Projections, no matter how well-grounded in analytics, are a messy business. Three years ago, COVID-19 was unheard of and then-US President Donald Trump’s politics caused uncertainty in international relations, with democracy in retreat across the world. Despite the best-informed prognostications, predictions failed to capture cross-border variables such as immigration and civil conflict that have yet to play out in rearranging local and regional economic prospects.
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No region is more complex in terms of confusing signals than the Middle East and North Africa (MENA) and Central Asia. This is the subject of the latest report by the International Monetary Fund titled, “Regional Economic Outlook: Arising from the Pandemic: Building Forward Better.”
What is clear from a review of the data is that 2020 was an outlier in terms of trend lines earlier in the decade, skewed by the COVID-19 pandemic, erosion of oil prices, diminished domestic economic activity, reduced remittances and other factors that have yet to be brought into an orderly predictive model. Even the IMF had to recalibrate its 2020 report upward for several countries based on rising oil exports, while decreasing marks were given countries slow to vaccinate against COVID-19 and that rely on service-oriented sectors.
The numbers indicate a mixed picture, ranging from Oman growing at 7.2% and the West Bank at 6.9%, to Lebanon receiving no projection and Sudan at the bottom of the range with a 1.13% real GDP growth rate. Yet, so much can impact those numbers, from Oman’s heavy debt burden to continuing turmoil in intra-Palestinian and Palestinian-Israeli affairs.
The good news is that real GDP is expected to grow by 4% in 2021, up from the projection last October of 3.2%. Much of the lift has come from two factors: a more optimistic trend line for the oil producers and the rate of vaccinations in countries that will promote business recovery.
As CNBC pointed out, Jihad Azour, director of the IMF’s Middle East and Central Asia department, noted that recovery will be “divergent between countries and uneven between different parts of the population.” Key variables include the extent of vaccine rollout, recovery of tourism and government policies to promote recovery and growth.
In oil-producing countries, real GDP is projected to increase from 2.7% in 2021 to 3.8% in 2022, with a 5.8% rise in the region’s sector driven by Libya’s return to global markets. Conversely, non-oil producers saw their growth rate estimates reduced from 2.7% to 2.3%. In fact, Georgia, Jordan, Morocco and Tunisia, which are highly dependent on tourism, have been downgraded in light of continuing COVID-19 issues such as vaccination rollout and coverage.
As the IMF report summary notes, “The outlook will vary significantly across countries, depending on the pandemic’s path, vaccine rollouts, underlying fragilities, exposure to tourism and contact-intensive sectors, and policy space and actions.” From Mauritania to Afghanistan, one can select data that supports or undercuts the projected growth rates. For example, in general, Central Asia countries as a group seem to be poised for stronger results than others. Meanwhile, Arab countries in the Gulf Cooperation Council face greater uncertainty, from resolving debt issues to unforeseen consequences of negotiations with Iran.
So, how will these projects fare given a pending civil war in Afghanistan and the possible deterioration of oil prices and debt financing by countries such as Bahrain and Oman? Highlighting this latter concern, the report goes on to say that public “gross financing needs in most emerging markets in the region are expected to remain elevated in 2021-22, with downside risks in the event of tighter global financial conditions and/or if fiscal consolidation is delayed due to weaker-than-expected recovery.”
Calling for greater regional and international cooperation to complement “strong domestic policies” focused on the need “to build forward better and accelerate the creation of more inclusive, resilient, sustainable, and green economies,” the IMF is calling on the countries to see a post-pandemic phase as an opportunity. This would involve implementing policies that promote recovery, sustain public health practices that focus on sustainable solutions, and balance “the need for debt sustainability and financial resilience.”
There is great uncertainty assigning these projections without more conclusive data on the impact of the pandemic, the stress on public finance and credit available to the private sector, and overall economic recovery across borders that relies on factors such as the weather, oil demand, external political shocks and international monetary flows. The IMF report is a very helpful bellwether for setting parameters for ongoing analyses and discussions.
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.
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