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 MENAP: Regional Themes, Outlook, and Risks • Oil Exporters • Oil Importers 2

An uneven global recovery continues Real GDP Growth Projections (Percent change from a year earlier) Euro Emerging World U.S. China Russia Area markets 2014 3.3 2.2 0.8 4.4 7.4 0.2 Revision from -0.3 -0.6 -0.3 -0.5 -0.2 -1.1 Spring 2014 2015 3.8 3.1 1.4 5.0 7.1 0.5 Revision from 0.0 0.1 -0.1 -0.4 -0.2 -1.8 Spring 2014 Source: IMF, World Economic Outlook, October 2014. 3

Downside risks have increased since last spring Geopolitical risks (Middle East, Russia-Ukraine) Slower growth in emerging markets Lower potential growth and secular stagnation in advanced economies Financial market volatility in response to normalization of monetary policy in advanced economies 4

Oil prices have declined considerably, yet risks are high in both directions Brent Crude Oil Price¹ (U.S. dollars per barrel) 95% confidence interval 150 86% confidence interval 140 68% confidence interval Futures 130 Fall 2014 WEO 120 Oil Price for 2014: $103 110 100 90 Fall 2014 WEO 80 Oil Price for 2015: $99 70 60 50 2013 2014 2015 2013 2014 2015 Sources: Bloomberg; and IMF Research Department staff calculations. 1 Derived from prices of futures and options on October 15, 2014. 5

Deepening regional conflicts with substantial spillovers  11 million refugees and Turkey: Turkey Tunisia internally displaced 649K Syria Iran [0.8] Lebanon persons Iraq Jordan  Sectarian violence and Kuwait Iraq: political spillovers Libya Bahrain 222K Egypt Qatar [0.6]  Disruptions to bilateral Algeria Saudi and transit trade Arabia Egypt Niger  Setbacks for tourism Chad Sudan 135K Yemen and investment [0.2] 6

Recent developments, outlook, and risks MENAP oil exporters Iran Iraq Kuwait Algeria Libya Saudi Arabia Bahrain United Arab Qatar Emirates Oman Yemen 7

GCC growth steady, conflicts push down growth projections for non-GCC Real GDP Growth (Percent) 6 GCC, Fall 2014 Non-GCC, Fall 2014 GCC, Spring 2014 Non-GCC, Spring 2014 5 4 3 2 p.p. revision 2 1 0 2013 2014 2015 2016 Sources: National authorities; and IMF staff calculations. 8

Growth remains steady in most GCC countries GCC Countries: Real GDP Growth (Percent) 9 2014 8 2015 7 6 5 4 3 2 1 0 Bahrain Kuwait Oman Qatar Saudi Arabia UAE 9

Non-GCC outlook is highly uncertain, contingent on oil recovery in Libya and Iraq Hydrocarbon 1 Production (Change relative to previous year, millions of barrels per day) 1.5 1.0 0.5 Other non-GCC IRN 0.0 LBY IRQ -0.5 GCC -1.0 -1.5 2013 2014 2015 2016 Sources: national authorities; and IMF staff calculations. 1 Crude oil, natural gas, natural gas liquids, condensates, refined products, and other hydrocarbons. 10

Lower oil prices are putting pressure on government budgets Fiscal Breakeven Oil Price, 2014 (U.S. dollars per barrel) 317 160 140 120 U.S. dollars per barrel 100 80 60 40 20 0 Libya Yemen Bahrain Iran Algeria Iraq Saudi Oman UAE Kuwait Qatar Arabia Sources: National authorities; and IMF staff calculations. 11

Rising domestic energy consumption is reducing external surpluses Oil and Gas Demand Growth, 2000-19 Current Account Balance (Percent) (MENAP oil exporters: percent of GDP) 197 200 20 Surplus to decline 180 by $265 billion in 160 6 years, between 140 15 2012 and 2018 120 109 100 10 80 59 60 40 28 5 20 0 Middle World Middle World 0 East East Oil Gas Source: International Energy Agency Sources: National authorities; and IMF staff calculations. 12

Sizeable energy subsidies are a key reason behind weakening fiscal and external positions MENA Oil Exporters: Pre-Tax Energy Subsidies (Percent of GDP) Baseline 14 20 percent decline in oil price 12 10 Average decline in subsidy bills 8 1.2 percentage point of GDP 6 4 2 0 Iran Iraq Algeria Arabia Libya Bahrain Kuwait Yemen Oman UAE Qatar Saudi 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. 13

Sustaining private sector growth without government spending increases Government Spending and Non-Oil GDP Growth (Percent, three-year moving average) 25 10 20 8 15 6 10 4 5 2 Spending growth Non-oil GDP growth (RHS) 0 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Sources: National authorities; and IMF staff calculations. 14

Significant structural reforms are needed, particularly outside the GCC ## ## Low est 20th Percentile 60th-80th Percentile Infrastructure Bureaucracy ## ## 20th-40th Percentile Top 20th Percentile Regulations Corruption Education ## 40th-60th Percentile Finance Labor Trade Legal 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% 3% 3% 30% 19% 20% 28% 15% 22% 8% Non-GCC Exporters 1% 20% 29% 6% 20% 28% 18% 24% 9% Algeria 2% 3% 57% 12% 39% 48% 31% 24% 7% Iran 8% 0% 31% 59% 20% . 10% 19% 3% Libya 5% 3% 3% 26% 8% 17% 11% 4% 27% Yemen Sources: World Bank; World Economic Forum; PRS Group; and IMF staff calculations. 15

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. 16

Recent developments, outlook, and risks MENAP oil importers Tunisia Syria Afghanistan Lebanon Morocco Jordan Pakistan Egypt Mauritania Sudan Djibouti Somalia 17

Immediate fiscal pressures are easing, and international reserves are gradually improving Reserves Fiscal Deficit (Months of imports) (Percent of GDP) 7 10 6 9 5 8 4 7 3 6 2 5 1 0 4 Sources: Haver Analytics; and national authorities. 18 8

Subsidy reforms are expected to save governments 1 percentage point of GDP on average in 2014 and 2015 Change in Expenditure ¹ (Percent of GDP) 4 3 Wages 2 Generalized 1 Subsidies Investment Other 0 Capital Investment Generalized -1 Subsidies -2 Change 2010-13 Change 2013-15 Sources: National authorities; and IMF staff calculations. ¹Excludes Pakistan. 19

A 20 percent drop in oil prices could improve fiscal balances by as much as 1 percentage point of GDP Change in Fiscal Balance, 2015 (Percent of GDP) 1.2 1.0 Wages 0.8 0.6 0.4 0.2 0.0 Jordan Tunisia Egypt Morocco Lebanon Pakistan Sources: National authorities; and IMF staff calculations. Note: Impact of lower oil prices calculated on gasoline and diesel only. 20

Exports are starting to recover, albeit unevenly Exports of Goods (Index; 3-month moving average, 2009=100) 200 Egypt Morocco Pakistan Other MENAPOI¹ 170 140 110 80 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Sources: Haver Analytics; and national authorities. ¹Afghanistan, Djibouti, Jordan, Lebanon, Mauritania, Sudan, and Tunisia. 21

The outlook is for a weak recovery and persistent unemployment Real GDP Growth and Unemployment (Percent) 5 Unemployment (RHS) GDP Growth 12 4 10 8 3 6 2 4 1 2 0 0 2010 2011 2012 2013 2014 2015 Sources: National authorities; and IMF staff calculations. 22

Downside risks to a pickup in exports and investment remain high Contributions to Real GDP Growth (Percentage points) Exports Imports Consumption Investment Real GDP growth 6 5 4 3 2 1 0 -1 -2 Average 2013-14 Average 2015-16 Sources: National authorities; and IMF staff calculations. 23

Room for countercyclical policy is limited, making it difficult to navigate the challenging environment 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 Sources: National authorities; and IMF staff calculations. 24

External financing needs remain large External Financing (Billions of U.S. dollars and percent share) 2014 2015 $85 billion $100 billion Official, FDI, $16.2, FDI, $23.4, 13% $20.1, Official, 20% 21% $26.4, 28% Other, $0.7, Private, Private, 1% $48.1 $79, 50% 67% 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. 25 8