IMF: Cautious optimism as MENA region rides global downturn

The body said that it expects to see growth this year of 1.7% for emerging economies, down on predictions in its last Outlook report in May, but said 2010 will now see a return to healthier growth of 5.1%, 1% above previous expectations. Next year worldwide, growth is predicted to be 3%, with half of that growth coming from emerging markets.

The report found that although the oil exporting countries within the region, such as Saudi Arabia, Kuwait and the UAE, were hit hard by the collapse in crude prices from their peaks, substantial reserves and countercyclical government spending softened the impact.

Output contracted 3.5% among the oil exporters, with some countries, such as Saudi Arabia, contracting by 15%. But action to boost revenues from non-oil sectors has resulted in a projected GDP growth in those areas of 3.2% for 2009.

Broken down by country, the GDP health of GCC countries varies. While Qatar is expected to see real GDP growth of 11.5% this year and 18.5% in 2010, the picture in Saudi Arabia is somewhat different. It will have GDP growth of -0.9% this year, before bouncing back next year and growing 4%.

Among the other GCC nations, the UAE is expect to experience GDP contraction to -0.2% in 2009, with growth of 2.4% in 2010. Bahrain is projected to grow 3% this year and 3.7% in 2010, Kuwait -1.6% in 2009 and 3.2% in 2010, and Oman 4.1% in 2009 and 3.8% in 2010.

The IMF found that the oil exporters had surpluses of $380bn last year, compared with a surplus of between $40 and $50bn this year. In 2010, that surplus is expected to rise again, to between $100bn and $125bn.

So while oil exporters in the region were hit by the fall in prices, they continued with their government spending plans, which acted as a 'circuit breaker' in that it 'protected the main oil economies', said Masood Ahmed, Director of Middle East and Central Asia Department at the IMF.

The fiscal stimulus packages put in place around the world have help reduce the impact of the global financial collapse. All GCC countries injected money into their banking systems, and the IMF said that so far banks have managed to remain profitable in the region.

A consequence of those packages is soaring government debt, but Ahmed said that it is much like if a fire breaks out in your home - your immediate concern is putting out the flames, not how long it will take to repair the water damage left behind. And there is the added danger that if governments switch off their stimulus packages too soon, economies could be plunged back into a recession. 'It's going to rise to levels not seen before. Bringing it down will be a big medium term challenge.

The outlook for 2010 is one of moderate growth in the region. Oil and non-oil GDP are predicted to grow by 4.4% and 3.9% respectively. The countercyclical policies of some of the GCC nations, which has seen continued, large-scale investment in public infrastructure projects, is expected to continue into next year.

Further into the future, the IMF says the GCC needs to diversify financial channels away from banks, in particular. Developing local debt markets for large corporates.

Nasser Saidi, Chief Economist at the DIFC, said he was keen to see governmental policies and local debt markets developed and strengthened. 'You have to put the structure in place. From the work we have done we know we could put something in place within one year.'