MENA’s GDP growth to average 5% in 2022 amid Russia-Ukraine conflict: IMF

Doaa A.Moneim , Wednesday 27 Apr 2022

The International Monetary Fund (IMF) has downgraded its projection for the real GDP growth in the Middle East and North Africa (MENA) region to five percent, down from 5.8 percent in 2021.



The downgrade is still 0.9 percent higher than the fund’s October forecast.

In its Regional Economic Outlook report for the Middle East and Central Asia, released on Wednesday, the IMF said recovery in MENA will be uneven, as growth in oil exporters is projected at 5.4 percent, versus 4.4 in emerging markets and middle income countries and 1.1 percent in low income countries.

“This upgrade reflects the improved outlook for oil exporters and better-than-expected growth in the first half of fiscal year 2022 for Egypt,” the report stated.

In 2021, the IMF revised up its expectations for the region’s growth to 5.8 percent, primarily driven by strong domestic demand.

Last week, the IMF revised up its projections for Egypt's real GDP growth in 2022 by 0.3 percent to reach 5.9 percent, up from 5.6 percent expected in January, before slowing down to five percent in 2023.

Amid the current challenges, the region’s debt is expected to moderately increase, particularly in Egypt and Morocco, as an impact of depreciation on foreign currency debt.

“This leaves debt to GDP ratio in emerging markets and middle income countries 13 percent above pre-pandemic levels, on average, in 2022,” the report estimated.

The report highlighted Egypt and the UAE as the only countries in the emerging and middle income economies to issue $0.5 billion and $0.8 billion bonds in the international markets in 2022 despite 41.2 billion of fund outflows these economies had witnessed in the second half of 2021, compared to a record $2.8 billion in inflows to portfolio funds in the region in the first half of 2021.

The report predicted the faster-than-expected tightening of global financial conditions to raise annual budgetary interest expenses in emerging markets and middle income economies, including Egypt, by about 4.5 percent of fiscal revenues.

“Financial market uncertainty and tighter financial conditions may significantly affect countries with high debt through reduced capital flows and rising borrowing costs. In addition, a slowdown in Europe would amplify the negative effects on trade and tourism. If donors redirect support to emerging urgent needs and to countries that are directly impacted by the war, low income countries could face aid diversion,” said the report.

Meanwhile, public gross financing needs are expected to increase from $537 billion over 2020-2021 to $584 billion over 2022-2023, reflecting higher debt-service costs and measures to face off inflation pressures, according to the report.
The region’s inflation is forecast to accelerate from 8.4 percent in 2021 to 11.1 percent in 2022, an upgrade of 3.4 percent from October.

“Higher inflation will be driven primarily by surging food prices and, to a lesser extent, by energy costs and an acceleration in core inflation. This is notwithstanding measures in some countries to contain the pass-through from global prices through existing subsidies, administered prices, or new measures (for example, Egypt and Pakistan). Given historical trends, the impact of global food and energy prices on headline inflation is expected to be felt in about 4-5 months, particularly in countries with lower subsidies,” the report explained.

In this respect, the report anticipated food prices to increase by about 14 percent in 2022 on top of the 28 percent increase in 2021, and decrease by 5.7 percent in 2023.

Touching upon the global oil price fluctuations amid the ongoing conflict, the report predicted oil prices to decline to $107 per barrel in 2022, after averaging between $98-130 per barrel since the beginning of the war, before dropping to about 72.5 percent by 2027.

This estimation represents an increase of about $43 per barrel compared to the fund’s expectations in October.

“Oil revenues in 2022 are projected to increase by an average of 5.3 percentage points of GDP compared to 2021, reaching a total of $818 billion (an upward revision of $320 billion compared to October). Current account balances are expected to improve to 12.2 percent of GDP (an upward revision of about 8.7 percentage points compared to October). Accordingly, official reserves are expected to increase to $1.3 trillion in 2022 (an upgrade of about $235 billion),” the report added.

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