Economies in the Middle East and North Africa (MENA) region and Pakistan face a fragile recovery amid global geoeconomic fragmentation, conflicts, climate-related shocks, and country-specific challenges, said the International Monetary Fund (IMF).
The Fund in its latest report “Regional Economic Outlook, Navigating the Evolving Geoeconomic Landscape”, stated that MENA oil importers and Pakistan continue to grapple with conflicts (Gaza, Sudan), uncertainty, and high gross financing needs. As these gradually abate and oil prices ease, near-term growth will recover from 1.5 percent in 2024 to 3.9 percent in 2025. Yet, structural gaps will hold back productivity growth in some economies over the forecast horizon, the Fund added.
The pace of reform has slowed, and there remains room for improvement, including in liberalizing interest rates (Egypt, Morocco, Oman, Pakistan), expanding private sector ownership in the banking sector (Algeria, Egypt, GCC countries, Morocco, Tunisia), and developing capital markets.
The Fund stated that average growth in the MENA region is projected to remain sluggish at 2.1 percent in 2024, before accelerating to 4 percent next year, tempered from the April MENA forecasts of 2.7 and 4.2 percent, respectively. However, experiences vary markedly across the region.
MENA oil exporters have generally navigated the global landscape well, even as geopolitical tensions continue to provide headwinds to the broader region. Still, the twin surpluses that have helped cushion shocks have started to narrow, as ambitious investment strategies are implemented to diversify the economy and voluntary oil production cuts weigh on growth and revenues.
Growth among several MENA oil importers continued to be held back by conflict, uncertainty, and country-specific challenges. Stronger growth in some economies in the first quarter of 2024 reflected improvements in agriculture following infrastructure investment (Mauritania), greater security and favorable weather conditions (Somalia), and economic recovery after extensive flooding and an increase in manufacturing, particularly related to apparel and pharmaceutical products (Pakistan).
For MENA, Emerging Market and Middle-Income Economies (EM&MIs), and Pakistan, growth is projected to slow to 2.4 percent in 2024 before strengthening to 3.6 percent in 2025 (in line with April projections) and further improve modestly over the medium term as current headwinds gradually subside and reform implementation takes hold.
Positive outlooks for Morocco and Pakistan are supported by the normalization of agricultural output and an improvement in the industrial and service sectors.
The report noted that financing needs are expected to remain sizable. Total gross public financing needs for MENA EM&MIs and Pakistan are projected to reach $268.2 billion in 2025 (the equivalent of above 100 percent of fiscal revenues), marking an increase from $260.6 billion in 2024.
In turn, financing needs are likely to be met by $235.9 billion in domestic and $32.3 billion in external debt issuance in 2025, indicating a continued high dependence on domestic financing. Nonetheless, structural reforms and official financing are projected to help increase gross foreign reserves in some countries (Egypt, Jordan, Morocco, Pakistan).
Elsewhere, for countries grappling with persistently elevated inflation (Egypt, Kazakhstan, Pakistan, Tunisia, Uzbekistan), monetary policy should remain tight, the report noted. Since early 2020, the IMF has approved over $47.7 billion in financing to countries across MENA, Pakistan, and the CCA.
Since the start of 2024, more than $13.4 billion in new funding has been approved for programs in Egypt (augmentation under the Extended Fund Facility), Jordan (Extended Fund Facility), and Pakistan (Extended Fund Facility).
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