IIF Report: Growth for MENA Region in 2011
IIF forecasts 4.7% growth for Middle East & Africa region in 2011.
In its Global Economic Monitor report released on November 22, the Institute of International Finance (IIF) predicted a 4.7% and a 3.9% output growth for the Middle East and Africa in 2011 and 2012, respectively. The report indicated that the transition process in several of the MENA countries is likely to be long and drawn out. Financial conditions have deteriorated. Sovereign bond and CDS spreads have widened, raising borrowing costs. As a result, the IIF expects a modest economic growth in 2012. Downside risks include difficulties in political transition, shortfalls in external support, and a weaker global outlook.
The report indicated that the transition process in several of the MENA countries is likely to be long and drawn out. Financial conditions have deteriorated. Sovereign bond and CDS spreads have widened, raising borrowing costs. As a result, the IIF expects a modest economic growth in 2012.
Egypt’s real GDP declined by 1.8% in the first half of 2011 relative to the same period a year ago. The IIF expects growth in FY 2011/12 to remain weak, with investment decisions put off until the composition and leanings of the post-election government are known. Official reserves have dropped sharply as FDI was cut back and as non-residents reduced their holdings of treasury bonds and sold equities.
On the other hand, while the political transition in Tunisia has been peaceful, uncertainties about economic policy persist. The economy has been hit hard this year, and in the first 10 months tourism receipts dropped by 35% and FDI was down 40%. Official reserves have fallen by US$ 2.8 billion since the end of 2010 and in October stood at US$ 7.6 billion. The currency remains broadly stable, and inflation is under control. NPLs are expected to soar to above 20% of total loans due to the recession and the failure of some large businesses associated with the old regime, according to the report.
The report also noted that Morocco reacted to upheavals in the Arab world by bringing forward proposals for constitutional reforms and increasing wages and subsidies. Real non-agricultural GDP growth is projected at 3.7% in 2011 and 2012, but current account and fiscal deficits are likely to widen. The IIF added that the banking system remains solid.
Furthermore, the pace of economic recovery in Libya would depend on the evolution of the political and security situation. The IIF expects crude oil production to recover to the pre-war level of 1.66 million barrels per day by end-2013. Under the assumption of the restoration of adequate security, proper functioning of public services, and access to the frozen foreign assets, overall real GDP is projected to rebound sharply, driven by the expected doubling of crude oil production and a surge in reconstruction.
Finally, the report said that even though Jordan has not been immune to regional instability, growth has held up relatively well. Nonetheless, retrenchments in tourism, FDI and remittances have dampened activity and growth in 2011 is projected to be only slightly higher than last year at 2.6%. Budgetary grants of US$ 1.4 billion from Saudi Arabia have offset lower tax revenue and helped the authorities finance subsidies and meet some social demands. Although the overall fiscal deficit would likely be close to the budgeted 5.7% of GDP in 2011, excluding grants it may jump to 12.2%.
The article above has been published as a part of Bank Audi`s MENA Weekly Monitor of Week 48 (2011). It can be accessed via Internet at the following web address: http://www.banqueaudi.com