Paying the Price of Arab Revolt

Political unrest, growing unemployment and spiralling food prices add up to bad news for Arab economies, the IMF warns.

Article first published as Paying the Price of Arab Revolt on Technorati.

Will “revolution tourism” bring dollars to Egypt? (IMAGE – Tarek)

The continuing unrest in the Middle East and North Africa will lead to higher commodity prices and disruption to economic growth for many countries in the region, the IMF said in its April 2011 Regional Economic Outlook for the Middle East, North Africa, Afghanistan and Pakistan (MENAP), released on 27 April 2011.

While oil exporters will enjoy a windfall, a difficult economic year looms for oil-importing states, the IMF predicts.

The report comes in the wake of a joint call for urgent support for Middle East economies by the World Bank and the IMF, who warn that political upheavals in the region could throw the global economic recovery off track.

Eventual Growth After Initial Disruption?

In the short term, many Middle East and North Africa (MENA) countries face multiple pressures caused by growing unemployment, rising commodity prices and disrupted economic activity.

But in the long run, "the uprisings could give a boost to the economies in the region by setting a more inclusive growth agenda, improving governance, and providing greater and more equal opportunity for its young and growing population," Masood Ahmed, Director of the IMF’s Middle East and Central Asia Department, said at a press conference in Dubai to launch the report.

"The immediate challenge facing oil-importing countries in the Middle East is to maintain social cohesion and macroeconomic stability in the face of multiple pressures," he added.

Oil, Food Prices Major Factors Affecting Growth

"Two major factors are driving the current scenario: the unrest in the region and ensuing uncertainty, and the surge in global fuel and food prices," says the IMF.

The IMF report projects overall growth in the MENAP region at 3.9%.

The economies of the oil-exporting countries - Algeria, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, Sudan, the United Arab Emirates and Yemen - are expected to expand by 4.9%, mostly through higher oil prices and oil production, although those projections exclude Libya.

The combined external current account balance for regional oil exporters is expected to more than double to $380 billion in 2011.

But the region’s oil exporters still need to increase diversification of their economies, create jobs for their populations (in a region where youth unemployment rates are well above 20% in a number of countries), and improve the management of public resources, the IMF says.

For oil importers - Afghanistan, Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Pakistan, Syria, and Tunisia - the outlook is not rosy. With political turmoil hitting both tourism and investment, their projected growth has dropped to only 2.3%.

And worsening terms of trade resulting from higher food and fuel prices are expected to inflate their import bill by about $15 billion, or nearly 3% of GDP on average, according to the IMF. "This will, in turn, translate into either higher inflation or a worsened fiscal balance, depending on the extent of subsidies."

Egypt and Tunisia Worst Hit

On 11 April, the IMF's World Economic Outlook report revised its economic growth projection for the Middle East to 4.1% for 2011, from a 4.6% forecast in January 2011, French news agency AFP reported.

In Egypt, which has the Arab world's biggest population, the IMF predicted economic growth to be only 1% in 2011, down from 5.1% in 2010. However, “disruptions to tourism, capital flows, and financial markets are expected to be temporary," it added.

In Tunisia, which enjoyed 3.7% growth in 2010, the IMF's 2011 prediction was down to 1.3%, from 4.8% in October 2010. If political and social turmoil in the North African country continues, the drop in tourism and foreign direct investment will exacerbate damage to the economy, the IMF warned.

But it raised its economic growth projection for natural gas producer Qatar to 20% in 2011, up from 16.3% in 2010.

The IMF also forecast that Saudi Arabia, the largest Arab economy, would enjoy 7.5% growth in 2011, compared with 4.5% projected in October 2010.

The IMF said that among other Arab oil exporters, the economy of Iraq would grow by 9.6% in 2011, Kuwait by 5.3%, Sudan by 4.7%, Algeria by 3.6%, and the United Arab Emirates by 3.3%.