Middle East and North Africa Regional Economic Outlook October 2014 - - PowerPoint PPT Presentation

Middle East and North Africa Regional Economic Outlook

October 2014

Outline

Global Outlook

• Oil Exporters
• Oil Importers

MENAP: Regional Themes, Outlook, and Risks

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World U.S. Euro Area Emerging markets China Russia

2014 3.3 2.2 0.8 4.4 7.4 0.2

Revision from Spring 2014

• 0.3
• 0.6
• 0.3
• 0.5
• 0.2
• 1.1

2015 3.8 3.1 1.4 5.0 7.1 0.5

Revision from Spring 2014 0.0 0.1

• 0.1
• 0.4
• 0.2
• 1.8

An uneven global recovery continues

Source: IMF, World Economic Outlook, October 2014.

Real GDP Growth Projections

(Percent change from a year earlier)

3

Downside risks have increased since last spring

Lower potential growth and secular stagnation in advanced economies Slower growth in emerging markets Geopolitical risks (Middle East, Russia-Ukraine) Financial market volatility in response to normalization of monetary policy in advanced economies

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Oil prices have declined considerably, yet risks are high in both directions

Brent Crude Oil Price¹

(U.S. dollars per barrel)

Sources: Bloomberg; and IMF Research Department staff calculations.

1Derived from prices of futures and options on October 15, 2014.

50 60 70 80 90 100 110 120 130 140 150

2013 2014 2015

95% confidence interval 86% confidence interval 68% confidence interval Futures

Fall 2014 WEO Oil Price for 2015: $99 Fall 2014 WEO Oil Price for 2014: $103 2013 2014 2015

Deepening regional conflicts with substantial spillovers

Turkey: 649K [0.8] Iraq: 222K [0.6] Egypt 135K [0.2]

 11 million refugees and internally displaced persons  Sectarian violence and political spillovers  Disruptions to bilateral and transit trade  Setbacks for tourism and investment

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Syria Iraq

Egypt

Libya

Tunisia Algeria Sudan Iran Turkey Chad Niger Saudi Arabia Kuwait Qatar Jordan Lebanon Bahrain Yemen

Recent developments, outlook, and risks

Algeria Libya Kuwait Qatar Saudi Arabia Iran Bahrain United Arab Emirates Oman Yemen Iraq

MENAP oil exporters

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GCC growth steady, conflicts push down growth projections for non-GCC

1 2 3 4 5 6 2013 2014 2015 2016

GCC, Fall 2014 Non-GCC, Fall 2014 GCC, Spring 2014 Non-GCC, Spring 2014

Real GDP Growth

(Percent)

2 p.p. revision Sources: National authorities; and IMF staff calculations.

Growth remains steady in most GCC countries

9

GCC Countries: Real GDP Growth

(Percent) 1 2 3 4 5 6 7 8 9 Bahrain Kuwait Oman Qatar Saudi Arabia UAE 2014 2015

Non-GCC outlook is highly uncertain, contingent

• n oil recovery in Libya and Iraq

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• 1.5
• 1.0
• 0.5

0.0 0.5 1.0 1.5 2013 2014 2015 2016 Other non-GCC IRN LBY IRQ GCC

Hydrocarbon1 Production

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

Sources: national authorities; and IMF staff calculations.

1 Crude oil, natural gas, natural gas liquids, condensates, refined products, and other hydrocarbons.

20 40 60 80 100 120 140 160 Libya Yemen Bahrain Iran Algeria Iraq Saudi Arabia Oman UAE Kuwait Qatar

317 U.S. dollars per barrel

Lower oil prices are putting pressure on government budgets

11 Sources: National authorities; and IMF staff calculations.

Fiscal Breakeven Oil Price, 2014

(U.S. dollars per barrel)

Rising domestic energy consumption is reducing external surpluses

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5 10 15 20

Current Account Balance

(MENAP oil exporters: percent of GDP)

Surplus to decline by $265 billion in 6 years, between 2012 and 2018

109 28 197 59 20 40 60 80 100 120 140 160 180 200 Middle East World Middle East World Oil Gas

Oil and Gas Demand Growth, 2000-19

(Percent) Sources: National authorities; and IMF staff calculations. Source: International Energy Agency

Sizeable energy subsidies are a key reason behind weakening fiscal and external positions

13

Sources: Staff estimates, OECD, IEA, Deutsche Gesellschaft für Internationale Zusammenarbeit, WEO, and World Bank. Notes: Latest data available (2011). Includes petroleum, electricity, natural gas, and coal subsidies. Impact of lower oil prices calculated on gasoline and diesel only. 2 4 6 8 10 12 14 Iran Iraq Algeria Saudi Arabia Libya Bahrain Kuwait Yemen Oman UAE Qatar

Baseline 20 percent decline in oil price

MENA Oil Exporters: Pre-Tax Energy Subsidies

(Percent of GDP)

Average decline in subsidy bills 1.2 percentage point of GDP

Sustaining private sector growth without government spending increases

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2 4 6 8 10 5 10 15 20 25 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Spending growth Non-oil GDP growth (RHS)

Government Spending and Non-Oil GDP Growth

(Percent, three-year moving average)

Sources: National authorities; and IMF staff calculations.

Significant structural reforms are needed, particularly outside the GCC

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Labor Corruption Infrastructure Trade Education Legal Finance Bureaucracy Regulations GCC

85% 58% 80% 75% 64% 77% 65% 24% 70%

Bahrain

88% 68% 80% 73% 57% 75% 59% 24% 74%

Kuw ait

29% 47% 64% 42% 40% 62% 42% 24% 52%

Oman

82% 47% 79% 76% 61% 81% 64% 24% 67%

Qatar

97% 68% 82% 79% 85% 84% 66% 24% 75%

Saudi Arabia

53% 47% 79% 68% 67% 76% 65% 24% 55%

United Arab Emirates

95% 75% 97% 79% 79% 79% 71% 64% 73%

Non-GCC Exporters

3% 3% 30% 19% 20% 28% 15% 22% 8%

Algeria

1% 20% 29% 6% 20% 28% 18% 24% 9%

Iran

2% 3% 57% 12% 39% 48% 31% 24% 7%

Libya

8% 0% 31% 59% 20% . 10% 19% 3%

Yemen

5% 3% 3% 26% 8% 17% 11% 4% 27%

## ## ## ## ##

Low est 20th Percentile 20th-40th Percentile 40th-60th Percentile 60th-80th Percentile Top 20th Percentile

Sources: World Bank; World Economic Forum; PRS Group; and IMF staff calculations.

MENAP Oil Exporters: Takeaways

• Robust growth in the GCC, uncertain outlook for non-GCC countries.
• The recent slide in oil prices has accelerated the weakening of fiscal and

current account positions, leading to the following policy recommendations:

• Use available buffers in the short run.
• Develop credible medium-term fiscal consolidation plans, which has now

become more urgent.

• The current growth model based on expanding government spending is not
• sustainable. The private sector needs to drive the economy.

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Recent developments, outlook, and risks

Egypt Sudan Morocco Mauritania Tunisia Lebanon Syria Jordan Djibouti Afghanistan Pakistan

MENAP oil importers

Somalia

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Immediate fiscal pressures are easing, and international reserves are gradually improving

8

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Reserves

(Months of imports)

Sources: Haver Analytics; and national authorities.

4 5 6 7 8 9 10

Fiscal Deficit (Percent of GDP)

1 2 3 4 5 6 7

Subsidy reforms are expected to save governments 1 percentage point of GDP on average in 2014 and 2015

19 Sources: National authorities; and IMF staff calculations. ¹Excludes Pakistan.

Change in Expenditure¹

(Percent of GDP)

• 2
• 1

1 2 3 4 Change 2010-13 Change 2013-15

Other Capital Generalized Subsidies Generalized Subsidies Investment Wages Investment

A 20 percent drop in oil prices could improve fiscal balances by as much as 1 percentage point of GDP

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Sources: National authorities; and IMF staff calculations. Note: Impact of lower oil prices calculated on gasoline and diesel only.

Change in Fiscal Balance, 2015

(Percent of GDP) Wages

0.0 0.2 0.4 0.6 0.8 1.0 1.2 Jordan Tunisia Egypt Morocco Lebanon Pakistan

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Exports are starting to recover, albeit unevenly

Exports of Goods

(Index; 3-month moving average, 2009=100)

Sources: Haver Analytics; and national authorities. ¹Afghanistan, Djibouti, Jordan, Lebanon, Mauritania, Sudan, and Tunisia.

80 110 140 170 200 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Egypt Morocco Pakistan Other MENAPOI¹

The outlook is for a weak recovery and persistent unemployment

Real GDP Growth and Unemployment

(Percent) Sources: National authorities; and IMF staff calculations.

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2 4 6 8 10 12 1 2 3 4 5 2010 2011 2012 2013 2014 2015

Unemployment (RHS) GDP Growth

• 2
• 1

1 2 3 4 5 6 Average 2013-14 Average 2015-16

Exports Imports Consumption Investment Real GDP growth

Downside risks to a pickup in exports and investment remain high

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Contributions to Real GDP Growth

(Percentage points) Sources: National authorities; and IMF staff calculations.

Room for countercyclical policy is limited, making it difficult to navigate the challenging environment

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Sources: National authorities; and IMF staff calculations.

Policy Buffers

Public debt Reserves Percent of GDP, 2014 Months of imports, 2014 Egypt 93.8 2.7 Jordan 90.0 6.7 Lebanon 144.9 11.6 Morocco 66.0 4.5 Pakistan 62.5 2.1 Tunisia 50.5 4.0 All data for 2014 above 80% of GDP below 3 m of imports 60% to 80% of GDP 3-5 m of imports 40 to 60% of GDP above 5 m of imports

External financing needs remain large

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External Financing

(Billions of U.S. dollars and percent share)

Sources: National authorities; and IMF staff calculations. Note: Reserves accumulation of $10 bil. in 2014 and $15 bil. in 2015 is excluded from the pie chart.

FDI, $20.1, 21% Private, $48.1 50% Other, $0.7, 1% Official, $26.4, 28% 2014 FDI, $23.4, 20% Private, $79, 67% Official, $16.2, 13% 2015

$85 billion $100 billion

Medium-term growth is too weak to substantially reduce unemployment and improve living standards

Sources: World Economic Outlook; national authorities; and IMF staff calculations.

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Real GDP Growth

(Annual percentage change)

1 2 3 4 5 6 7 8 9 Baseline growth 5% Unemployment declines by 1 pp to 11% (3 mil. new jobs) Per capita GDP rises by $285 (10%) by 2020 Historical rates 6%, Double improvement in jobs and incomes Growth reaches 8% The income gap with peers closed by half

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Closing the shortfall in infrastructure investment of $15b per year can temporarily raise growth by 1½ pp

WEO Infrastructure GAP Estimates

(Percent)

Source: Staff calculations.

• 80
• 60
• 40
• 20

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MENAOI

Electricity generating capacity Road Telephone line

Public Investment and Infrastructure Needs, 2014-19

(Percent of GDP)

Sources: IMF WEO database, Ianchovichina et al (2013), the MDB Working Group on Infrastructure (2011), and staff estimates.

4 8 12 16

MENAOI

Public capital expenditure Physical infrastructure spending¹ Needs

Wide-ranging structural reforms – rising above the world’s bottom 40th quintile – are critical to avoid “the new mediocre”

28 Sources: World Bank; World Economic Forum; PRS Group; and IMF staff calculations.

Labor Corruption Bureaucracy Infrastructure Trade Education Legal Finance Regulations MENAP Oil Importers

11% 20% 24% 34% 21% 39% 47% 45% 45%

Egypt

1% 20% 24% 34% 6% 16% 35% 47% 33%

Jordan

32% 47% 24% 64% 45% 62% 60% 46% 57%

Lebanon

19% 3% 24% 20% 45% 60% 25% 42% 47%

Mauritania

3% . . 19% 19% 5% 19% 13% 28%

Morocco

18% 20% 24% 62% 50% 39% 48% 45% 50%

Pakistan

7% 20% 24% 18% 21% 29% 47% 45% 25%

Tunisia

11% 47% 24% 49% 20% 48% 50% 45% 45%

Sub-Saharan Africa

51% 20% 19% 15% 33% 27% 33% 30% 35%

Latin America

35% 20% 24% 43% 41% 48% 37% 51% 51%

Emerging Europe

45% 20% 24% 50% 57% 52% 47% 48% 66%

Asia

59% 47% 24% 43% 41% 43% 47% 45% 39%

Advanced Economies

83% 82% 84% 88% 88% 83% 79% 61% 90%

Lowest 20th Percentile 60th-80th Percentile 20th-40th Percentile Top 20th Percentile 40th-60th Percentile

MENAP Oil Importers: Takeaways

• Recovery remains weak and uneven.
• Improving fiscal and external positions still

vulnerable, calling for more fiscal consolidation and sometimes greater exchange rate flexibility.

• Medium-term prospects are too weak to improve

employment, living standards and inclusiveness. Deep structural reforms are imperative.

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