The Director of the Middle East and Central Asia office at the International Monetary Fund (IMF), Dr. Jihad Azour, said that geopolitical developments are putting pressure on the economies of the countries of the region, pointing to a state of uncertainty that is considered one of the most difficult economically.
Azour urged the countries of the region to continue adopting the policies that have contributed to maintaining low levels of inflation.
On the sidelines of the spring meetings of the IMF and the World Bank Group in Washington, a report was issued on the latest developments in the Middle East and North Africa, in which it expected an uneven recovery among the economies of the Middle East, North Africa and Central Asia, in light of the high level of uncertainty that prompted the Fund to lower its growth forecast for the region to 2.7 percent.
In an interview with Asharq Al-Awsat, a day after the IMF announced the official opening of its regional office in Riyadh, Azour explained that the world is going through a period of major transformations.
He said that despite an improvement in the inflation rates, which recorded significant declines this year, the world is witnessing transformations between the major economic blocs, as many questions are raised over the ability of the Chinese economy to recover and the European economy to regain its health.
But he added: “In general, the economic situation this year was better than expected, in light of the ability to address the inflation problem without affecting the levels of economic progress or recovery.”
Azour stressed that the geopolitical situation has put pressure on the region.
“In fact, we are in a state of uncertainty that is considered one of the most difficult economically… There is no doubt that it has a huge cost on the Palestinian economy, and on neighboring economies such as Lebanon, Jordan, Egypt, and Iraq,” he told Asharq Al-Awsat.
The IMF regional director continued: “There is an impact on the commercial sector with the significant decline in maritime transport levels and the rising cost with all transport being diverted to other pathways. However, on the oil sector level, the impact was limited, as the fluctuations in the oil markets did not last for a long period and the market is still able to respond to demand.”
For the Gulf countries, improved global demand enhances the ability to continue expanding the volume of investment and the economy, according to Azour.
The measures aimed at economic diversification also contributed to keeping the growth levels of the non-oil sector high, he underlined, warning at the same time of “the very pressing regional element, and the impact of the geopolitical conditions and the war in Gaza on all the economies of the region.”
Inflation
On the other hand, Azour pointed to a positive factor, which is that most countries in the region have been able to address inflation, with the exception of Egypt and Sudan.
“The majority of countries in the region have returned to historical levels of inflation, that is, less than 8 percent. It is expected that inflation levels will continue to decline in 2024 and 2025, and this is a very important economic factor that enhances stability and reduces social burdens,” he remarked.
Excluding Egypt and Sudan, the IMF expects inflation to average 8.8 percent in 2024, and 7.8 percent next year.
“Today we are going through a period of global anticipation regarding the issue of interest rates. The region must continue to adopt the policies it has pursued over the past years, which had a positive impact in maintaining low levels of inflation,” the IMF director stated.
Gulf Countries
According to Azour, the Gulf countries have been able over the past years to diversify their economies, maintaining growth levels for the non-oil sector between 4 percent and 5 percent on average, which “is a good rate if we compare it with global growth levels.”
But he warned about “the challenge of global economic transformations, meaning that this geo-economic transformation with its convulsions has an impact on many countries…”
“These countries are working to be meeting points and economic crossings, and for this reason we must adapt to this situation,” he said.
Saudi Economy
In its April World Economic Outlook report, the IMF raised the expected growth rate for Saudi Arabia to 6%, up from the 5.5% projection issued in January 2024.
Azour explained that the expectations are based on two elements: The first is the oil sector that continues to improve, and the second is the growth rates of the non-oil sector, which are in the range of 4 to 5 percent – a good rate compared to the economies of the region and the world.
Oil prices
Asked about the reasons for the limited impact of the current geopolitical tensions on oil prices, the IMF regional director pointed to several factors, including the level of existing reserves, which contributes to increasing production capacity in the event of unsecured demand, and second, the diversification in transportation mechanisms.
“The war between Russia and Ukraine accelerated the process of developing new transport mechanisms, whether for gas or oil, which contributed to giving greater flexibility in the markets,” he stated, adding: “Last but not least, the way of approaching the geopolitical situation in the oil market has changed, meaning that there is a greater ability to adapt to developments…”
