Presentation: Middle East and North Africa Regional ... · MENAP: Stable Growth in 2015, Improved Outlook for 2016 Real GDP Growth (Percent) MENAP MENAP Oil Exporters MENAP Oil Importers

Middle East and North Africa

Regional Economic Outlook

October 2015

Roadmap

Global Environment

Regional Themes

MENAP Oil Exporters and Importers

3

Near-term Global Outlook Is for Moderate and Uneven

Growth

World U.S.Euro

Area

Emerging

marketsChina

2014 3.4 2.4 0.9 4.6 7.3

2015 3.1 2.6 1.5 4.0 6.8

2016 3.6 2.8 1.6 4.5 6.3

Global Risks Are Tilted to the Downside, Rising in

Emerging Markets

4

Roadmap

Global Environment

Regional Themes

MENAP Oil Exporters and Importers

5

Oil and Conflicts Are the Key Factors Shaping the

Economic Outlook for MENAP

ConflictsOil

6

7

The Slump in Oil Prices Is Expected To Persist

0

20

40

60

80

100

120

140

160

2014 2015 2016 2017 2018 2019

95% confidence interval 86% confidence interval

68% confidence interval Brent spot price

Brent futures

Brent Crude Oil Price 1

(U.S. dollars per barrel)

Sources: Bloomberg; and IMF staff calculations.1 As of August 20, 2015.2 Average of WTI, Brent, and the Dubai Fateh prices.

WEO Baseline Average Oil Price2

2015: $51.6

2016: $50.4

8

Conflicts Are Spreading and Deepening, Putting a Heavy

Toll on the Region and Spilling Across Borders

16 million

refugees and

internally

displaced

Afgha-

nistan 3.4

Iraq 2.4

Libya 0.1

Syria 9.6

Yemen 0.3

Refugees account for 25 percent of population in

Lebanon and 20 percent in Jordan

9

Conflicts Have Caused Collapse in Economic Activity

and Mounting Fiscal Pressures in Iraq, Libya, Yemen

-2.1

-24.0

-0.2

0.0

-6.1

-28.1

7.1

2.0

11.6

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

Iraq Libya Yemen

2014 2015 2016

Economic Growth in Conflict Countries

(Percent of GDP)

-5.8 -4.0-6.9

-23.1

-79.1

-8.5

-17.7

-63.4

-9.2

-90

-80

-70

-60

-50

-40

-30

-20

-10

0

Iraq Libya Yemen

2013 2015 2016

Fiscal Balance

(Percent of GDP)

10

Conflict Countries and Iran Developments Drive Changes

in Oil Exporters’ Growth

Oil Exporters

(Percent)

2.6

1.8

3.8

-1

0

1

2

3

4

5

2014 2015 2016

GCC and Algeria Iran Conflict countries MENAP oil exporters

Roadmap

Global Environment

Regional Themes

MENAP Oil Exporters and Importers

11

12

Growth Slowdown Will be Gradual Because of Buffers

GCC growth to slow from 6 percent in 2000-07

to 3 percent in 2015-20

0

1

2

3

4

5

2014 2015 2016

Oman Qatar

Saudi Arabia UAE

0

1

2

3

4

5

2014 2015 2016

Algeria Bahrain Kuwait

Real GDP Growth(Percent)

13

Low Oil Prices Lead to Persistent Fiscal Pressures for Oil

Exporters

10.6

-1.5 -2.2

-13.2 -13.9

-2.9

-7.9

-4.1

-0.5

-20

-15

-10

-5

0

5

10

15

GCC Algeria Iran

2013 2015 2020

Fiscal Balance(Percent of GDP) Fiscal deficits around 13 percent of GDP in

MENAP oil exporters in 2015

14

Dwindling Fiscal Space Underscores Need for Fiscal

Action

Most MENAP oil exporters will exhaust their

financial buffers in less than 5 years.

Financing needs to reach $1 trillion over 5 years.

0

20

40

60

80

100

120

QAT KWT UAE IRQ IRN OMN ALG SAU BHR

Breakeven Oil Prices, 2015 (U.S. dollars per barrel)

WEO Oil Price

Baseline

2015-2016

15

Some Countries Have Started To Tighten the Public

Purse, But Credible Medium-Term Consolidation Needed

-10

-5

0

5

10

15

20

25

30

ALG BHR IRN KWT OMN QAT SAU UAE

2014-2015

2014-2020

Change in Non-Oil Primary Balances(Percentage points of non-oil GDP)

16

How to Create Jobs while Controlling Public Spending

Labor force will grow by 10 million in MENAP oil exporters by 2020,

of which almost 3 million will be unemployed on current trends.

0.0

0.5

1.0

1.5

2.0

2.5

2015 2016 2017 2018 2019 2020

Gap (add to unemployed) Private sector jobs Public sector jobs

Employment Outlook in the GCC

(Millions of new labor market entrants, cumulative)

2 million new entrants

into labor force between

2014 and 2020, of which

570,000 unemployed

Sources: National authorities; and IMF staff calculations.1 Note: Data for U.A.E. not included. Public sector jobs are projected based on wage bill forecasts. Private sector jobs

are projected by using historical employment-non-oil growth elasticities and non-oil growth forecasts (see Behar, 2015).

17

Private Enterprises Need To Take Over As Engine of

Growth, Driving Diversification

0

20

40

60

80

100

Oil & Oil-RelatedExports/

Total Exports

Oil Revenues/Total

GovernmentRevenues

Public Spending/Non-Oil GDP

Oil/GDP

GCC Non-GCC

Diversification

(Higher is less diverse)

Sources: WTO; UN Comtrade; national authorities; and IMF staff calculations.

*Calculated using three-year averages ending in the specified year, or latest three year period for which data are available.

18

Iran’s Economic Prospects To Improve With Sanctions

Relief…. but by How Much?

-8

-4

0

4

8

Iran: Real GDP Growth(Percent)

• Oil exports are projected to rise by 1.2 mbd by 2020.

• Iran’s cumulative imports over the next 5 years will be $525 billion (22

percent of GDP)

Conditions for Raising

Potential Growth

Macroeconomic stability

Financial sector reforms

Improved business

environment

19

MENAP Oil Exporters

GCC and Algeria • Good policy to use buffers to smooth growth impact of oil price

decline

• But deeper and more sustained fiscal adjustment will be needed in

most cases

• The need for a diversified private sector has become more urgent

Countries in Conflict (Iraq, Libya, Yemen)• Stabilization is a pre-requisite; growth outlook depends on oil

production and conflicts

Iran• Sanctions Relief will boost the economy but growth dividend would

be much larger if accompanied by structural reforms.

•Substantial regional and global economic spillovers through oil

markets, trade, and investment.

Roadmap

Global Environment

Regional Themes

MENAP Oil Exporters and Importers

20

21

Recovery Is Gaining Momentum But Some Countries

Still Lagging

AFG

DJI

EGY

JOR

LBN

MRT

MARPAKSDN

TUN

0

2

4

6

8

10

0 1 2 3 4 5 6 7 8 9 10

2015

-16 A

vera

ge

2010-13 Average

Real GDP Growth(Percent)

22

Three Countries Have a Large Impact on Overall Growth

Oil Importers

(Percent)

2.9

3.94.1

-1

0

1

2

3

4

5

2014 2015 2016

Others Egypt Morocco Pakistan MENAP oil importers

23

Recovery Driven by Improved External Environment

and…

MENAP Oil Importers:

External Gains from Lower Oil Prices(Percent of GDP, 2015–16 average)

-1

0

1

2

3

2013 2014 2015 2016

Euro area

Advanced Economies excluding Euro Area

Advanced Economies:

Real GDP Growth(Percent)

-1

0

1

2

3

4

5

6

24

…Subsidy Reforms Combined with Lower Oil Prices

Creating Space for Growth-Enhancing Spending

Change in Budget Expenditure Components (Percent of GDP)

Capital

Subsidies

Subsidies

-2

-1

0

1

2

3

Change 2010-13 Change 2013-16

Wages Subsidies and transfers Capital expenditures Other expenditures

Arab Oil Importers

25

Competitiveness Is Deteriorating As Currencies Follow

the Appreciating U.S. Dollar

90

95

100

105

110

115

120

125

Jan-12 Jan-13 Jan-14 Jan-15

Egypt Jordan Lebanon

Morocco Pakistan Tunisia

REER Index, Jan 2012 = 100

26

Vulnerabilities Remain Significant Despite Lower Oil

Prices, Requiring Well-Balanced Policy Choices

Public Debt(Percent of GDP)

Remittances, 2014(Percent of GDP)

0

20

40

60

80

100

120

140

1602010 2015

0

5

10

15

20

Egypt Jordan Lebanon Pakistan

Total From the GCC

27

Leap in Growth Is Needed To Raise Living Standards

and Employment

Striving for Higher Growth(PPP Income per Capita, in Constant 2012 U.S. Dollars)

0

10,000

20,000

30,000

40,000

2015 2035

28

Structural Reforms Would Help Improve Business

Climate and Functioning of Labor Market

## Lowest 20th Percentile ## 60th-80th Percentile

## 20th-40th Percentile ## Top 20th Percentile

## 40th-60th Percentile

Business Environment Labor Market

Co

rrup

tio

n

Bure

aucr

acy

Infr

a-

stru

cture

Reg

ula

tio

ns

Leg

al

Lab

or

Ed

uca

tio

n

Fin

ance

Tra

de

MENAP Oil Importers 29% 23% 30% 40% 44% 11% 37% 38% 29%

Egypt 16% 23% 30% 26% 38% 3% 14% 37% 11%

Jordan 59% 23% 51% 56% 59% 35% 66% 48% 34%

Lebanon 5% 23% 16% 50% 20% 15% 54% 38% 56%

Mauritania . . 15% 26% 17% 2% 7% 13% 11%

Morocco 42% 23% 62% 47% 51% 23% 37% 46% 50%

Pakistan 16% 23% 17% 25% 44% 9% 29% 42% 29%

Tunisia 42% 23% 45% 40% 48% 11% 46% 38% 9%

Sub-Saharan Africa16% 19% 14% 35% 36% 50% 28% 28% 32%

Latin America 16% 23% 43% 52% 38% 26% 49% 50% 38%

Emerging Europe42% 23% 50% 66% 47% 44% 54% 51% 58%

Developing Asia 42% 23% 37% 39% 47% 55% 43% 49% 42%

Advanced Economies83% 84% 87% 89% 78% 84% 82% 64% 84%

MENAP Oil Importers

29

• Growth rising with confidence and better external

environment but some countries lagging

• Large downside risks and vulnerabilities remain high

• Need for further fiscal consolidation, including more subsidy

reforms

• Channel budget savings into growth-enhancing spending and

raise exchange rate flexibility to support recovery

• Structural reforms needed for higher and more inclusive

medium-term growth

MENAP: Stable Growth in 2015, Improved Outlook for

2016

Real GDP Growth(Percent)

MENAP

MENAP Oil ExportersMENAP Oil

ImportersGCC Non-GCC

2014 2.7 3.4 1.7 2.9

2015 2.5 3.3 0.1 3.9

2016 3.9 2.8 4.9 4.1

30

31