The regional director of the International Monetary Fund has warned of a “dire situation” in war-hit Palestine and Lebanon, as the fund cut its growth forecast for the wider Middle East and North Africa region for this year.
“Lebanon and Palestine are in a dire situation. In the case of Lebanon, more than one-quarter of the Lebanese population is displaced,” Jihad Azour told The National.
The continuing Gaza war has devastated Palestine’s economy, with infrastructure, housing and schools destroyed. More than 43,100 people have died, with thousands more injured, since the war began between Hamas and Israel on October 7 last year.
“The conflict had a major impact on Palestine, on Lebanon, relative impact on other neighbouring countries, Jordan, Egypt, and indirect impact on the rest of the region through trade and through oil and gas.”
Mena economies are projected to grow 2.1 per cent this year, 0.6 percentage points lower than the April forecast but higher than last year. Next year’s growth forecast is also revised down by 0.2 per cent to 4 per cent.
This year “in terms of performance, looks better than last year but with great diversity, uncertainty is extremely high,” the IMF regional director said.
In the first half of 2024, Gaza's gross domestic product fell by about 86 per cent due to Israel’s attacks, while the occupied West Bank's first-half GDP declined 25 per cent, the IMF said this month.
The war between Israel and Iran-backed Hezbollah also damaged Lebanon’s economy, with analysts projecting the country’s economy to contract by up to 25 per cent this year.
Vital sectors of Lebanon’s economy from agriculture to tourism are destroyed and critical infrastructure has been damaged as Israel continued to bombard Lebanese towns and villages.
Lebanon assistance
Last week, dozens of countries met in Paris for a conference on the situation in Lebanon and pledged more than $1 billion in humanitarian aid and support for the Lebanese army, according to French Foreign Minister Jean-Noel Barrot.
“The economy that suffered a lot needs to stabilise and this requires assistance fast and in terms of grants. We also need to think how to preserve the minimum stability in the economy and the functioning of the private sector.”
“This requires co-ordination of policies, and also Lebanon needs to think the future, and thinking the future would require international assistance and a certain number of important reforms that need to be done internally.”
Even before the war began, Lebanon was grappling with what the World Bank has called one of the worst global financial crises since the middle of the 19th century.
The country’s economy struggled after the government defaulted on about $31 billion of Eurobonds in March 2020, with its currency sinking more than 90 per cent against the dollar on the black market.
It has yet to enforce critical structural and financial reforms required to unlock $3 billion of assistance from the IMF, as well as billions in aid from other international donors.
Other economies also suffered because of the war.
Jordan’s tourism sector was “partially affected” amid the continuing regional conflict but the country “took a certain number of measures to preserve stability, which allowed Jordan, despite fires around it to preserve a certain level of stability,” he said.
In Egypt, more than 70 per cent of the revenue of the Suez Canal were cancelled amounting to $5 to $6 billion because of the uncertainty on trade. However, the Arab world’s most populous country is “moving forward with its reform programme, which is gradually helping reduce inflation, and we hope that next year, it will bring more growth,” Mr Azour, said.
The IMF approved an initial loan of $3 billion to Egypt in 2022, before increasing it to $8 billion in March this year. Cairo was required to enact certain reforms, including introducing a free-floating currency exchange regime. Other commitments included reducing food subsidies, tightening monetary policy and enhancing competition in the private sector.
The Washington-based lender is also boosting its commitment to the region, with financial assistance worth $47.7 billion in the last four years including countries such as Egypt.
“We are ready to help Lebanon as soon as the situation becomes stable, we are mobilising also the friends of Lebanon and the international community to provide as maximum grants as possible.”
“We're helping other countries. We have a programme with Jordan, we are now working on another one that will help Jordan on climate. We support also other countries from Mauritania, Morocco, as well as also Somalia”
Gulf economies continue to grow
Gulf countries, with a “right mix of policies,” and diversification of their economies were able to weather the Covid crisis, the war in Ukraine and the wars in the region to maintain “a good level of growth, higher than the average global growth”, he said.
“Some of them also improved the revenue outside oil …. their investment in climate, their investment in new technology, AI, and all this transformation is something that is paying back, and I think provides an opportunity for the whole region.”
Saudi Arabia and the UAE, the Arab world’s two largest economies, are diversifying their economies away from oil, with a focus on the development of sectors including real estate, tourism, technology, infrastructure and retail.
Mena oil exporters
Oil exporters in the Mena region are forecast to grow 2.3 per cent this year and 4 per cent next year, conditional on the expiration of oil production cuts in line with recent announcements, the IMF said in its latest report, while oil importers’ economy is projected to expand 1.5 per cent and 3.9 per cent this year and 2025.
Saudi Arabia and seven other Opec+ members were set to ease voluntary production cuts of 2.2 million barrels per day starting this month. However, the supply curbs were extended until the end of November amid a drop in crude prices and slumping global demand.
The IMF report also said inflation has eased in Mena in line with global trends but remains elevated in some economies including Egypt, Sudan and Iran amid “country-specific challenges.” Excluding these economies, inflation is projected to ease to 3.3 per cent in 2024 and 3 per cent in 2025 in the region.
“Most of the countries in the region were able to reduce the level of inflation, and in certain cases, to less than 3 per cent except a few countries like Iran, Egypt and Tunisia, where the level of inflation is still higher. We urge those countries to keep implementing reforms that would reduce the level of inflation,” Mr Azour said.
