The Need for Inclusive Growth: The IMF Economic Outlook ... presentation.pdf · The Need for...

The Need for Inclusive Growth: The

IMF Economic Outlook for the

MENA RegionMENA Region

May 4th, 2011

Middle East and Central Asia

Regional Economic Outlook April 2011

Afghanistan

Pakistan

IranIraq

Saudi ArabiaKuwait

LibyaAlgeria

MoroccoLebanon

Syria

Jordan

Tunisia

Saudi Arabia

Yemen

Oman

United Arab Emirates

Qatar

Bahrain

Sudan

LibyaAlgeria

Mauritania

Egypt

Djibouti

الوسطىوآسيااوسطالشرق٢٠١١ إبريلعدد – ا�قليميا�قتصادآفاق

Overview

Global growth: A multi-speed world

4

6

8

10World

Advanced Economies

Emerging and developing economies

WEO Real GDP Growth Projections(Percent change from a year earlier)

Upside risks:

• Buoyant EM activity

• Strong corporate

balance sheets

-4

-2

0

2

4

2005 2006 2007 2008 2009 2010 2011 2012

Source: IMF, World Economic Outlook.

balance sheets

Downside risks:

• Sovereign/financial

risks

• Oil supply concerns

Capital flows to emerging markets have

slowed

1.0

1.5

2.0

QE2 (Nov. 3)

Greece crisis

2

4

6

8

EMEA

LatAm

Asia excl. Japan

Global

TotalGreece crisis

QE2 (Nov. 3)

Emerging Bond Funds(Billions of U.S. dollars, weekly flows)

Emerging Equity Funds(Billions of U.S. dollars, weekly flows)

-1.0

-0.5

0.0

0.5

Jan-10 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11

3/23/2011

Ireland crisis

-8

-6

-4

-2

0

Jan-10 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11

Ireland crisis

4

6

8U.S.Other Industrial CountriesChinaEmerging and Developing EconomiesWorld GDP

Global Annual Growth of Oil Demand(Percent)

Oil prices driven by uncertainty in the

short-run

96

106

116

30.0

30.5

31.0

OPEC supply

Oil price (U.S. dollars per barrel, right scale)

Post Libya

Crude Oil Prices Rise Sharply(Millions of barrels per day)

-4

-2

0

2

2008Q4 09Q2 09Q4 10Q2 10Q4

Total

demand56

66

76

86

28.0

28.5

29.0

29.5

Mar-10 Jun-10 Sep-10 Dec-10 Mar-11

Sources: International Energy Agency; IMF, World Economic Outlook; national authorities; and IMF staff calculations.

Food and non-oil commodity prices also

rising

150

175

200

Beverages

Food

Metals

BUT: Commodity exportersto benefit

Aluminum: Bahrain

Copper: Mauritania

Commodity Price Developments in the World(Price indices; 2007=100)

50

75

100

125

Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11

Cotton: Egypt, Pakistan

Food: Afghanistan, Egypt, Iran, Iraq, Morocco, Pakistan, Syria

Gold: Djibouti

Iron ore: Bahrain, Mauritania

Source: IMF, World Economic Outlook.

MENAP oil exporters: Opportunities for reforms

External environment

•Increased uncertainty

•Higher oil revenue

Political events

•Limited impact on output for most

•Large fiscal responses

IranIraq

KuwaitSaudi Arabia

Yemen

Oman

United Arab EmiratesQatar

Bahrain

Kuwait

Sudan

LibyaAlgeria

External balances improving with the oil

price

90

100

110

120

200

250

300

350

GCC

Other oil exporters¹

Oil price, APSP, U.S. dollars (right scale)

Current Account Balances(Billions of U.S. dollars)

255.6

69.9

135.5

303.8

100.1

-3.5

36.374.3

40

50

60

70

80

-50

0

50

100

150

2008 2009 2010 2011

Sources: National authorities; and staff calculations and projections.1Excludes Libya in 2011.

Oil price volatility brings uncertainty

80

100

120

140

160

Current Account Balance (billions of U.S. dollars)

$88/barrel¹

$107/barrel¹

$114/barrel¹

2011 Current Account Surpluses under Alternative Oil Price Scenarios(Billions of U.S. dollars)

-20

0

20

40

60

Algeria Bahrain Iran Iraq Kuwait Oman Qatar Saudi Arabia

Sudan U.A.E. Yemen

Current Account Balance (billions of U.S. dollars)

Sources: National authorities; and staff calculations.

¹Minimum, maximum oil prices between January 1, 2011 - March 22, 2011; and baseline forecast for 2011.

20

25

30

35

GCC

NON-GCC

Percent Change in Total Government Expenditures in U.S.

dollars(From 2010 to 2011)

Unprecedented responsiveness across

the region

Sources: National authorities; and IMF staff estimates.

0

5

10

15

20

BHR ALG UAE IRN KWT SDN QAT OMN IRQ YMN SAU

Fiscal balances improve, despite higher

spending

60

80

100

120

-20

-10

0

10

20

30 GCC overall fiscal balance

GCC non-oil fiscal balance

Other oil exporters overall fiscal balance

Other oil exporters non-oil fiscal balance

Overall and Non-oil Fiscal Balances1

(Percent of GDP )

However,

break-even

0

20

40

60

-70

-60

-50

-40

-30

-20

2008 2009 2010 2011

Crude oil price, APSP, US$ (right scale)


¹Excludes Libya in 2011

prices also

going up

Break-even prices going upBreak-Even Oil Prices in 2010

(U.S. dollars per barrel)

SDN

YMN

120

140

160

180

200Fiscal balanceBreak-Even Oil Prices in 2011


ALG

IRN

IRQ

KWT OMN

QAT

SAU

UAE

BHR

0

20

40

60

80

100

0 20 40 60 80 100 120 140 160 180 200

Fiscal balance

Current account

2010 WEO oil

price: US$ 76.2

2011 WEO oil

price: US$ 107.2

Growth is progressing amidst

uncertainty

2

4

6

8

10

Real GDP Growth(Annual percentage change)

-8

-6

-4

-2

0

2006 2007 2008 2009 2010 2011

Oil GDP

Non-oil GDP

Sources: National authorities; and IMF staff estimates.1Excludes Libya in 2011.

Non-oil growth holding up, with few

exceptions

6

8

10

12

2010 2011

Real Non-oil GDP Growth(Annual percentage change)

-2

0

2

4

Bahrain Kuwait Oman Qatar Saudi Arabia

United Arab

Emirates

Algeria Iran Iraq Sudan Yemen


10

15

20

25

30

Algeria BahrainIran IraqKuwait LibyaOman QatarSaudi Arabia SudanUnited Arab Emirates Yemen

Consumer price index; annual percentage change

Keep an eye on inflation pressures

-10

-5

0

5

10

2008 2009 2010 2011

Source: National authorities; and staff calculations and projections.

Financial sector depth: similar to peers

MENA

Emerging and developing

World average

Qatar

Tunisia

Bahrain

United Arab Emirates

Lebanon

Kuwait

Morocco

Jordan

Financial Depth Across Regions:

Banks and Stock Markets1

(2007-08)

Financial Depth in MENA Countries(2007-08)

0.0 0.1 0.2 0.3 0.4 0.5 0.6

Non-GCC

GCC

MENA Average

Private Credit by Deposit Money Banks/GDP, 2008

Stock Market Turnover Ratio, 2007

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4

Libya

Yemen, Rep.

Algeria

Syrian Arab Republic

Oman

Iran, Islamic Rep.

Saudi Arabia

Egypt, Arab Rep.

Qatar

Private Credit by Deposit Money Banks/GDP, 2008Stock Market Turnover Ratio, 2007

Sources: World Bank Database on Financial Development and Structure, 2010; International Financial Statistics; and authors' calculations.

Sources: World Bank Database on Financial Structure, 2008; and IFS.1Stock Market Turnover: Ratio of value of shares traded to market capitalization.

…but banks are falling short in key areas

Access to financial services is subpar

Businesses receive less bank financing

Banking sectors are less competitive,

due to:

Weak credit information environment

Measurablequality gap

Loan concentration is high

Population has low access to deposits

environment

Stringent entry restrictions

Lack of non-bank financing alternatives

Growth impact of banking depth is

weaker than in other regions

MENAP oil exporters: Opportunities for reforms

External environment

•Increased uncertainty

•Higher oil revenue

Political events

•Limited impact on output for most

•Large fiscal responses

IranIraq

Kuwait

Short-term challenge

•Inflation

Medium-term challenges

•Diversification and employment

•Strengthen resource management

•Financial sector development

Saudi Arabia

Yemen

Oman

United Arab EmiratesQatar

Bahrain

Kuwait

Sudan

LibyaAlgeria

MENAP oil importers: Navigating change

Afghanistan

Pakistan

MoroccoLebanon Syria

Jordan

Tunisia

Before the protests

•Mostly growing at steady pace

•Persistently high unemployment

Unrest and commodity price shocks

•Output disruptions in some countries

•Higher import costs

Policy space is tight

•Pressure to spend on social protection

•Higher risk premia and rising inflation

Mauritania

Egypt

Djibouti

With change comes challenges, but also

opportunities for more inclusive growth

Surge in commodity prices increases cost of imports

15

20

25Impact of higher prices in 2011¹

Total fuel and food imports, 2010

Current account deficit, 2011

Impact of Higher Fuel and Food Costs(Percent of GDP)

MRT JOR LBN MAR SYR TUN PAK EGY

0

5

10

Sources: National Authorities; and IMF staff estimates.1Direct impact -- holding policies and quantities constant -- of price increases of 32 percent

for fuel and 24 percent for food, as implied by WEO projection for 2011 compared to 2010.

Spillovers from regional instability:

Lower tourism and FDI, higher borrowing costs

5.8

7.3

12.1

24.4

Syria

Morocco

Jordan

Lebanon

300

400

Egypt

Lebanon

Sovereign Spreads(Basis points)

Tourism Receipts(Percent of GDP)

1.8

5.0

5.3

5.4

Oman

Bahrain

Egypt

Tunisia

0 5 10 15 20 25 30

by 41 percent in Jan-Feb 2011

Jan/Feb: Tourist arrivals

down 36 percent, tourist

nights down 16 percent y/y.

0

100

200

Jul-10 Sep-10 Nov-10 Jan-11 Mar-11

Tunisia

Morocco

Sources: IMF, World Economic Outlook; and World Travel and Tourism Council. Sources: Bloomberg; and Markit.

Tunisia

protests

escalate

Higher government spending

8

10

12Impact of higher fuel and food prices, holding all else constant

Additional fiscal measures

Overall fiscal deficit, 2011

New Fiscal Costs(Percent of GDP)

Sources: National authorities; and IMF staff calculations.

EGY JOR LBN MRT MAR PAK SYR TUN

0

2

4

6

Net impact on growth mostly limited

6

8

10

2009 2010 201120.9

Real GDP Growth(Annual percentage change)


AFG MRT DJI MAR JOR SYR PAK LBN TUN EGY

-2

0

2

4

8

12

16

20

Djibouti Egypt Jordan

Lebanon Mauritania Morocco

Syria Tunisia

Consumer price index; annual percentage change

Keep an eye on inflation pressures

-4

0

4

8

2008 2009 2010 2011

Source: National authorities; and IMF staff calculations and projections.

Short-term policy challenge: Ensuring social cohesion

while maintaining macroeconomic stability

Respond to

domestic pressures

Restore confidence

Social Cohesion Macroeconomic Stability

Create jobs

Manage impact of

higher food and

fuel prices

Policy challenge: Unemployment

20

25

30

35Youth unemployment, percent

Tunisia

EgyptMENA6

Central and South-

Eastern Europe (non-Latin America and South-East

Syria

Morocco

Lebanon

Jordan

Unemployment Rates by Region1,2

(20083)

4 6 8 10 12 14 16

5

10

15

Total unemployment rate, percent

Youth unemployment, percent

Eastern Europe (non-

EU) and CIS

Sub-Saharan

Africa

Latin America and

the Caribbean

East Asia

South Asia

South-East

Asia and the

Pacific

Developed

Economies and

EU

Sources: International Labor Organization; national authorities; IMF, World Economic Outlook; and IMF staff estimates.1MENA6 countries are Egypt, Jordan, Lebanon, Morocco, Syria, and Tunisia.2Total and youth unemployment rates for Morocco reflect data from Urban Labor Force Survey.3Or most recent earlier year for which data are available.

Creating jobs

Creating Jobs

Quick wins with long-run

benefits

Comprehensive job strategy

Bring forward labor-intensive infrastructure

projects

Provide tax incentives/

credit guarantees to viable SMEs

Scale up promising or introduce new well-designed

training programs

Foster high and inclusive

growth: business

climate, equal opportunities,

trade

Enhance skill

formation

Protect the worker and not the job

Heavy reliance on untargeted subsidies

Price subsidies are poorly targeted… … and costly.

Jordan--Fuel (2005)

Cross country¹--Fuel (2010)

Distribution of Subsidies Across Income Groups

6.06

8

MENAP Oil Importers: Subsidies and Deficits in 2010

(Percent of GDP)

Sources: Jordan-The Distributional Effects of Eliminating Subsidies for Petroleum Products, R. Gillingham & M. El-Said, IMF (2005), The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries, J. Del Granado, D. Coady & R. Gillingham, IMF (2010), Egypt's Food Subsidies: Benefits Incidence and Leakages, September 2010, World Bank.1Average across 21 countries.

Egypt--Baladi bread (2008/09)

Lebanon--Bread (2008)

Jordan--Fuel (2005)

0% 20% 40% 60% 80% 100%

Bottom 40 percent Top 60 percent

3.7

Subsidies General Government Deficit

0

2

4

Social Protection Instruments

Social Safety Net

Noncontributory transfers (e.g., cash

transfers, in-kind benefits, fee waivers)

Social Insurance

Contribution-based benefits

(e.g., unemployment insurance, old

age/disability pensions)

Taxonomy of Social Policy Interventions

Social Protection

Social Policy

Other Social Policies

Other interventions, such as

health, education, housing, or

labor policies

Price Subsidies

Source: IMF staff illustration.

Enhancing social protection

Immediate reaction to

commodity price shock

Preparation of

subsidy reformCost-effective social

protection framework

• Strengthen targeted

Short Term Medium Term

• Targeted measures

(existing or new)

• Stop-gap: tax cuts and

subsidies

• Build ownership

• Improve targeting

• Compensate losers

• Implement automatic

pricing mechanisms

• Strengthen targeted

income transfers

• Phase-out price subsidies

• Use fiscal space for other

priority spending

Opportunity to develop a

medium-term policy agenda for shared prosperity

Stable macroeconomic

environment

Social protection

for allJob creation

Socially- for all

Access to economic

opportunities

Transparency, accountability,

good governance

Socially-

Inclusive

Growth

Lebanon: Risks of Continued Stalemate

• Growth projected at 2.5 percent, inflation at 6.5 percent (average) in 2011

• Political impasse and regional turmoil weighing on commercial activity,

tourism, and real estate—the main drivers of the Lebanese economy

260

270

260

270

7.52.5

Coincident Indicator (quarterly, base 100 = 1993)

210

220

230

240

250

210

220

230

240

250

8.5

7.5

Lebanon: Challenges Ahead

• Fiscal

– Fiscal deficit projected to rise over 10% of GDP

• Monetary

– Could inflows slow down?– Could inflows slow down?

• Banks

– Sector vulnerable to AML-CFT issues?

For an online version of the full report, please visit:

www.imf.org/beirutwww.imf.org/beirut

orhttp://www.imf.org/external/pubs/ft/reo/2011/mcd/eng/mreo0411.htm

Break-even prices going up

SDN

YMN

120

140

160

180

200

Fiscal balanceBreak-Even Oil Prices in 2011


ALGIRNIRQ

KWTOMN

QAT

SAU

SDN

UAE

BHR

0

20

40

60

80

100

0 20 40 60 80 100 120 140 160 180 200

Fiscal balance

Current account

WEO oil price:US$107.2

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