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Better than the rest
Despite being affected by the financial crisis, the Middle East is faring better than other regions, says the IMF.
May 10, 2009 1:17 by Aarti Nagraj
The International Monetary Fund (IMF) has just released its May 2009 Economic Outlook for the Middle East and Central Asia report, and has estimated that economic growth in the GCC region will decline from 6.4 percent in 2008 to 1.3 percent in 2009, and 4.2 percent in 2010.
The IMF has also said that inflation slowing, with the rates expected to decrease from 10.7 in 2008 in the GCC, to 5.3 in 2009, and 4.8 in 2010.
“The Middle East and North Africa will be negatively affected by the current global economic crisis, but it is likely to fare better than many others,” said Masood Ahmed, director of IMF’s Middle East and Central Asia Department. “This is in part due to prudent financial and economic management, and in part to the fact that oil exporters in the region can draw upon their large reserves to cushion the impact of the global slowdown for their own economies and for the economies of their neighboring countries with whom they have growing economic links.”
Ahmed explained that the global crisis is affecting the region in three ways.
“The sharp drop in oil prices is shrinking revenues for oil exporters as well as import costs for oil importers; the contraction in global demand, trade, and related activity is lowering exports, tourism, and remittances; and the tightening of international credit markets and lower investor appetite for risk, is slowing down capital inflows, depressing local asset prices, and reducing investment,” he said.
The IMF has predicted that global financial markets will remain “highly stressed”, and that the world economy will contract by around 1.25 percent before recovering gradually in 2010.
The report proposes four main methods for going forward, and finding solutions to the current crisis.
“First, countries where public debt levels are not a concern would do well to maintain or enhance public spending. This is the case of most oil exporters but also countries like Morocco, Syria, and Tunisia.
“Second, during this period of slowdown and uncertainty, there is a need to keep a close eye on banking systems and, where appropriate, to conduct “stress tests,” assess recapitalization needs, or undertake actions to address troubled financial institutions.
“Third, as inflation pressures recede, some countries will have room for additional easing of monetary policy.
“Finally, with rising unemployment and declining remittances, it will be even more important to target government resources and policies on protecting the poor and vulnerable parts of the population of the affected countries.”