DUBAI – Middle East economies are gradually recovering as external shocks from the war in Ukraine and global inflation fade, the International Monetary Fund said Thursday, but the escalating war between Israel and the Hamas militant group could dampen the outlook.
IMF Managing Director Kristalina Georgieva said the organization was closely monitoring the economic impact of the war, especially on oil markets, where prices have fluctuated.
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“Very clearly this is a new cloud on not the sunniest horizon for the world economy — a new cloud darkening this horizon that is not needed,” she said at a news conference during the IMF and World Bank's annual meetings in Marrakech, Morocco.
The IMF expects economic growth to slow to 2% this year in the Middle East and North Africa, from 5.6% last year, as countries keep interest rates higher and contend with rising oil prices and local challenges. Growth is expected to improve to 3.4% in 2024.
That's below the IMF's forecast for global economic growth of 3% this year but above next year's expected 2.9%.
Wealthy countries in the Persian Gulf and elsewhere will benefit from higher oil prices, while Egypt and Lebanon are still contending with soaring inflation, the IMF said.
Climate change poses a challenge across the region, as seen in last month's devastating floods in war-torn Libya.
Average inflation is expected to peak at 17.5% this year before easing to 15% in 2024. Both figures drop by about a third with the exclusion of Egypt, where inflation soared to nearly 40% last month, and Sudan, where rival generals have been battling since April.
Egypt, the most populous Arab country and the world's largest wheat importer, has seen prices soar since Russia's invasion of Ukraine disrupted its vital wheat shipments. Food prices rose by 70% in August compared with the same month last year.
Egypt secured a $3 billion IMF bailout last year that requires a raft of economic reforms, including a shift to a flexible exchange rate and a higher borrowing costs.
The IMF also has called on Egypt to level the playing field between the public and private sector after decades of subsidizing basic goods and granting the military an outsized role in the economy.
Jihad Azour, director of the Middle East and Central Asia Department at the IMF, said Egypt has made “progress in certain areas more than others.”
“Egypt has a promising economy, large in size, with big potential," he said. "It’s very important to provide the space to the private sector to be in the lead. And this is why redesigning the role of the state to be more an enabler than a competitor is so important.”
In Lebanon, which has been in a severe economic meltdown since 2019, the IMF is still waiting on the country's leaders to enact financial and economic reforms that might pave the way to a bailout following a preliminary agreement last year.
“They were supposed to happen very quickly, and the team is still waiting to see progress on those," Azour said.
He pointed to some successes elsewhere.
Morocco has enacted changes that have “paid off in terms of growth, in terms of economic stability,” Azour said, adding that the North African country is now eligible for “gold standard” IMF programs reserved for well-advanced emerging economies.
He also cited Jordan, a close Western ally facing severe water scarcity, saying it had maintained economic stability despite the successive shocks of COVID-19, inflation and regional instability.