainty related to conflicts & security concerns also poses a downside risk to outlook

• Regional uncertainty ( Afghanistan, Jordan , Lebanon , Syria) security concerns, weaker the public
investment & large external imbalances (Lebanon, Pakistan, Sudan) are expected to weigh on the
medium-term growth outlook
 Lower Oil Prices Help But External
Vulnerabilities Persist
• The regional current account deficit is expected to decline from
6.5% of GDP in 2018 to 5.9% & 5.2% in 2019 & respectively in
2020 as lower oil prices help improve oil importers terms of trade

• Regional export growth is expected to slow to 7% in 2019 & 6.5%

in 2020 due to weaker demand in key trading partners
 Elevated Public Debt Increases Risks & Limits the
Fiscal Space:
• MENAP Oil importing countries are well above the emerging market
threshold for public debt, exceeding 80% of GDP in Egypt , Jordan. Lebanon
& Sudan

• Increased borrowing has meant higher interest expenditures, constraining

fiscal space &crowding out higher-priority spending

• Many countries have large foreign currency debt ($27 billion) set for the next
two year will slow the growth rate prospects & financial market volatility

• Immediate pressure on financial flows has been serve in the recent months
& global financial conditions remain uncertain
• Countries should improve the
efficiency of public spending
by rationalization recurrent
expenditure to make space for
capital & social spending

• In countries where tax

collection is low
(Afghanistan, Pakistan ,
Sudan) is also higher risk
of debt distress where
public debt exceeds 70% of
GDP
 Limited Monetary Space Despite Modest Inflation
Pressure:
• Regional inflation is projected to pick up slightly to 11.3% in 2019
primarily due to higher inflation in (Egypt fuel subsidy reform &
Pakistan weak exchange rate )

• Inflation is expected to remain broadly stable helped by declining

energy prices with most countries in region projected at single-digit
inflation (below 3% Afghanistan, Lebanon , Jordan & Morocco)
Focus on Structural Reforms to Improve Growth
Prospects:
• Limited fiscal & monetary space heightens the importance of structural
reforms to improve medium-term growth prospects, enable private
sector job & private investment across the region remains low
• Improving access to credit : credit to private sector remains low in
MENAP Oil importers , constrained in part by an underdeveloped
banking system
• Improving the business environment & governance
• Skilled labor force & labor market reforms
• Product market reforms & market competition