Middle East and North Africa Regional Economic Outlook April 25, - - PowerPoint PPT Presentation

Middle East and North Africa Regional Economic Outlook

April 25, 2016

Roadmap

Global Environment and Regional Themes MENAP Oil Exporters MENAP Oil Importers

3

A modest recovery in global economic growth, albeit weaker than projected last October

World U.S. Euro Emerging China Russia Area markets 2015 3.1 2.4 1.6 4.0 6.9

• 3.7

2016 3.2 2.4 1.5 4.1 6.5

• 1.8

2017 3.5 2.5 1.6 4.6 6.2 0.8

Downside risks have risen amid tighter financial market conditions and slower-than-expected economic activity

4

1 2 3 4 5 6 7 8 Jan-13 Jan-14 Jan-15 Jan-16

Sovereign Yields (Percent)

Emerging Markets Advanced Countries 60 70 80 90 100 110 120 130 140 150 160 Jan-13 Jan-14 Jan-15 Jan-16

Equity Markets (Indices, Jan 1, 2013 = 100)

SP 500 Index Euro Stoxx 50 Index MSCI Emerging Markets

• 40
• 30
• 20
• 10

10 20 30 07 08 09 10 11 12 13 14 15 16

World Merchandise Trade (YoY Percent Change)

Volume Price Value

5

Oil prices are expected to remain low for a long time, although uncertainty around these forecasts is high

Brent Crude Oil Price (U.S. dollars per barrel)

20 40 60 80 100 120 140 2014 2015 2016 2017 2018 2019 95% Confidence interval 86% Confidence interval 68% Confidence interval Brent futures WEO Baseline Average Oil Price: 2016: $35 2017: $41

Hydrocarbon Production

(Change relative to previous year, millions of barrels per day)

• 1.0
• 0.5

0.0 0.5 1.0 1.5 2.0 2014 2015 2016 2017 2018-21 GCC + Algeria Iran Libya + Yemen Iraq

6

The region is facing intensifying shocks from conflicts, oil prices, and financing costs

Strong U.S. Dollar Low Oil Prices High Financing Costs Conflicts

Remittances, financial flows, trade

Oil Exporters Oil Importers

16 million refugees and internally displaced Syria 9.6 Yemen 0.3 Afghanistan 3.4 Libya 0.1 Iraq 2.4

Roadmap

Global Environment and Regional Themes MENAP Oil Exporters MENAP Oil Importers

7

8

Fiscal effects of the large and persistent decline in the price of

• il are significant

10 20 30 40 50 60 70 80 90 100 2014 2015 2016 2017 2018 2019 2020 2021 Iran Conflict Countries GCC and Algeria

Public Debt

(Percent of GDP)

• 15
• 10
• 5

5 10 2013 2014 2015 2016 2017 2018 2019 2020 2021 GCC and Algeria Other MENAP Oil Exporters

Fiscal Balance

(Percent of GDP)

9

Many countries have adopted sizable fiscal measures

5 10 15 SAU IRQ QAT OMN BHR UAE DZA IRN KWT Sum of spending cuts and revenue increases, 2015 Sum of spending cuts and revenue increases, 2016

Fiscal Consolidation Measures

(Percent of non-oil GDP, 2015–16)

Gasoline Prices

(U.S. dollars per liter)

0.0 0.1 0.2 0.3 0.4 0.5 0.6

BHR KWT OMN QAT SAU UAE DZA IRN

April 2016 price 2015 average price Pre-tax U.S. Price

10

Further sizable fiscal measures needed to balance budgets

10 20 30 40 50 60 Qatar Kuwait UAE Oman Saudi Arabia Algeria Bahrain With oil at $35/barrel With oil at $50/barrel

Decrease in Spending Needed to Balance 2016 Budget

(Percentage decrease relative to baseline)

5 10 15 20 25 Wages Other Current Capital Interest EMDCs GCC Algeria Iran

Spending

(Percent of GDP, 2015) Menu of options for the GCC (in percent of GDP)

• 1. A broad-based 5% VAT: saving 1.5%
• 3. Further reducing energy subsidies: saving 2%
• 2. More efficient public investment: 2%
• 4. Benchmarking spending to pre-oil price boom levels

11

Cross-country comparisons suggest that room exists to cut spending and raise taxes

1 2 3 4 5 6 VAT \1 PIT CIT Property \1

Tax Revenue

(Percent of non-oil GDP, 2015 or most recent available)

12

Market discipline reinforces need for sustained fiscal consolidation in GCC countries

5 10 15 20 25 30 35 40 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 GCC+DZA Iran Conflict Countries

Private Sector Credit Growth

(Percent change, YoY)

0.0 0.5 1.0 1.5 2.0 2.5 3.0 OMN KWT SAU BHR QAT UAE Nov-15-2015 Current

Discount in 12-month Forward Exchange Rates

(Percent ratio of 12-month forward price to spot price)

13

Fiscal tightening to slow economic activity in GCC and Algeria,

• il output driving growth in Iran and Iraq
• 3
• 2
• 1

1 2 3 4 5 6 7 8 9 10 11 12 13 Bahrain Kuwait Oman Qatar Saudi Arabia UAE Algeria Iran Iraq Libya Yemen 2005-14 2015 2016 2017-21

• 28.1

Real Overall GDP Growth

(Percent)

• 6.4

14

With dwindling oil revenues, the private sector needs to become the engine of non-oil growth and job creation

Oil exporters: policy response has to be in sync with the large and lasting shocks – business as usual will not do.

15

• Significant fiscal adjustment is underway, but more is needed as oil

prices are expected to be “low-for-long.”

• Adjustment can be more gradual if buffers are available; but credible

adjustment path is essential for market confidence.

• Economic activity is slowing as the public purse is tightened; private

sector needs to take over as the engine of growth.

• Increased engagement with the private sector can help to identify and

address impediments to growth.

• Security is a prerequisite for economic growth in countries affected

by conflict.

• In Iran, sanctions relief will boost the economy but growth dividend

would be larger if accompanied by structural reforms.

Roadmap

Global Environment and Regional Themes MENAP Oil Exporters MENAP Oil Importers

16

Syria Morocco Mauritania Tunisia Jordan Lebanon Egypt Sudan Afghanistan Pakistan Djibouti

> 0.5% < -0.5 % Between 0% and 0.5% N.A. Between -0.5% and 0%

17

Recovery has been gradual and uneven

Real GDP Growth (Percentage Point Change, 2016-17 Average vs. 2014-15)

> 0.5% Between 0% and 0.5% Between -0.5% and 0% N.A.

18

Subsidy reforms and low oil prices have created space for raising growth-enhancing investment

Changes in Government Spending (Percentage of GDP, Change from Prior Year)

• 1.0
• 0.5

0.0 0.5 1.0 2010-13 2014-15 2016 Capital Subsidies Other Current Wages

19

Low oil prices support consumption, offsetting slowing remittances

Oil Price Pass-Through (Proportion of Sample, Expected end-June ¹)

¹ Pass-through period is defined as the oil price drop from Sept. 2014 to end-June 2016.

Remittances (YoY Percent Change)

20 40 60 80 100 Fuel Electricity 0-0.5 0.5-1

• 10
• 5

5 10 15 20 Jan-13 Oct-13 Jul-14 Apr-15 Primary Currency of Receipt In Local Currency

20

Exports and tourism are slowing, because of deteriorating competitiveness and rising security risks

Exports, Tourism, Exchange Rate (Index values, Jan 2010=100)

80 90 100 110 120 130 Jan-13 Jan-14 Jan-15 Exports (3MMA) REER Tourism

21

Further fiscal consolidation needed to reduce debt, while greater growth needed to create more jobs and improve living standards

Public Debt (Percent of GDP)

30 60 90 120 150 180 LBN JOR EGY MAR PAK TUN 2010 2015 2020

Egypt Jordan Lebanon Morocco Pakistan Tunisia Central Asia Asia LAC Eastern Europe

5 10 15 20 25 30 35 40 45 3 5 7 9 11 13 15 17 19

Unemployment (Latest available, Percent)

Youth unemployment Total unemployment

Sub-Saharan Africa

22

Structural reforms are key to igniting business confidence and improving labor markets

Corruption Bureaucracy Infra- structure Regulations Legal Efficiency Education Finance Trade MENAP OI 19% 23% 49% 47% 49% 22% 37% 29% 21% Egypt 19% 23% 51% 43% 49% 0% 36% 8% 11% Jordan 67% 23% 65% 62% 59% 36% 53% 56% 45% Lebanon 2% 23% . 47% . . . . . Mauritania . . 3% 36% 42% 39% 10% 17% 16% Morocco 67% 23% 47% 50% 44% 2% 37% 25% 11% Pakistan 19% 23% 42% 32% . 13% 30% 54% 27% Tunisia 19% 23% 69% 55% 62% 31% 71% 33% 29% Sub-Saharan Africa 19% 12% 17% 31% 31% 41% 23% 31% 30% Latin America 19% 23% 39% 51% 27% 26% 37% 28% 35% Emerging Europe 46% 23% 42% 64% 43% 46% 54% 45% 56% Developing Asia 46% 23% 26% 42% 36% 55% 41% 32% 36% Advanced Economies 82% 84% 85% 92% 81% 77% 84% 84% 85% Business Environment Labor Market

So urces : Wo rld Bank; Wo rld Eco no mic Fo rum; P RS Gro up; and IMF s taff calculatio ns .

#

Lo wes t 20th P ercentile

#

60th-80th P ercentile

#

20th-40th P ercentile

#

To p 20th P ercentile

#

40th-60th P ercentile

.

N/A

2007

Corruption Bureaucracy Infra- structure Regulations Legal Efficiency Education Finance Trade MENAP OI 28% 23% 35% 41% 45% 6% 30% 29% 15% Egypt 15% 23% 35% 25% 45% 2% 12% 15% 15% Jordan 60% 23% 50% 55% 58% 34% 62% 49% 34% Lebanon 15% 23% 17% 47% 29% 22% 57% 44% 49% Mauritania . . 12% 27% 14% 3% 5% 1% 12% Morocco 41% 23% 61% 52% 49% 12% 30% 50% 19% Pakistan 15% 23% 17% 28% 36% 6% 29% 29% 13% Tunisia 41% 23% 43% 41% 47% 5% 37% 13% 15% Sub-Saharan Africa 15% 19% 14% 33% 40% 51% 27% 30% 29% Latin America 15% 23% 42% 51% 39% 21% 43% 47% 42% Emerging Europe 41% 23% 48% 67% 45% 42% 52% 56% 63% Developing Asia 41% 23% 36% 37% 43% 53% 40% 53% 37% Advanced Economies 83% 84% 86% 90% 79% 83% 83% 83% 86% Business Environment Labor Market

So urces : Wo rld Bank; Wo rld Eco no mic Fo rum; P RS Gro up; and IMF s taff calculatio ns .

#

Lo wes t 20th P ercentile

#

60th-80th P ercentile

#

20th-40th P ercentile

#

To p 20th P ercentile

#

40th-60th P ercentile

.

N/A

23

Structural reforms are key to igniting business confidence and improving labor markets

2016

Oil importers: reform momentum must continue to create jobs and improve living standards

24

• Growth rising and unemployment stabilizing as subsidy reforms and

lower oil prices have created room for investment.

• Yet some economies are lagging because of conflicts and security

challenges.

• Large downside risks and vulnerabilities remain.
• Budget savings can be channeled into growth-enhancing spending.

Need for further fiscal consolidation to ensure debt sustainability.

• Greater exchange rate flexibility would improve competitiveness.
• Accelerated structural reforms needed to create jobs and to ensure

higher, more inclusive medium-term growth.

25

Regional outlook is weaker than last October, especially in oil exporters; recovery expected in oil importers and Iran

Real GDP Growth, 2015-17 GCC and Algeria Iran Conflict Countries MENAP Oil Importers 2015 3.3 0.0

• 2.0

3.8 2016 2.1▼ 4.0▼ 5.4▼ 3.5▼ 2017 2.4▼ 3.7▼ 5.4▼ 4.2▼ ▼ Indicates a decline in projections relative to October 2015 REO

To download REO publication, please visit http://www.imf.org/external/pubs/ft/reo/2016/mcd/mreo0416.htm