IMF warns Arab Spring economies of slow growth in 2013

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Photo – Reuters

The International Monetary Fund issued a report on Sunday which said Arab Spring will have an impact on most Middle Eastern and North African economies which are currently grappling with high inflation and rising unemployment.

The Paris-based global lender said in its twice-yearly outlook for the Middle East and North Africa that economic growth and stability depended on improvement in political situation in Egypt, Jordan, Morocco, Libya, Tunisia and Yemen during 2013.

However, the report warned that weakness across the eurozone will affect the recovery of Arab Spring states where exports are shrinking and imports bills are piling up.

“Growth is expected to remain below long-term trends, and unemployment is expected to increase owing to continued anaemic external demand, high food and fuel commodity prices, regional tensions and policy uncertainty,” the report underlined.

The forecast said GDP would expand by 3.6% next year in the six Arab Spring economies, rising from an estimated 2% this year and 1.2% in 2011. In 2010, the year before the uprisings, GDP grew 4.7%.

The IMF advised some countries, without naming them, to allow ‘greater flexibility in their exchange rates’ – which in other words mean depreciating their currencies – in order to stimulate exports.

However, analysts believe that weaker currencies could fuel inflation, which the IMF predicted to rise to 8.6% for the group next year, the highest level since 2008, from 7.8% this year.

Egypt and Morocco are trying to curb soaring inflation and ballooning budget deficits by scaling back food and fuel subsidies, the IMF report noted.

The Paris-based global financial institution said Libya is a ‘spectacular exception’ among the Arab Spring economies because of its oil wealth. Reports coming from the war-torn country suggest its oil output is returning to pre-civil war level faster than expected.

The IMF predicted that the country’s GDP will rise 122% this year, after shrinking around 60% last year. It is expected to rise 17% in 2013 and 7% annually on average between 2014 and 2017, assuming the domestic security situation improves, the report added that Tripoli would run a huge state budget surplus of 19% of GDP in 2012, and a current account surplus of 22%.

The North African nation is facing 16% inflation due to the civil war and factional fighting. The IMF report said inflation is expected to fall to 10% this year and contract to just 1% in 2013, if peace returns to the country.

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