Economies in the Middle East and North Africa remain vulnerable to economic headwinds despite demonstrating "surprising resilience", while relative peace in Lebanon and Syria bodes well for the broader economic growth prospects, the International Monetary Fund has said.
The aggregate output of the region, where the economic outlook has been marred by one geopolitical crisis after another in the past two years, is set to rise gradually, the Washington-based multilateral lender said in its Regional Economic Update on Tuesday.
The Mena region, as well as Afghanistan, Pakistan, the Caucasus and Central Asian economies, have largely dodged the effect of US tariffs and the resulting global trade fallout.
Jihad Azour, the IMF's director of the Middle East and Central Asia department, said Israel's war on Gaza had a "limited impact" on other countries in the region. "Egypt and Jordan, for example, were able to manage the risks and reduce the impact," he told The National at the launch of the report in Dubai. "For Egypt, it was limited to trade, especially on the Suez Canal, and for Jordan, on tourism."
But the war's impact was more dire for countries such as Syria and Lebanon, which suffered from the spillover of the war. "In the case of Lebanon, growth was negative in 2024 because of that and infrastructure was partly destroyed in the south," Mr Azour said.
"Estimates of total destruction exceed $11 billion. We need to have special attention for countries who are in a post conflict situation."
The IMF in February established a coalition of Middle East countries and multilateral institutions, including the World Bank, to provide support for the economic recovery of countries in the region devastated by conflict. The move focused on Syria, Lebanon and Palestine.
The IMF has entered Syria for the first time since 2009 in June and announced that it held early discussions to launch capacity development and technical assistance programmes in the country next year, and possibly establish an office.
Improving prospects
In a preview of the report, the IMF last week said Mena economies were predicted to grow 3.3 per cent this year and 3.7 per cent in 2026, up 0.1 and 0.3 percentage points from it July estimates, respectively.
"GDP growth in the Mena and Pakistan region is projected to strengthen in 2025 at a faster pace than anticipated in May," the fund said on Tuesday.
"Upward revisions reflect stronger oil production among exporters, continued progress on structural reforms in key emerging markets and middle-income economies, and improved agricultural production."
Middle East and North Africa oil exporters, plus Pakistan, have also benefited from higher production as Opec+ boosted its output, while importers gained from robust demand, underpinned by lower energy prices, strong remittances and a rise in the tourism sector, the fund said.
"Combined with tepid global demand and strong supply growth from non-Opec+ producers, this decision helped keep oil prices relatively low," the report said.
Financial market conditions in the broader region have also remained supportive, despite relatively tight monetary policy stances, the IMF noted. "Sovereign spreads have narrowed, nominal exchange rates depreciated and several countries successfully accessed international financial markets," it added.
Inflation trends, meanwhile, varied across regional nations, with most registering lower prices in food and energy, the report found, and those trends expected to remain subdued or decline gradually moving into 2026.
The aggregate higher revision was driven by growth in Saudi Arabia, the Arab world's largest economy, which is forecast to grow 4 per cent this year and next, up 0.4 and 0.1 percentage points, respectively, because of Opec+'s unwinding of voluntary oil production cuts.
The UAE, meanwhile, is expected to grow by 4.8 per cent in 2025 and 5 per cent in 2026, unchanged from the projects during the fund's mission to the Emirates this month.
'Not out of the woods yet'
Mr Azour said productivity was one of the most critical long-term growth elements missing in the Middle East. "It is lacking beyond other parts of the world and emerging economies, both in economic activity and capital," he said during a panel at the report launch.
"Also very important is reducing the size of the state, since you not only improve your overall private finance, but you also create opportunities for the public."
As a result, it has limited employment. "The region is young, but the region is not creating enough jobs for youth," he told The National. "We need to reform labour laws in order to make labour more flexible and fluid, and also we need to upgrade and increase the capacity of people to get access to finance."
The region has shown resilience and has "weathered high global uncertainty relatively well", however, delayed adverse effects cannot be ruled out, the IMF warned.
The fund said the most critical risk is lower global demand, tightening of global financial conditions and stronger-than-projected inflationary pressures that could result in higher borrowing costs.
This would specifically affect countries "with greater government financing needs and banking sectors heavily exposed to government debt", the IMF said.
Regional nations are also vulnerable to renewed geopolitical tensions, as well as the growing frequency and severity of climate-related shocks, which could both disrupt economic activity and undermine stability, the report said.
"On the upside, a faster-than-expected resolution of conflicts and a more aggressive implementation of long-standing structural reforms could provide a meaningful boost to growth," the IMF said.
