DUBAI, 19 September 2003 — The economy in the Middle East will grow by more than five percent this year due to higher oil production and prices, the IMF said yesterday, but warned that political instability casts a shadow over the region’s economic outlook.
The International Monetary Fund also pointed to the risks to the economy from the mounting chances of lower oil prices, and urged countries to take steps toward reducing high debt levels.
In its World Economic Outlook report released here, the IMF said it sees growth in the Middle East coming in at 5.1 percent this year, compared with 3.9 percent in 2002.
The IMF put the rise down to increases in oil production and quotas, as well as the containing of the war on Iraq to topple Saddam Hussein. Economic reform in Iran - set to grow by 6.1 percent this year - has also positively impacted the region’s growth. Helped by the reconstruction of Iraq, the region’s economy should maintain a 4.5 percent growth rate next year, “high by historical standards” the IMF said. But the IMF highlighted the risks that threaten to undermine the region’s performance, with security issues and possible oil price falls looming ominously.
“The outlook for the oil market remains subject to considerable uncertainty, and many oil market analysts see downside risks to prices over the medium term, which would clearly have significant implications for oil producers in the region.”
The IMF defines the Middle East region as extending from Libya to Iran, and does not include Morocco and Algeria.
Growth in the less oil-rich countries in the region such as Jordan, Egypt and Syria is set to be more moderate with worries about security hitting the economically vital tourism industry.
The IMF pointed out that public debt levels across the region are high, even though several oil-exporting countries - such as Saudi Arabia - have taken steps to reduce them.
“However, these efforts will need to be sustained and in some cases strengthened over the medium term,” the IMF said.
Looking ahead, the key challenge for the Middle East economy will be speeding up medium-term growth rates to absorb the region’s rapidly expanding labor force and reduce unemployment.
IMF chief economist Kenneth Rogoff told reporters the many political conflicts in the region are hindering growth, affecting key industries like tourism.
He projected “strong growth” in Iran in the next couple of years, and said some of the increase will come from the ongoing reforms in Iran.
Rogoff’s deputy, David Robinson, criticized the governments in the region for not achieving sustained growth in the non-oil sector. “Over the last 20 years it has been quite a disappointment ... and as a result of that we do have relatively high unemployment across the region.”
According to a World Bank study published in July, unemployment stands at above 15 percent of the active population in most countries of the MENA region and close to 30 percent in Algeria.
Because of elevated birth rates and the actual high unemployment, the region needs to create 50 million new jobs over the next 10 years, it said.