INTERNATIONAL MONETARY FUND

REGIONAL
ECONOMIC
OUTLOOK
MIDDLE EAST AND
CENTRAL ASIA
Safeguarding
Macroeconomic Stability
amid Continued Uncertainty

2023
MAY
World Economic and Financial Surveys

REGIONAL
ECONOMIC
OUTLOOK
MIDDLE EAST AND
CENTRAL ASIA
Safeguarding
Macroeconomic Stability
amid Continued Uncertainty

2023
MAY
ii REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Copyright ©2023 International Monetary Fund

Cataloging-in-Publication Data
IMF Library

Names: International Monetary Fund, publisher.

Title: Regional economic outlook. Middle East and Central Asia : safeguarding macroeconomic stability amid
continued uncertainty.
Other titles: Middle East and Central Asia : safeguarding macroeconomic stability amid continued uncertainty. |
Middle East and Central Asia. | Safeguarding macroeconomic stability amid continued uncertainty. | World
economic and financial surveys. | Regional economic outlook: Middle East and Central Asia.
Description: Washington, DC : International Monetary Fund, 2023. | World economic and financial surveys. |
May 2023. | Includes bibliographical references.
Identifiers: ISBN:
9798400238239 (paper)
9798400238253 (epub)
9798400238284 (web PDF)
Subjects: LCSH: Economic forecasting—Middle East. | Economic forecasting –Asia, Central. | Economic devel-
opment—Middle East. | Economic development—Asia, Central. | Middle East—Economic conditions. | Asia,
Central—Economic conditions.
Classification: LCC HC415.15.A1 R445 2023

The Regional Economic Outlook: Middle East and Central Asia is published twice a year, in the spring and
fall, to review developments in the Middle East and Central Asia. Both projections and policy consider-
ations are those of the IMF staff and do not necessarily represent the views of the IMF, its Executive Board,
or IMF Management.

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INTERNATIONAL MONETARY FUND • May 2023

 Contents iii

Contents
Acknowledgments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

Country Groupings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi

Assumptions and Conventions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii

1. Regional Developments and Economic Outlook: Safeguarding Macroeconomic Stability amid Continued
Uncertainty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Uncertain Global Prospects amid Increased Financial Stability Risks…. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Middle East and North Africa and Pakistan: Muddling through amid Headwinds…. . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3. Caucasus and Central Asia: One Year into the War, Short-Term Benefits with Longer-Term Risks. . . . . . . . . . 8
1.4. ME&CA Outlook: Downside Risks Remain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.5. Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
References.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

2. Monetary Policy: Where Does the Middle East and Central Asia Stand?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1. Introduction.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.2. Monetary Policy Instruments and Recent Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.3. Assessing the Monetary Policy Stance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.4. The Monetary Policy Transmission Mechanism in ME&CA.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.5. Policy Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
References.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

BOXES
1.1. The Growing Financial Footprint of the Gulf Cooperation Council in the Middle East and North Africa and
Pakistan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.2. Unexpected Spillovers from the War in Ukraine amid Heightened Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.3. The Impact of Global Financial Turmoil on the Middle East and Central Asia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

FIGURES
Figure 1.1. MENA: Real GDP Growth, 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Figure 1.2. MENA: Headline Inflation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Figure 1.3. MENA: Change in Primary Balance Excluding Grants, 2021–22. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Figure 1.4. MENA: Contributions to Changes in Gross Public Debt.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Figure 1.5. MENA: Change in Spreads since October 2022 and Bond Yields. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Figure 1.6. MENA: Real GDP Growth, 2022–24. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 1.7. MENA: Cumulative Contributions to Changes in Gross Public Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Figure 1.8. Current Account Components. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Figure 1.9. Real GDP Growth, 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Figure 1.10. Wages, Credit, and Depreciation, 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Figure 1.11. Change in Primary Balance, 2021–22.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Figure 1.12. CCA: Real GDP Growth, 2022–23. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

May 2023 • INTERNATIONAL MONETARY FUND

iv REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Box Figure 1.1.1. MENA and Pakistan: Inward Direct Investment Position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Box Figure 1.1.2. MENA and Pakistan: Remittances: Main Sources and Recipients, 2021. . . . . . . . . . . . . . . . . . . . . . . . . 17
Box Figure 1.2.1. CCA: Nonresident Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Box Figure 1.2.2. CCA: Trade with Russia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Box Figure 1.3.1. Equity Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Figure 2.1. ME&CA Central Banks’ Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Figure 2.2. ME&CA: Change in Policy Interest Rates and Inflation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Figure 2.3. Central Banks’ Net Claims on Central Government and Claims on
Public Nonfinancial Corporations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Figure 2.4. Nominal Policy Interest Rates.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Figure 2.5. Difference between Actual and Rule-Based Policy Interest Rate Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Figure 2.6. ME&CA: Financial Conditions Indices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Figure 2.7. Peak Effect of a 100 bps Contractionary Monetary Policy Shock on Inflation, Real GDP, and the
Exchange Rate in ME&CA Countries.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Figure 2.8. Peak Effect of a 100 bps Contractionary Monetary Policy Shock on Inflation in ME&CA Countries. 27
Figure 2.9. Impact of Monetary Policy Tightening on Effective Interest Rates and Credit Growth. . . . . . . . . . . . . . . . 28
Figure 2.10. Estimated Impacts of Higher Policy Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

TABLES
ME&CA: Selected Economic Indicators, 2000–24. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
MENA: Selected Economic Indicators, 2000–24.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
CCA: Selected Economic Indicators, 2000–24.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

INTERNATIONAL MONETARY FUND • May 2023

 Acknowledgments v

Acknowledgments
The Middle East and Central Asia Regional Economic Outlook is prepared each spring and fall by the IMF’s
Middle East and Central Asia Department (MCD). The report’s analysis and projections form integral elements of
the department’s surveillance of economic developments and policies in member countries. It draws primarily
on information gathered by MCD staff through consultations with member countries.

The analysis in this Regional Economic Outlook was coordinated under the general supervision of Jihad Azour
(MCD Director). The project was directed by Taline Koranchelian (Deputy Director, MCD), S. Pelin Berkmen
(Chief, MCD Regional Analytics and Strategy Division), Yasser Abdih (Deputy Chief, MCD Regional Analytics and
Strategy Division), and Cesar Serra (Deputy Chief, MCD Regional Analytics and Strategy Division).

The primary contributors to this report were Will Abel, Mohamed Belkhir, Olivier Bizimana, Vizhdan Boranova,
Rodrigo Garcia-Verdu, Filippo Gori, Bashar Hlayhel, Thomas Kroen, Troy Matheson, Jeta Menkulasi, Christine
Richmond, and Sahra Sakha.

Vizhdan Boranova and Roy Randen compiled the statistical appendix and managed the database. Research
assistance was provided by Azhin Ihsan Abdulkarim, Roy Randen, and Subi Velkumar.

Bronwen Brown edited the report. Cheryl Toksoz led COM’s editorial team and managed report production in
collaboration with Lorraine Coffey. Gintare Gedrimaite provided production support. Mohamed Belkhir, Kady
Synthia Keita, Thomas Kroen, Nia Sharashidze reviewed the translations and collaborated on the content with
Noha ElShalkany (Arabic), Benjamin Corbel, Jean-Yves Lestienne, Monica Nepote-Cit (French), and Alexandra
Akchurin and Mikhail Surin (Russian), with coordination support from Tine Levine (Translation Coordination
Centre)—all from Language Services, Corporate Services and Facilities Department.

May 2023 • INTERNATIONAL MONETARY FUND

vi REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Country Groupings
The May 2023 Regional Economic Outlook (REO): Middle East and Central Asia covers countries and territories
in the Middle East and Central Asia Department (MCD) of the International Monetary Fund (IMF) referred to as
ME&CA countries and territories. It provides a broad overview of recent economic developments and prospects
and policy issues for the medium term. To facilitate the analysis, the 32 ME&CA countries and territories covered
in this report are divided into three (nonoverlapping) groups, based on export earnings and level of develop-
ment: (1) Oil Exporters (OE), (2) Emerging Market and Middle-Income Countries (EM&MI); and (3) Low-Income
Developing Countries (LIC). Additional analytical and regional groups provide more granular breakdown for
analysis and continuity. The country and analytical group acronyms and abbreviations used in some tables and
figures are included in parentheses.

ME&CA OE include Algeria (ALG), Azerbaijan (AZE), Bahrain (BHR), the Islamic Republic of Iran (IRN), Iraq (IRQ),
Kazakhstan (KAZ), Kuwait (KWT), Libya (LBY), Oman (OMN), Qatar (QAT), Saudi Arabia (SAU), Turkmenistan
(TKM), and the United Arab Emirates (UAE).

ME&CA EM&MI include Armenia (ARM), Egypt (EGY), Georgia (GEO), Jordan (JOR), Lebanon (LBN), Morocco
(MAR), Pakistan (PAK), Syrian Arab Republic (SYR), Tunisia (TUN), and the West Bank and Gaza (WBG).

ME&CA LIC include Afghanistan (AFG), Djibouti (DJI), the Kyrgyz Republic (KGZ), Mauritania (MRT), Somalia
(SOM), Sudan (SDN), Tajikistan (TJK), Uzbekistan (UZB), and Yemen (YEM).

Caucasus and Central Asia (CCA) countries include Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz
Republic, Tajikistan, Turkmenistan, and Uzbekistan.

CCA OE include Azerbaijan, Kazakhstan, and Turkmenistan.

CCA OI include Armenia, Georgia, the Kyrgyz Republic, Tajikistan, and Uzbekistan.

CCA EM&MI include Armenia and Georgia.

CCA LIC include the Kyrgyz Republic, Tajikistan, and Uzbekistan.

Middle East and North Africa (MENA) includes Algeria, Bahrain, Djibouti, Egypt, the Islamic Republic of Iran,
Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Qatar, Saudi Arabia, Somalia, Sudan, the
Syrian Arab Republic, Tunisia, the United Arab Emirates, the West Bank and Gaza, and Yemen.

MENA OE include Algeria, Bahrain, the Islamic Republic of Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia,
and the United Arab Emirates.

MENA OI include Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Somalia, Sudan, the Syrian Arab
Republic, Tunisia, the West Bank and Gaza, and Yemen.

MENA EM&MI include Egypt, Jordan, Lebanon, Morocco, the Syrian Arab Republic, Tunisia, and the West Bank
and Gaza.

MENA LIC include Djibouti, Mauritania, Somalia, Sudan, and Yemen.

MENAP includes MENA, Afghanistan, and Pakistan.

MENAP OI include MENA OI, Afghanistan, and Pakistan.

INTERNATIONAL MONETARY FUND • May 2023

 Country Groupings vii

Arab World includes Algeria, Bahrain, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco,
Oman, Qatar, Saudi Arabia, Somalia, Sudan, the Syrian Arab Republic, Tunisia, the United Arab Emirates, the
West Bank and Gaza, and Yemen.

Arab World OE include Algeria, Bahrain, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, and the United
Arab Emirates.

The Gulf Cooperation Council (GCC) comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United
Arab Emirates.

The Non-GCC oil-exporting countries are Algeria, the Islamic Republic of Iran, Iraq, and Libya.

North Africa countries include Algeria, Djibouti, Egypt, Libya, Mauritania, Morocco, Sudan, and Tunisia.

Fragile and conflict-affected states (FCS) include Afghanistan, Iraq, Lebanon, Libya, Somalia, Sudan, the
Syrian Arab Republic, the West Bank and Gaza, and Yemen.

Conflict-affected countries include Afghanistan, Iraq, Somalia, the Syrian Arab Republic, and Yemen.

May 2023 • INTERNATIONAL MONETARY FUND

viii REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Assumptions and Conventions

A number of assumptions have been adopted for the projections presented in the May 2023 Regional Economic
Outlook: Middle East and Central Asia. It has been assumed that established policies of national authorities will
be maintained, that the price of oil1 will average US$73.13 a barrel in 2023 and US$68.90 a barrel in 2024, and
that the six-month London interbank offered rate (LIBOR) on US dollar deposits will average 5.4 percent in 2023
and 4.9 percent in 2024. These are, of course, working hypotheses rather than forecasts, and the uncertainties
surrounding them add to the margin of error that would in any event be involved in the projections. The 2023
and 2024 data in the figures and tables are projections. These projections are based on statistical information
available through late March 2023, unless otherwise noted.

The following conventions are used in this publication:

ƒ In tables, ellipsis points (. . .) indicate “not available,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrep-
ancies between sums of constituent figures and totals are due to rounding.
ƒ An en dash (–) between years or months (for example, 2011–12 or January–June) indicates the years or months
covered, including the beginning and ending years or months; a slash or virgule (/) between years or months
(for example, 2011/12) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY 2012).
ƒ “Billion” means a thousand million; “trillion” means a thousand billion.
ƒ “Basis points (bps)” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to
¼ of 1 percentage point).

As used in this publication, the term “country” does not in all cases refer to a territorial entity that is a state as
understood by international law and practice. As used here, the term also covers some territorial entities that are
not states but for which statistical data are maintained on a separate and independent basis.

The boundaries, colors, denominations, and any other information shown on the maps do not imply, on the part
of the International Monetary Fund, any judgment on the legal status of any territory or any endorsement or
acceptance of such boundaries.

1
Simple average of prices of U.K. Brent, Dubai Fateh, and West Texas Intermediate crude oil.

INTERNATIONAL MONETARY FUND • May 2023

 1. Regional Developments and Economic Outlook: Safeguarding Macroeconomic Stability amid Continued Uncertainty 1

1. Regional Developments and Economic

Outlook: Safeguarding Macroeconomic
Stability amid Continued Uncertainty1
The economies of the Middle East and Central Asia (ME&CA) proved resilient in 2022, despite a series of
global shocks. However, this year—and potentially next—growth is expected to slow in the Middle East and
North Africa (MENA) as tight policies to fight inflation, reduce vulnerabilities, and rebuild buffers start to dent
economic activity in many countries, and agreed oil production cuts curb growth in oil exporters. Inflation
is projected to remain persistent.2 The outlook for Caucasus and Central Asia (CCA) countries depends
heavily on external factors, namely the impact of monetary tightening, growth in their main trading partners,
the pace of private transfers, and inflows of migrants from Russia. Uncertainty is high, and risks to the
baseline are tilted to the downside amid financial stability concerns—particularly in advanced economies
amid contagion fears. Policy trade-offs are even more complex, and policymakers will need to calibrate the
policy mix carefully to reduce core inflation without triggering financial stress and excessive tightening and
continue to provide targeted fiscal support to vulnerable groups while preserving debt sustainability and
financial stability. Tight monetary and fiscal policies across the region amid tight global financial conditions
call for accelerating structural reforms to bolster potential growth and enhance resilience.

1.1. Uncertain Global Prospects amid Increased Financial Stability Risks

Global growth was resilient in the third quarter of 2022 but faded toward the end of the year. There were hints
of stabilization in early 2023, but the outbreak of financial market turmoil triggered by stress in the banking
sector in the United States and Europe in mid-March has cast a shadow on global prospects as financial stability
risks have risen significantly (April 2023 Global Financial Stability Report). Although forceful actions by policy-
makers to stabilize the banking system appear to have contained systemic risks so far, global financial conditions
tightened sharply in March, with credit spreads widening and equity prices falling, following an easing since
October. In this context, and assuming that the ongoing financial sector turmoil is contained, the April 2023
World Economic Outlook projects that global growth will moderate from 3.4 percent in 2022 to 2.8 percent in
2023—an upward revision to the October forecasts to reflect unexpected resilience in advanced economies and
China’s faster-than-expected recovery in 2023—before accelerating slightly to 3.1 percent in 2024.

Despite some easing of headline inflation in the last months of 2022, core inflation has remained persistently
high. The moderation in global inflation is partly attributable to declining commodity prices—particularly for
energy—but also to the sharp and synchronized monetary policy tightening since last year, which has started
to dampen demand and contain price pressures. Average petroleum spot prices are estimated at $74.20 per
barrel in 2023 and $70 in 2024 (down from $85.50 and $80.20, respectively, in October 2022). Oil futures curves
point to prices decreasing toward $62.70 by 2028. While food commodity prices are expected to decline by 4.9
percent in 2023 and 2.5 percent in 2024 (compared with October’s forecast of declines of 5.8 and 2.0 percent,
respectively), they are expected to remain well above pre-pandemic levels.

1
Prepared by Olivier Bizimana (lead), Filippo Gori, Jeta Menkulasi (lead), and Sahra Sakha with excellent research assistance from Roy
Randen and Subi Velkumar.
2
This report does not include the April 2023 OPEC+ oil production cuts.

May 2023 • INTERNATIONAL MONETARY FUND

2 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Figure 1.1. MENA: Real GDP Growth, 2022 1.2. Middle East and North
(Percent change, year over year)
Africa and Pakistan: Muddling
10
Oct. 2022 WEO
Revision
through amid Headwinds
8 Apr. 2023 WEO
Economic activity proved resilient last year despite
6 a large negative terms-of-trade shock, increased
4
food insecurity, tight financing conditions and
debt vulnerabilities in most emerging market and
2 middle-income economies (EM&MIs), and high
volatility in energy prices. However, the MENA
0
economies and Pakistan are expected to go through
–2 a soft patch this year, reflecting tight policies in
many countries to restore macroeconomic stability,
–4
OPEC+-related curbs in oil production, and the
WBG
JOR
TUN
MAR
MRT
DJI
SOM
YEM
SDN
SAU
KWT
IRQ
UAE
OMN
QAT
BHR
ALG
IRN
EGY

fallout from the recent deterioration in financial

MENA EM&MI MENA LIC MENA OE conditions. Macroeconomic instability and conflict
Sources: IMF, World Economic Outlook database; and IMF staff will continue to pose challenges in low-income
calculations. countries (LICs) and fragile and conflict-affected
Note: Country abbreviations are International Organization for
Standardization country codes. EM&MI = emerging market and states (FCS) amid an ongoing cost-of-living crisis
middle-income economies; LIC = low-income country; MENA = that is exacerbating food insecurity. Debt, financing
Middle East and North Africa; OE = oil exporter; WEO = World
Economic Outlook.
needs, and inflation will remain high in the region’s
EM&MIs, reflecting the economic fallout from the
pandemic and Russia’s war in Ukraine.

Growth Surprised on the Upside amid Strong Domestic Demand

Real GDP growth in MENA has been upgraded for 2022 because of stronger-than-expected growth in many
oil-exporting economies (Bahrain, Libya, Qatar, Saudi Arabia, the United Arab Emirates) and some oil importers
(Jordan, Mauritania, Morocco, Tunisia; Figure 1.1). Real GDP in the region is estimated to have expanded by
5.3 percent in 2022 (an upward revision of 0.3 percentage point from October), up from 4.3 percent in 2021,
reflecting the strong performance of oil exporters (especially Gulf Cooperation Council [GCC] economies) and
Egypt and despite lackluster growth in other EM&MIs and most LICs. The acceleration in growth in 2022 was
mainly due to strong domestic demand—notwithstanding the negative impact of higher prices on households’
purchasing power and firms’ production costs—and a strong rebound in oil production for oil exporters.

Several factors explain the relative strength of domestic demand. Tourism rebounded, and hotel occupancy
rates recovered, surpassing their pre-pandemic levels in many countries (Jordan, Morocco, Qatar, Saudi Arabia).
Remittance flows remained strong in mid-2022 in most EM&MIs (Egypt, Jordan, Morocco, Pakistan). Lending to
the private sector (nonfinancial firms and households) continued to expand in real terms in some EM&MIs, with
double-digit growth in some countries (approximately 10 percent in Egypt), partly reflecting the prevalence
of subsidized lending initiatives in the second half of 2022. Labor market conditions stopped deteriorating in
2022, although structural factors, such as labor and product market rigidities (October 2021 Regional Economic
Outlook: Middle East and Central Asia) hampered a meaningful recovery, especially in EM&MIs. Employment
growth in EM&MIs remained lackluster in the second half (Jordan, Morocco, Tunisia) but continued to rise at a
healthy pace in GCC countries (Bahrain, Oman, Saudi Arabia), partly reflecting rebounding migrant employment
(Bahrain, Oman, Saudi Arabia). Unemployment rates inched up or remained broadly steady in most EM&MIs,
staying above pre-pandemic levels in many countries in late 2022 (Jordan, Morocco, Tunisia).

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 1. Regional Developments and Economic Outlook: Safeguarding Macroeconomic Stability amid Continued Uncertainty 3

Figure 1.2. MENA: Headline Inflation

(Percent change, year over year)
60
Jan. 2022 June 2022 Jan. 2023

50

40

30

20

10

0
PAK EGY TUN MAR JOR WBG MRT DJI IRN ALG IRQ QAT SAU KWT OMN
EM&MI LIC OE

Sources: Haver Analytics; national authorities; and IMF staff calculations.

Note: Country abbreviations are International Organization for Standardization country codes. EM&MI = emerging market and middle-income
economies; LIC = low-income country; OE = oil exporter.

Inflationary Pressures Remain Elevated Despite Tentative Signs of Plateauing for Oil Exporters
Headline inflation showed signs of peaking at the end of 2022, although it remains persistently high for EM&MIs
and LICs (Figure 1.2). Headline and core inflation in many oil-exporting countries (Bahrain, Iraq, Kuwait, Oman,
Qatar, Saudi Arabia) remain relatively lower than elsewhere—as subsidies and caps on certain products, the
strengthening of the US dollar (to which many of the countries peg their currencies), and limited share of food
in the consumer price index basket have helped to offset imported inflationary pressures—and appear to have
peaked in the last months of 2022. By contrast, headline inflation continued trending upward in most EM&MIs
(Egypt, Morocco, Pakistan, and Tunisia, but not Jordan because of its peg to the US dollar and temporary fuel
subsidies), partly reflecting the impact of past exchange rate depreciations and persistently elevated food
prices, but also broadening price pressures (including on services) as underscored by the rise in core inflation
amid loose monetary policy (Egypt, Pakistan, Tunisia).

Monetary Stances and Fiscal Positions Are Mixed

Central banks across the region continued to tighten policy through the end of 2022 in response to persistently
high inflation and exchange rate pressures and to prevent inflation expectations from de-anchoring (Egypt,
Mauritania, Morocco, Pakistan, Tunisia). In countries with currencies pegged to the US dollar (GCC economies,
Jordan), central banks continued hiking policy rates broadly in line with the Federal Reserve, pushing real rates
further into positive territory. For some MENA EM&MIs (including Egypt and Tunisia) and Pakistan, policy interest
rates stood at levels below model-based estimates of natural rates, suggesting that monetary policy stances
were still loose at the end of 2022 (see Chapter 2).

Fiscal positions in the region were mixed. For GCC countries, non-oil primary balances (as a percentage of
non-oil GDP) remained broadly unchanged in 2022 relative to 2021 (Figure 1.3). Despite a substantial increase
in oil revenues (about 4 percentage points of GDP on average), primary current expenditures remained broadly
stable, indicating that most countries avoided procyclical spending (except for Kuwait and Saudi Arabia, entirely
reflecting higher capital expenditures). By contrast, non-GCC oil exporters (Iraq, Libya) ran a procyclical fiscal
policy as in the past, with a significant deterioration in the non-oil primary balance. Overall, oil exporters have

May 2023 • INTERNATIONAL MONETARY FUND

4 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Figure 1.3. MENA: Change in Primary Balance Figure 1.4. MENA: Contributions to Changes in
Excluding Grants, 2021–22 Gross Public Debt
(Percent of GDP; non-oil balances for oil exporters) (Percent of GDP)
15 Revenue excl. grants Primary current expenditure 20 Interest rate Inflation
Capital expenditure Primary balance excl. grants Real growth Primary deficit excl. grants
15
10
10

5 5

0
0
–5

–5 –10

–15
–10 Grants Residual
–20 FX depreciation Gross debt change
–15 –25
2022 2022 2022 2022 2022
DJI
JOR
MAR

MRT
SOM
BHR
OMN
QAT
UAE
SAU
KWT
ALG
TUN
EGY

YEM

IRN
IRQ
SDN

JOR EGY TUN MAR PAK

EM&MI LIC GCC Non-GCC
Sources: IMF, World Economic Outlook; and IMF staff calculations.
OE
Note: Country abbreviations are International Organization for
Standardization country codes. FX = foreign exchange.
Sources: IMF, World Economic Outlook; and IMF staff calculations.
Note: Country abbreviations are International Organization for
Standardization country codes. EM&MI = emerging market and
middle-income economies; GCC = Gulf Cooperation Council;
LIC = low-income country; OE = oil exporter.

increased their buffers, as evidenced by improved fiscal balances in 2022. Some countries repaid public debt
(Kuwait, Oman), while others raised their international reserves or assets, including in their sovereign wealth
funds. For oil importers, primary fiscal deficits (excluding grants) improved on average in most MENA EM&MIs
(except for Egypt) in 2022 relative to 2021, reflecting higher tax revenues partly offset by the policy response
to mitigate the impact of rising commodity prices, while interest expenses remained broadly stable (about 4
percent of GDP on average). By contrast, Pakistan undertook a sizable fiscal expansion. In LICs, primary fiscal
positions deteriorated in most countries because of higher commodity prices.

Higher inflation was the main factor in containing public debt in most MENA EM&MIs and Pakistan in 2022
(Figure 1.4). Debt ratios declined slightly in Egypt and Jordan as higher nominal GDP growth more than offset
interest costs. By contrast, public debt-to-GDP ratios continued to rise in Pakistan and Tunisia, reflecting the
combination of still-large overall fiscal deficits and the impact of exchange rate depreciations, offsetting the
eroding effect of high inflation.

Financial Sector Is Broadly Sound but Sovereign-Bank Nexus Has Tightened

The banking sector in the MENA region has weathered the pandemic well partly because of the deployment of
supportive measures. Following their unwinding, banks in the region have seen their profitability recover, with
the median return on assets ranging between 1 percent and 1.4 percent as of the end of 2022, up from about
0.8 percent in 2020. Capitalization levels in both GCC and MENA EM&MIs have remained high (at 17 percent
and 15.3 percent, respectively), well above regulatory minimums. Nonperforming loan ratios stood at 3.2
percent and 5.3 percent on average in the GCC and MENA EM&MIs, respectively, with a few emerging markets
recording levels as high as 11.1 percent (mainly legacy nonperforming loans). Most banks in the region depend
on customer deposits and long-term funding, with a few exceptions relying on wholesale funding and foreign
depositors. However, structural vulnerabilities remain as the sovereign-bank nexus has tightened following the

INTERNATIONAL MONETARY FUND • May 2023

 1. Regional Developments and Economic Outlook: Safeguarding Macroeconomic Stability amid Continued Uncertainty 5

public sector’s increased reliance on domestic

Figure 1.5. MENA: Change in Spreads since Octo-
bank financing during the pandemic. The
ber 2022 and Bond Yields
banking system’s exposure to government bond (Basis points [left scale]; percent [right scale])
holdings ranges from 6.8 percent to as high as
1,600 21,171 45
Spreads
44 percent of total banking system assets.
1,400 End of 2021 yield (right scale) 40
Latest yield (right scale)
1,200 35
Vulnerabilities Persist, Especially
for EM&MIs, amid Challenging 1,000 30

External Financing Conditions 800 25

External vulnerabilities remain elevated, espe- 600 20

cially in EM&MIs. Current account deficits for 400 15
MENA EM&MIs deteriorated from 4.7 percent
200 10
of GDP to about 5 percent of GDP on average
0 5
in 2022. However, the widening in Pakistan was
more marked (rising from 0.8 percent of GDP –200 0

LBN

TUN

MAR

JOR

KWT

SAU

UAE

QAT

BHR

OMN

EMBIG
EGY
PAK
to 4.6 percent of GDP), reflecting rising import
bills because of higher commodity prices. MENAP OI GCC
The relatively stable current account deficit
Sources: Bloomberg Finance L.P.; and IMF staff calculations.
in LICs (9 percent of GDP on average in 2022) Note: Government bond yields are calculated as the difference
reflects improvements in Sudan (because of between EMBIG spreads and the 10-year US Treasury bond yield.
Country abbreviations are International Organization for Standardiza-
a compression of imports), which was offset tion country codes. EMBIG = Emerging Market Bond Index Global;
by deteriorations elsewhere. By contrast, oil GCC = Gulf Cooperation Council; MENAP = Middle East, North Africa,
Afghanistan, Pakistan; OI = oil importer.
exporters registered large current account
surpluses amid high hydrocarbon prices.

The slight easing of financial pressures across the MENA region and Pakistan since October 2022 was reversed
by the tightening of global financial conditions in March amid global banking turmoil. However, strong differ-
entiation remains across the risk spectrum. Sovereign bond spreads have widened, and borrowing costs have
increased sharply on net in many EM&MIs (Lebanon, Pakistan, Tunisia) relative to October 2022 (Figure 1.5). By
contrast, despite a widening in the wake of the banking turmoil, spreads in Jordan and Morocco are still lower
than in October 2022, in line with emerging markets more broadly. Overall, government bond yields across the
region are higher than at the end of 2021 (by about 130 to 3,000 basis points). Capital flows had reversed even
before the recent financial turmoil, with portfolio fund inflows to the MENA region and Pakistan reaching $1.2
billion in the first two months of 2023 (after a record $4.5 billion in outflows in 2022). Except for Morocco and
Jordan, which issued $2.5 billion and $1.25 billion, respectively, the region’s EM&MIs did not take advantage of
the respite in the Eurobond market in early 2023 like other emerging market economies (see April 2023 Global
Financial Stability Report). Egypt also issued $1.5 billion sukuks in late February. Pressures on exchange rates
and international reserves remain significant, with sharp depreciations in some EM&MIs (Egypt, Pakistan) since
October 2022. However, they have receded modestly in others (especially Morocco, which benefited from a
two-year Flexible Credit Line arrangement in April).

MENA and Pakistan Outlook: Soft Patch amid Slow Disinflation

Growth prospects are set to weaken across the MENA region and Pakistan as tighter monetary and fiscal policies to
safeguard macroeconomic stability dampen domestic demand in EM&MIs; heightened fragility, fiscal pressures,
and persistently high inflation weigh on growth prospects and worsen living standards in LICs and FCS; and
economic growth moderates in oil exporters because of lower oil production in line with the October OPEC+
agreement. As a result, growth in the MENA region is projected to decelerate from 5.3 percent in 2022 to 3.1
percent in 2023 before increasing slightly to 3.4 percent in 2024 (Figure 1.6). Meanwhile, inflation is projected to be
more persistent in EM&MIs and LICs than previously expected. Yet with marginally decreasing (except for Egypt)

May 2023 • INTERNATIONAL MONETARY FUND

6 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

but still high debt levels and projected large gross

Figure 1.6. MENA: Real GDP Growth, 2022–24
(Percent change, year over year) public financing needs and current account deficits,
fiscal and external vulnerabilities are expected to
6
Real GDP
remain elevated in the region’s EM&MIs.
Oil contribution
5 Non-oil contribution

4 Growth Shifting Gears in

Oil-Exporting Economies
3
Real GDP growth for MENA oil exporters is expected
2 to slow from 5.7 percent in 2022 to 3.1 percent in
2023 (and to broadly maintain that pace in 2024) as
1
the main driver of growth in most oil exporters shifts
0 to nonhydrocarbon activities, reflecting agreed oil
production cuts. Non-oil GDP is forecast to expand
–1
2022 23 24 2022 23 24 2022 23 24 2022 23 24 at a healthy clip in 2023 (about 3.7 percent), broadly
MENA MENA OE MENA EM&MI MENA LIC unchanged from 2022, as the positive momentum
Sources: IMF, World Economic Outlook database; and IMF staff in the retail and service sectors (Kuwait, Saudi
calculations. Arabia, United Arab Emirates) is sustained thanks to
Note: EM&MI = emerging market and middle-income economies; LIC
= low-income country; MENA = Middle East and North Africa; OE = abundant liquidity, continued reform momentum,
oil exporter. and rapid acceleration of private investment (Saudi
Arabia), partially offsetting the impact of slow
growth in major trading partners.

Activity in MENA Emerging Markets to Slow

Growth in MENA EM&MIs is projected to slow from 5.1 percent in 2022 to 3.4 percent in 2023. Growth in Egypt is
forecast to decelerate from 6.6 percent in 2022 to 3.7 percent in 2023 because of tight financing conditions, past
exchange rate depreciation, high inflation eroding households’ purchasing power, and weak external demand
growth. Similarly, Pakistan’s growth rate is expected to slow materially from 6.0 percent in 2022 to 0.5 percent
this year, reflecting challenging macroeconomic conditions, including damage from widespread flooding,
broad-based inflationary pressures, and tighter monetary and financial conditions. By contrast, Morocco is set
to grow faster this year, mainly because of a rebound in agricultural output following a severe drought in 2022;
growth in the nonagricultural sector is forecast to remain weak. Activity in Jordan and Tunisia is projected to
remain subdued this year and next, reflecting weakening growth in their main trading partners, spillovers from
the economic fallout of the war in Ukraine, tighter external and domestic financial conditions, and restrictive
fiscal policies. Growth in the region’s EM&MIs is projected to gradually accelerate in 2024 (to 4.4 percent in
MENA EM&MIs and 3.5 percent in Pakistan) and over the medium term as some of the headwinds dissipate,
provided countries sustain implementation of policy and structural reforms, particularly under IMF-supported
programs (Egypt, Pakistan).

Low-Income Countries Face Worsening Fragilities

GDP growth in MENA LICs is forecast to rebound from a contraction of 0.6 percent in 2022 to a modest 1.3 percent
expansion in 2023 before accelerating to 3 percent in 2024 (still lagging the rest of the region). However, growth
prospects are mixed across LICs, with economic activity being driven by country-specific idiosyncratic factors
in some countries, such as debt distress in Djibouti and developments in the extractive sector and tight macro
policies in Mauritania. For LICs already grappling with fragility, the outlook is dominated by macroeconomic
instability—protracted conflict (Yemen), drought conditions (Somalia), and political crisis and lack of financing
(Sudan). More broadly, the terms-of-trade shock, persistent drought, and the cost-of-living crisis have exacer-
bated food insecurity in fragile LICs and pushed more people into poverty. According to the United Nation’s

INTERNATIONAL MONETARY FUND • May 2023

 1. Regional Developments and Economic Outlook: Safeguarding Macroeconomic Stability amid Continued Uncertainty 7

Integrated Food Security Phase Classification, more than half of Yemen’s population (about 19 million people)
and one-third of Somalia’s (about 6 million people) are estimated to have experienced acute food insecurity
in 2022.

A Slow Disinflation Process

Inflationary pressures in the MENA region are expected to be more persistent than envisioned in October.
Headline inflation is set to remain unchanged at 14.8 percent in 2023 (14.8 percent in 2022) and to decline to
about 11 percent in 2024—an upward revision of about 2.5 percentage points for both years since October. The
upward revisions for the region are driven primarily by EM&MIs, particularly Egypt and Tunisia, where inflation is
expected to accelerate at a faster pace after further exchange rate depreciation in the former and price liberal-
ization and subsidy reform in the latter. Similarly, in Pakistan, inflation is projected to more than double to about
27 percent this year, reflecting broadening price pressures. For oil exporters, inflation is forecast to remain low
in most countries. In the GCC, headline inflation is expected to drop from 3.3 percent in 2022 to 2.9 percent
in 2023 and 2.3 percent in 2024. While headline inflation for LICs is poised to moderate, it would remain at
very high levels, declining from 83 percent in 2022 to about 46 percent in 2023 and 35 percent in 2024, mainly
reflecting inflation above 100 percent in Sudan in 2022 and declining to about 70 percent in 2023. The disin-
flation projected across the region for 2024 is primarily attributable to lower commodity prices, easing supply
chain disruptions, and slowing activity because of tighter fiscal and monetary policy stances (see Chapter 2).

Elevated Fiscal and External Vulnerabilities for EM&MIs, Solid Buffers for Most Oil Exporters
Fiscal positions are expected to improve across the region over the next two years and the medium term as
further consolidation measures are required to lower elevated public debt levels, especially in EM&MIs.

Most oil exporters are expected to continue consolidating their public finances. However, some countries will
remain highly exposed to oil price volatility and may switch to overall fiscal deficits over the medium term as their
breakeven fiscal prices are projected to be above
the April 2023 World Economic Outlook oil price
forecasts by 2025 (Algeria, Bahrain, Iraq). Figure 1.7. MENA: Cumulative Contributions to
Changes in Gross Public Debt
MENA EM&MIs (especially Egypt, Jordan, and (Percent of GDP)
Tunisia) and Pakistan are expected to undertake
80 Interest rate Inflation Real growth
meaningful fiscal consolidation, including subsidy Primary deficit Residual Gross debt change
reforms (Egypt, Morocco, Pakistan, Tunisia), with 60 excl. grants
primary fiscal deficits projected to decline by about
40
3 percentage points of GDP on average between
2022 and 2025, in the context of IMF-supported 20
programs for some countries (Egypt, Pakistan)
0
or announced programs (Tunisia). However,
tighter financial conditions will partly offset this –20
fiscal effort, with interest expenses for EM&MIs –40
projected to increase by about 1 percentage point
of GDP on average over the same period. Overall, –60
public debt-to-GDP ratios should decline in the –80
medium term in most EM&MIs, further reflecting
2016–19

2022–25

2016–19

2022–25

2016–19

2022–25

2016–19

2022–25

2016–19

2022–25

the erosion of the real value of public debt from

persistent inflation (Egypt, Pakistan, Tunisia) and
TUN PAK MAR EGY JOR
growth recovery (Figure 1.7).
Sources: IMF, World Economic Outlook database; and IMF staff
calculations.
Note: Country abbreviations are International Organization for
Standardization country codes.

May 2023 • INTERNATIONAL MONETARY FUND

8 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Public gross financing needs are forecast to decrease slightly from about $520 billion over 2021–22 to about
$470 billion over 2023–24, reflecting lower primary deficits and relatively smaller domestic amortization that will
offset higher interest payments. These still-high financing needs for EM&MIs are expected to be covered mainly
through domestic bank financing (except in Tunisia); external financing should contribute a small portion (about
12 percent of total sources on average). The continued reliance on domestic financing will risk exacerbating the
sovereign-bank nexus further, given the very high exposure of banks to sovereign debt in some MENA EM&MIs
and Pakistan (more than 50 percent of bank assets at the end of 2022).

Oil exporters’ current account surpluses are set to decline by about $250 billion (about 8 percentage points of
GDP) between 2022 and 2024, reflecting lower hydrocarbon output and prices. Still, they will remain relatively
large at about 4.7 percent of GDP in 2024. By contrast, lower commodity prices, rebounding tourism, resilient
remittances, and fiscal consolidation are expected to narrow the current account deficits for MENA EM&MIs
from 5.1 percent of GDP in 2022 to about 4 percent of GDP in 2024 on average. LICs’ aggregate current account
deficit is projected to widen from 9 percent of GDP in 2022 to about 11 percent of GDP in 2023, mainly reflecting
a slump in Yemen’s goods exports (following attacks on oil export facilities in October 2022) and normalization
in Sudan’s imports (after last year’s compression).

External vulnerabilities remain elevated in the region’s EM&MIs, underscored by large current account deficits
and dwindling foreign exchange reserves in some countries in 2022. External financing needs for MENA EM&MIs
and Pakistan are projected to stay large, though declining from about $132 billion in 2022 to $123 billion in 2023
(about 212 percent and 171 percent of gross international reserves, respectively). With many EM&MIs facing
reduced access to international markets because of high public debt levels and other domestic vulnerabilities,
GCC governments have stepped in to meet some of these external financing needs, including through direct
budget and balance of payment supports, grants, loans, and foreign direct investment (Box 1.1).

1.3. Caucasus and Central Asia: One Year into the War,
Short-Term Benefits with Longer-Term Risks
Recent developments in CCA countries reflect two parallel currents: a continued post-pandemic rebound and
spillovers from the war in Ukraine, including its impact on global commodity prices. A milder-than-expected
contraction of the Russian economy and large inflows of income, capital, and migrants from Russia to neigh-
boring countries and increased transit trade affected growth positively in 2022. Higher energy commodity prices
contributed positively to oil-exporting countries’ external balances. A better-than-expected harvest in Russia also
contributed to sustained food imports, mitigating food security concerns. However, given their high share of
food imports from Russia, the ruble appreciation has generated substantial imported food inflation in most CCA
countries. Overall, inflation remained in the double digits because of elevated global commodity prices and wage
pressures. Growth in 2023 is expected to slow as the spillovers of 2022 subside. Nonetheless, the war has intro-
duced immense uncertainty to the economic outlook. Given the small relative size of recipient CCA economies,
a reversal of inflows, worse-than-projected Russian growth, supply chain disruptions, or lower remittances could
imply a negative shock to CCA economies down the road.

Positive Spillovers Drove Growth in 2022

A sharp rise in private transfers from Russia and an influx of migrants from Russia supported services and boosted
remittances in most CCA countries in 2022 (Box 1.2). Current account balances improved significantly across
most CCA countries, reflecting a higher surplus in services (Armenia, Georgia) as tourism rebounded, higher
income transfers in most oil importers, and higher oil prices in oil exporters (Azerbaijan, Kazakhstan; Figure 1.8).
In response to large capital inflows from Russia, several recipient countries’ banks increased liquid assets abroad

INTERNATIONAL MONETARY FUND • May 2023

 1. Regional Developments and Economic Outlook: Safeguarding Macroeconomic Stability amid Continued Uncertainty 9

Figure 1.8. Current Account Components Figure 1.9. Real GDP Growth, 2022
(Percent of GDP; 2022:Q1–Q3 year-over-year change) (Percent change, year over year)
25 14
Goods trade Apr. 2022 growth
Services Oct. 2022 revision
20 Income 12 Jan. 2023 revision
CA (2022–21) Actual growth
15 10

10 8

5 6

0 4

–5 2

–10 0

–15 –2
AZE UZB KAZ GEO TJK ARM ARM GEO TJK KGZ UZB AZE KAZ TKM

Sources: Haver Analytics; and IMF staff calculations. Source: IMF, World Economic Outlook database.
Note: Country abbreviations are International Organization for Note: Country abbreviations are International Organization for
Standardization country codes. CA = current account. Standardization country codes.

rather than lending in foreign exchange domestically (Armenia, Georgia) to hedge against foreign exchange
risks if sudden reversals were to occur. However, net foreign direct investment inflows rose across the region by
about 1 percentage point of GDP on average from 2021, more than offsetting portfolio outflows.

CCA economies grew by 4.8 percent in 2022, with growth rates ranging from 12.6 percent in Armenia to 3.2
percent in Kazakhstan (reflecting oil production disruptions) and 1.8 percent in Turkmenistan (Figure 1.9). In
most cases, growth was spurred by sharply higher private transfers and migrant inflows from Russia. A continued
rebound in post-pandemic tourism (Armenia, Georgia) supported exports, whereas real wage growth (Armenia,
Georgia, the Kyrgyz Republic, Uzbekistan) supported domestic demand. Robust growth led to a sharp reduction
in unemployment rates in many countries, but unemployment remained high in Armenia, Georgia, and Uzbekistan
partly for structural reasons.

Inflation Easing in Some Countries but Persistent in Others

Since mid-2022, headline inflation has declined in Armenia, Georgia, and Tajikistan but continued rising in
Kazakhstan and the Kyrgyz Republic and flattened in Uzbekistan. Inflation in Azerbaijan began to moderate
slowly in September 2022 but remained in the double digits in early 2023.

While benefiting from the decline in global food and energy prices, the slowdown in inflation observed in
Armenia and Georgia also reflects currency appreciation and moderate private credit growth as the transmis-
sion of tighter monetary policy and macroprudential measures started to take hold. However, core inflation is
proving more persistent, reflecting strong domestic demand and rising rental prices because of migrant inflows.
Similarly, the sharp disinflation in Tajikistan reflects currency appreciation, tight monetary policy, and other
measures such as the release of strategic food reserves, a 3 percentage point reduction in the value-added tax
rate, and strong domestic agricultural production.

The continued rise in inflation in Kazakhstan and the Kyrgyz Republic and stubborn inflation in Azerbaijan is
broad-based, with a significant imported inflation component, reflecting the high share of imports from Russia
and 20–30 percent depreciation versus the ruble in 2022 (Figure 1.10). Other factors include rapid wage growth
(Azerbaijan, Kazakhstan, the Kyrgyz Republic), demand pressures from migrants from Russia (the Kyrgyz

May 2023 • INTERNATIONAL MONETARY FUND

10 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Figure 1.10. Wages, Credit, and Depreciation, Figure 1.11. Change in Primary Balance, 2021–22
2022 (Percent of GDP; non-oil balances for oil exporters)
30 6
Nominal wage growth
Depreciation versus the ruble
25 Nominal private credit growth 5
Inflation
20 4

15 3

2
10

1
5

0
0

–1
–5

–2
–10 AZE KAZ GEO ARM UZB KGZ TJK
KAZ KGZ AZE GEO UZB ARM TJK
OE EM&MI LIC
Sources: Information Notice System database; and IMF staff Source: IMF, World Economic Outlook database.
calculations. Note: Country abbreviations are International Organization for
Note: Country abbreviations are International Organization for Standardization country codes. EM&MI = emerging market and
Standardization country codes. middle-income economies; LIC = low-income country; OE = oil
exporter.
Republic), strong consumer lending despite substan-
tial monetary tightening (Azerbaijan, Kazakhstan), and
import supply-chain disruptions (Kazakhstan).

Wages are a key driver of CCA inflation dynamics. Nominal wage growth has surpassed inflation in most
countries, pointing to potential price-wage spirals, which would increase inflation persistency and complicate
monetary policy. Empirical estimates suggest that wage rises have a persistent impact on core inflation in CCA
countries, with about a 50 percent pass-through peaking at 11 quarters following the shock, implying continued
inflationary pressure.3

Fiscal and Monetary Policies Remain Tight

Primary fiscal positions improved significantly in 2022 in most CCA countries compared with 2021 (Figure 1.11),
even while preserving essential expenditure. This improvement reflects revenue performance (Armenia,
Georgia, Uzbekistan), higher non-oil revenues (Azerbaijan, Kazakhstan), and current expenditure restraint
(Armenia, Kazakhstan). Exceptions include the Kyrgyz Republic and Tajikistan, where substantial loosening
occurred because of a sharp increase in the wage bill, despite revenue improvements (the Kyrgyz Republic) and
increases in current and capital expenditures (Tajikistan).

In response to continued inflationary pressures, Armenia, Azerbaijan, and Kazakhstan have tightened monetary
policy further since August 2022 by raising policy rates. By contrast, the Kyrgyz Republic, Tajikistan, and
Uzbekistan lowered rates—Tajikistan after a decline in inflation—and others remained on hold. The monetary
stance is assessed to be appropriately tight or neutral in most CCA countries (Chapter 2).

3
Staff estimates refer to a panel vector autoregression with two endogenous variables (wages and core consumer price index inflation)
and one exogenous variable (employment). Identification is recursive with the following order: wages and core consumer price index.
Countries included are Armenia, Azerbaijan, Georgia, the Kyrgyz Republic, and Uzbekistan. The panel is unbalanced, and data start
from 2015 at a quarterly frequency.

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 1. Regional Developments and Economic Outlook: Safeguarding Macroeconomic Stability amid Continued Uncertainty 11

Financial System Broadly Stable

Figure 1.12. CCA: Real GDP Growth, 2022–23
After the pandemic and the unwinding of supportive (Percent change, year over year)
measures, banks in the region have seen their prof- 14
itability recover, with the median return on assets 2023 2022
at 3.9 percent, up from 1.1 percent since 2020. 12
Capitalization levels have remained high, with tier
1 capital ratios at 16.7 percent, 8.1 percentage 10
points above regulatory minimum thresholds.
Nonperforming loan ratios stood at 4.4 percent on 8
average in 2022. Most banks in the region depend
on customer deposits and long-term funding, 6
which make up more than 90 percent of total
funding. However, structural vulnerabilities remain 4
because of comparatively lower levels of loan-loss
provisioning, foreign exchange exposures, and 2
currency mismatches amid still widespread though
declining dollarization. 0
ARM GEO TJK KGZ UZB AZE KAZ TKM CCA

Sources: IMF, World Economic Outlook database; and IMF staff

Stronger Trade Links with Russia calculations.
Adapting to changes in trading routes and other Note: Country abbreviations are International Organization for
Standardization country codes.
logistical challenges since the start of the war in
Ukraine has driven an increase in CCA trade with
Russia (Box 1.2). Bilateral trade data suggest that the share of trade with Russia has increased for several CCA
countries (Armenia, Georgia, Tajikistan, Uzbekistan), even after controlling for higher prices associated with
Russian energy imports. Similarly, the share of trade with the Eurasian Economic Union has increased for some
CCA members (Armenia, Kazakhstan, the Kyrgyz Republic).

CCA Outlook
A range of global and domestic factors—notably projected growth in main trading partners (including Russia) and
private transfers and migrant inflows from Russia—shape the outlook for CCA countries. Other factors include
faster monetary tightening in advanced economies, the lagged impact of domestic tightening, and the decline in
global energy prices.

Growth Set to Moderate

Cross-border transfers and migrant inflows are expected to decelerate significantly in 2023 compared with 2022.
As a result, lower remittances and services exports will drive a deterioration in the current account balances of
EM&MIs and LICs (by an average of 1.5 and 3 percent of GDP, respectively). The decline in oil prices will weaken
current account balances further for oil exporters by an average of 5.4 percent of GDP.

GDP growth is projected to decelerate to 4.2 percent in 2023 before a slight rebound to 4.5 percent in 2024. The
deceleration in 2023, expected to be sharp in Armenia and Georgia, reflects the decline in the initial spillovers
from the war in Ukraine (Figure 1.12). The projected slowdown in LICs reflects easing remittance flows amid
slowing gold and agricultural production. Similarly, non-oil activity is projected to decelerate in oil exporters
(Azerbaijan, Kazakhstan) as domestic demand cools. Nonetheless, overall growth in Kazakhstan is expected to
accelerate to 4.3 percent from 3.2 percent in 2022 as oil production normalizes and the expansion of the Tengiz
oil field becomes operational.

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12 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Sharper Disinflation for Emerging Markets and Persistent Inflation for Others
Inflation is projected to ease in 2023 and 2024, slowing to 11.8 percent and 8.5 percent from 13 percent in 2022,
but the decline will be heterogeneous across countries. For CCA emerging markets, inflation is expected to
decelerate sharply—to 6.4 and 4.0 percent in 2023 and 2024, respectively, from 10.5 percent in 2022—reflecting
easing global commodity prices, the lagged impact of monetary tightening, and continued appreciation. Both
Armenia and Georgia are expected to reach their inflation target by 2025. For LICs, inflation is set to remain at
11 percent in 2023 before declining to 9.3 percent in 2024 as persistent pressures in the Kyrgyz Republic and
Uzbekistan (because of strong wage growth) offset lower inflation in Tajikistan. Inflation in oil exporters is set to
ease only slowly—to 13 percent and 8.7 percent in 2023 and 2024, respectively, from 14.3 percent in 2022—as
price pressures remain elevated in Kazakhstan, reflecting high wage growth.

Moderately Looser Fiscal Policy but Tight Monetary Policy

Fiscal policy, as measured by changes in primary balances (excluding grants), is expected to loosen modestly in
2023 for Armenia (higher capital spending) and Azerbaijan (lower non-oil revenues). The Kyrgyz Republic and
Tajikistan will experience a more significant loosening of 1.6 and 1.8 percentage points of GDP, respectively,
reflecting a higher wage bill and subsidies (the Kyrgyz Republic) and capital spending (Tajikistan) in addition to
a decline in revenues (the Kyrgyz Republic). Meanwhile, Kazakhstan is expected to maintain a neutral position,
whereas Georgia is forecast to consolidate further by 0.7 percentage point of GDP. Consolidation is set to
resume in 2024 for most countries, and debt pressures are forecast to remain contained. Monetary policy is
expected to remain tight in the region as countries continue to fight inflation.

1.4. ME&CA Outlook: Downside Risks Remain

The balance of risks to the outlook is skewed to the downside.

Global financial sector instabilities could intensify, and contagion take hold, affecting the region adversely
through several channels. Financial sector instabilities in advanced economies could depress global growth
and thus ME&CA’s external demand, including by contributing to more volatile oil prices. Increased volatility
in financial markets would add pressures to borrowing costs and exacerbate sovereign debt sustainability
concerns in many MENA EM&MIs. Structural vulnerabilities in the financial sector, such as the tight sover-
eign-bank nexus, could exacerbate domestic financial stability risks, whereas impairment of the banks’ ability
to issue credit would weaken credit recovery.

Tighter-for-longer global financial conditions and debt distress risks. Further tightening of financial conditions
could prompt investors to reassess debt sustainability in many MENA EM&MIs, pushing the most vulner-
able economies to the brink of debt distress. This could spur a flight to safety and capital outflows, fueling
exchange rate depreciation pressures and leading to financial stress. At the same time, the pass-through to
domestic borrowing rates would weigh on credit to the private sector and growth, and ultimately raise fiscal
pressures further.

An escalation of the war in Ukraine could lead to high volatility in commodity markets, shortages, and renewed
price increases for energy, food, and fertilizers, fueling additional inflationary pressures across ME&CA.

More entrenched inflation expectations. Renewed commodity price pressures and supply-chain disruptions
could fuel further headline inflation and spread to other goods and services, particularly in the region’s EM&MIs
and LICs, where inflation is already high. Persistently high core inflation and price-wage spirals could de-anchor
inflation expectations, prompting more monetary policy tightening—further dampening economic activity and
leading to a significant slowdown in growth and financial stress.

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 1. Regional Developments and Economic Outlook: Safeguarding Macroeconomic Stability and Continued Uncertainty 13

Climate change–related risks. The risks associated with climate change have increased significantly in the region,
with changing weather patterns resulting in adverse weather events such as severe heat waves, droughts (North
Africa), and floods (Pakistan, Sudan). Further climate-related events can have a meaningful impact on agricul-
tural output and overall activity and worsen food security and poverty, especially in LICs and FCS (Anderson and
others 2022; Duenwald and others 2022).

Food security and increased social tensions. MENA LICs and EM&MIs with limited fiscal space and a high depen-
dency on energy and food imports remain vulnerable to further deteriorations in food security, including from
renewed increases in food prices, persistent drought, and further disruptions to food supplies. This could
stoke social tensions and weigh negatively on growth, especially in LICs and FCS, where food insecurity is
already elevated.

For the CCA region, a sharper-than-forecast contraction of the Russian economy, a bad harvest, a reversal in
foreign exchange inflows, and lengthy disruptions of the Caspian Pipeline Consortium pipeline and regional
supply chains could hamper economic activity. However, the outlook is also subject to upside risks, including
resilient and rising inflows to CCA economies. The continued influx of highly skilled migrants from Russia and
foreign exchange could boost demand—potentially raising overheating risks in the near term—but also lift
productivity growth across the CCA region. Changing regional trade patterns, and renewed efforts to diversify
trade routes, present additional opportunities.

Delays and backtracking in reform implementation, especially in EM&MIs, could weaken growth prospects in the
medium term, exacerbate ongoing scarring from the pandemic, and worsen vulnerabilities. Stalling reforms with
respect to the state footprint in the economy would delay private sector development.

Deepening fragmentation could exacerbate these risks by leading to more restrictions on cross-border flows of
labor and capital (April 2023 Global Financial Stability Report) and international payments, supply disruptions,
rising input costs, and financial instability and could hamper multilateral efforts to address global economic
challenges faced by the region’s vulnerable emerging and developing market economies.

1.5. Policies
Because growth is expected to moderate while inflation pressures persist amid heightened uncertainty from
global financial stress, striking the right balance of policies will be critical. Policymakers in the region should stay
the course to safeguard macroeconomic stability through tight monetary and fiscal policies while being mindful
of financial stability risks. At the same time, they should accelerate structural reforms to bolster potential growth
and enhance resilience and inclusion.

Monetary Policy: Regaining Price Stability amid Continued Uncertainty

Inflation is estimated to have peaked in 2022 only for some countries, and it remains elevated in many countries.
Even where disinflation has started, core inflation remains stubbornly high. While tight monetary policy stances
continue to work through lags (Chapter 2), additional policy rate increases in advanced economies might lead to
depreciation pressures. In this context, monetary policy should be driven by the following principles:

ƒ In countries where inflationary pressures continue and the stance is loose, a tighter monetary policy should be
considered (Egypt, Pakistan, Tunisia).
ƒ Where the stance is tight or neutral and inflation has peaked, central banks should remain data dependent
and not start loosening prematurely until there are clear signs that core inflation is on a downward trajectory.

Currently, communicating the policy direction is more critical than ever. Policymakers will need to focus on
enhancing communication strategies and increasing the transparency of monetary operations, including the
range of additional instruments (reserve requirements), to anchor market expectations. In addition, across

May 2023 • INTERNATIONAL MONETARY FUND

14 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

all countries, strengthening monetary policy frameworks and central bank independence will be critical to
bolstering central bank credibility, activating the relatively weak bank lending channel, and, more broadly,
effective policy transmission (Chapter 2). Reforms to deepen the financial sector should allow for a greater role
of the policy rate as the key transmission instrument by strengthening the lending channel and relying less on
exchange rate management.

Preserving Financial Stability

The region’s banking sector weathered the pandemic well—profitability has recovered, and liquidity and capital
buffers are high. But central banks should be mindful of financial stability risks amid heightened global financial
stress and closely monitor financial system vulnerabilities that could arise from continued monetary tightening.
Bank supervisors should ensure that banks have governance and risk management commensurate with their risk
profile, including adequate supervisory capital and liquidity stress tests, while strengthening resolution regimes
and crisis management frameworks.

Fiscal Policy: Prioritizing Targeted Support to the Vulnerable while Preserving

Debt Sustainability, Building Buffers, and Supporting Monetary Policy
Elevated debt levels, support measures to address the cost-of-living crisis, and higher debt servicing costs imply
a constrained fiscal space for many EM&MIs. Meanwhile, the forecast decline in oil prices will diminish revenues
for oil exporters. In the near term, and where fiscal space permits, countries should prioritize targeted and
temporary support, with cash transfers to protect the most vulnerable from still-high energy and food prices.
Poorly targeted subsidies should be phased out gradually and social safety nets strengthened and expanded.

ƒ Oil exporters should manage oil revenue carefully, avoid expanding current expenditures, and improve
budget transparency. Fiscal efforts should address the challenges posed by climate change, the energy tran-
sition, and economic diversification by continuing non-oil revenue mobilization with reforms to increase the
efficiency of tax collections and wage bill rationalization.
ƒ Fiscal consolidation in EM&MIs should continue to be anchored on a downward debt path, supported by
revenue mobilization (including removing tax exemptions) and expenditure containment measures such as
refraining from untargeted subsidies and wage bill expansions. CCA countries need to maintain a prudent
fiscal stance to build buffers, given the risk of a sudden reversal in war-related positive spillovers. Improving
fiscal institutions—particularly budget process transparency—and adopting credible medium-term fiscal
frameworks, including fiscal rules, can ease the burden of adjustment, facilitate access to external financing,
and reduce fiscal vulnerabilities on a lasting basis (October 2019 Regional Economic Outlook: Middle East and
Central Asia).
ƒ The lack of fiscal space to protect the vulnerable in LICs and FCS demands of the international community’s
support and global cooperation to prevent a humanitarian crisis in many countries as acute food insecurity
and poverty persist.

Structural Policies: Maximizing Potential Growth amid a Changing Geopolitical Landscape

The adoption of tight monetary and fiscal policies, though necessary, can weigh on growth. Therefore, it will
be important for countries to pursue structural reforms that raise potential growth by bolstering private sector
development and increasing the benefits from trade.

ƒ Bolster private sector development reforms to maximize potential growth and attract much-needed invest-
ment and facilitate job creation. GCC countries are progressively investing in the MENA region and Pakistan in
energy infrastructure, renewable energy, health care, and agriculture (Box 1.1). Although only a few countries
have received investments to date, reforms to make the private sector more investment-friendly—for example,

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 1. Regional Developments and Economic Outlook: Safeguarding Macroeconomic Stability amid Continued Uncertainty 15

reducing state-owned enterprises’ outsize role in the economy, leveling the playing field across all economic
agents, lifting red tape, and liberalizing the labor market—would improve investment prospects in these areas
and foster employment.
ƒ Rethink trade policy to improve resilience. Exposure to climate change with its impact on agriculture produc-
tion and geopolitical fragmentation risks have highlighted the vulnerabilities of a non-diversified product and
destination trade structure (IMF, forthcoming). In the CCA region, the dislocation of trade routes and supply
chain disruptions that followed the war in Ukraine highlight the importance of continuing efforts that actively
pursue partner diversification to strengthen resilience to future adverse shocks. A parallel effort should be
made to reduce trade restrictions that prove distortive and exacerbate global price pressures.
ƒ Ramp up diversification and decarbonization. Countries can invest public resources in renewable energy
sources and climate-resilient infrastructure and enact measures that raise the effective carbon rate (including
by phasing out subsidies). Cross-country cooperation can support the effectiveness of a country’s climate
policy, but international cooperation is crucial to address binding capacity and funding bottlenecks (Anderson
and others 2022; Duenwald and others 2022).

IMF Support
The IMF remains a steadfast partner of ME&CA through policy advice, financing, and capacity development.
Since January 2020, the IMF has approved $29.3 billion of new financing for ME&CA countries, including recent
programs for Armenia (Stand-By Arrangement), Egypt (Extended Fund Facility), Mauritania (Extended Credit
Facility and Extended Fund Facility), and Morocco (Flexible Credit Line). The IMF has also recently established the
Resilience and Sustainability Trust to support low-income and vulnerable middle-income countries in addressing
longer-term challenges, including climate change through the Resilience and Stability Facility. In addition, to
help address the ongoing food crisis facing the IMF’s most vulnerable members, the IMF has enhanced its
emergency lending toolkit with the newly approved Food Shock Window that allows easier financial access
for countries facing food-related balance of payment pressures. The IMF has also increased its presence in the
field by expanding Resident Representative offices, reopening its Middle East Regional Technical Assistance
Center, and setting up a new regional office in Riyadh, which will strengthen the partnership with the region. The
upcoming IMF–World Bank Annual Meetings in Marrakech in the fall of this year will also provide a platform for
wide-ranging policy discussions on challenges facing the region and the world.

References
Anderson, Gareth, Jiayi Ma, Tokhir Mirzoev, Ling Zhu, and Karlygash Zhunussova. 2022. “A Low-Carbon
Future for the Middle East and Central Asia: What are the Options?” IMF Departmental Paper 22/018,
International Monetary Fund, Washington, DC.

Duenwald, Christoph, Yasser Abdih, Kerstin Gerling, Vahram Stepanyan, Lamiae Agoumi, Abdullah Al-Hassan,
Gareth Anderson, and others. 2022. “Feeling the Heat: Adapting to Climate Change in the Middle East and
Central Asia.” IMF Departmental Paper 22/008, International Monetary Fund, Washington, DC.

International Monetary Fund (IMF). Forthcoming. “Trade Integration in Africa: Unleashing the Continent’s
Potential in a Changing World.” IMF Departmental Paper, Washington, DC.

May 2023 • INTERNATIONAL MONETARY FUND

16 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Box 1.1. The Growing Financial Footprint of the Gulf Cooperation Council in the
Middle East and North Africa and Pakistan
Building on their long-standing history supporting the Middle East and North Africa (MENA) region and
Pakistan, the Gulf Cooperation Council (GCC) countries have expanded and diversified their financial ties
with the region in recent years through official financing (deposits and loans), investment, and remittances.

During 2018–22, GCC countries provided about $54 billion1 in balance of payments and budget financing
to MENA emerging market and middle-income economies (EM&MIs) and Pakistan, with additional support
planned. They have also supported the region’s low-income countries and fragile and conflict-affected
states through debt relief, including under the G20 Debt Service Suspension Initiative and the Heavily
Indebted Poor Countries Initiative. GCC debt relief to MENA countries (Djibouti, Mauritania, Somalia) and
Pakistan totaled about $1.3 billion at the end of 2022. In response to higher international food prices,
GCC members committed humanitarian support to countries facing food insecurity, including through a
$10 billion package launched by the Arab Coordination Group. They have also expanded their financial
support by contributing to multilateral institutions, including IMF loan facilities (Poverty Reduction and
Growth Trust) and partnerships between the World Bank and GCC bilateral and multilateral financial insti-
tutions. As more financial support is channeled through or in collaboration with multilateral institutions,
GCC financing is expected to support economic reforms in recipient countries.

In addition to official financing, GCC countries have signifi-

Box Figure 1.1.1. MENA and cantly increased their foreign direct investment (FDI) into
Pakistan: Inward Direct Investment
Position MENA economies and Pakistan over the past decade,
(Billions of US dollars) estimated at $55 billion in 2021 (about 1.6 percent of GDP),
60 SAU BHR UAE KWT an increase of 85 percent since 2011 (Box Figure 1.1.1).2
QAT OMN GCC total GCC investment is spread across most EM&MIs of the
50 region, but Morocco has received the lion’s share, totaling
$13 billion in 2021. Quarterly data suggest that the upward
40 momentum of FDI continued in early 2022. The increase
in inward FDI from the GCC supports private investment,
30
productivity, and growth in recipient countries and, in
some cases, helps meet external financing needs, contrib-
20
uting to shared regional macroeconomic stability.
10
The strong expansion in economic activity across the GCC,
mainly because of higher oil prices, has boosted labor
0
2011 12 13 14 15 16 17 18 19 20 21 demand, supporting higher-income and employment
opportunities, including for migrant workers. As a result,
Source: IMF, Coordinated Direct Investment
Survey. inward remittances in countries with strong ties to the GCC
Note: Country abbreviations are International (Egypt, Jordan, Pakistan, and, to some extent, Lebanon)
Organization for Standardization country codes.
GCC = Gulf Cooperation Council; MENA = Middle rose in 2021 and remained high in the first half of 2022
East and North Africa. (Box Figure 1.1.2). These trends, which in some cases also
reflect robust flows from other major remittances-sending

Prepared by the Gulf Cooperation Council division, Olivier Bizimana, and Sahra Sakha.
1
These numbers are from a survey of IMF country teams and are likely an underestimate of the actual support given limited
information available to IMF staff.
2
These figures reflect total FDI from GCC countries, including flows from GCC countries to other GCC countries.

INTERNATIONAL MONETARY FUND • May 2023

 1. Regional Developments and Economic Outlook: Safeguarding Macroeconomic Stability and Continued Uncertainty 17

Box 1.1. (continued)

regions (Europe), have helped to alleviate pressure on the
Box Figure 1.1.2. MENA and
external accounts and the cost-of-living crisis affecting Pakistan: Remittances: Main Sources
many households in MENA EM&MIs and low-income and Recipients, 2021
countries, supporting consumption growth and economic (Share in total inflows, percentage)
activity. GCC Euro area Others
100
90
80
70
60
50
40
30
20
10
0
EGY JOR LBN MRT MAR TUN PAK

Sources: IMF, Coordinated Portfolio Investment

Survey.
Note: Country abbreviations are International
Organization for Standardization country codes.
GCC = Gulf Cooperation Council; MENA = Middle
East and North Africa.

May 2023 • INTERNATIONAL MONETARY FUND

18 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Box 1.2. Unexpected Spillovers from the War in Ukraine amid Heightened Risks
Over the past two decades, Russia and Caucasus and Central Asia (CCA) countries have experienced
synchronous growth, mainly reflecting their strong trade and financial ties. Nonetheless, Russia’s contrac-
tion in 2022 did not drive a downturn in economic growth in CCA economies. Instead, most CCA countries
experienced a substantial boost from unexpected positive externalities. Understanding the nature and
durability of these spillovers is important to assess potential risks and inform future policy.

Private inflows rose significantly. Net money transfers from Russia to Armenia, Georgia, and Azerbaijan
increased more than fivefold year over year in 2022, reaching 17, 8, and 3 percent of GDP, respectively.
Tajikistan and Uzbekistan also saw a doubling of net remittances, with the increase ranging from 13 to
23 percent of GDP. By contrast, net remittances inflows to the Kyrgyz Republic, historically dependent on
migrant workers’ remittances from Russia, declined by about 6 percentage points of GDP in 2022. The
scale of these inflows is macro-critical for some countries, and uncertainty over their future size and pace
constitutes a risk.

Given their size, the channeling of private transfers via the banking system also has financial stability
implications and will require close monitoring. Nonresident deposits have increased by 4 to 8 percentage
points of GDP in Armenia, Georgia, and Uzbekistan, reaching 6 to 18 percent of GDP and similar values
as a percent of total banking system assets (Box Figure
1.2.1). So far, banks have followed a prudent approach by
Box Figure 1.2.1. CCA: Nonresident
Deposits boosting liquidity buffers and hedging against a potential
(Share of GDP) flight risk rather than intermediating these funds into
20 ARM AZE GEO domestic lending.
KAZ KGZ UZB
18
War-related immigrant inflows, while boosting demand,
16
have increased price pressures in rental and property
14 markets. Migrants from Russia relocating to CCA countries
12 (mainly Armenia, Georgia, Kazakhstan, and Uzbekistan)
10 range between 50,000 and 150,000, comprising up to 5
8 percent of the host country’s population. This has strained
6 rental markets in Georgia and Kazakhstan, with rental
4 prices rising by more than 20 percent year over year in real
2
terms by the end of 2022, raising pressures in already high-
inflation environments.
0
Mar. Dec. Sep. June Mar. Dec.
2019 19 20 21 22 22 Sanctions against Russia and the dislocation of trade
routes have created complex incentives, resulting in closer
Sources: IMF, Integrated Monetary Database; and
IMF staff calculations. ties between Russia and some CCA countries (Armenia,
Note: Country abbreviations are International Georgia, Tajikistan, and Uzbekistan; Box Figure 1.2.2). The
Organization for Standardization country codes.
share of Kyrgyz Republic exports to Russia has doubled,
rising from 14 percent of total exports in 2021 to 34 percent
in the first nine months of 2022. Sanctions have destabilized traditional trade (rail) routes between China
and the European Union, diverting trade routes away from Russia toward neighboring countries. This

Prepared by Jeta Menkulasi.

INTERNATIONAL MONETARY FUND • May 2023

 1. Regional Developments and Economic Outlook: Safeguarding Macroeconomic Stability and Continued Uncertainty 19

Box 1.2. (continued)

reconfiguration implies increased transit trade (Armenia,
Box Figure 1.2.2. CCA: Trade with
Georgia, the Kyrgyz Republic). Growing trade with Russia Russia
exposes CCA countries to a potential worsening of the war (Percent of total trade, three-month
and a sharper Russian contraction and deeper sanctions. moving average)
45 ARM AZE GEO
40 KAZ TJK UZB

35

30

25

20

15

10

Jan. 2021
Mar. 21
May 21
July 21
Sep. 21
Nov. 21
Jan. 22
Mar. 22
May 22
July 22
Sep. 22
Nov. 22
Source: IMF, Direction of Trade Statistics.
Note: Trade shares are total exports and imports
with Russia as a percent of total exports and
imports with the world. Country abbreviations are
International Organization for Standardization
country codes.

May 2023 • INTERNATIONAL MONETARY FUND

20 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Box 1.3. The Impact of Global Financial Turmoil on the Middle East and Central Asia
Countries in the Middle East and Central Asia (ME&CA) have been affected by the turbulence in global
financial markets and increased policy uncertainty, although direct exposure to US and European banks
is limited. Further bouts of financial turbulence would reinforce strains, particularly in countries with large
debt burdens.

Transmission channels of contagion are varied. While direct spillovers to ME&CA banks have been
marginal, reflecting no direct exposure to Silicon Valley Bank and only a limited one to Credit Suisse, there
is uncertainty over potential capital losses given the prevalence of hold-to-maturity portfolios. However,
such a risk is mitigated by the large reliance of ME&CA banks, with a few exceptions, on customer deposits
and long-term funding, including sizable government deposits (particularly in Gulf Cooperation Council
countries). ME&CA economies could be indirectly impacted
Box Figure 1.3.1. Equity Markets through a deeper deceleration of global economic growth
(Index points; percent change since from tighter global lending standards and its impact on oil
SVB’s collapse)
price volatility.
2
So far, financial markets in the region have moved in line with
1
global trends, though countries with large debt burdens
0
have seen a larger impact. Equity markets have declined
–1 across most of the region, with Egypt, Jordan, Oman,
–2 Pakistan, and Qatar experiencing the largest declines. Bank
–3
equities were most affected in Egypt, Gulf Cooperation
Council financial hubs, and Pakistan (Box Figure 1.3.1). Bond
–4
spreads widened significantly for Pakistan, Tunisia, and to a
–5 lesser extent in Egypt, and currencies have broadly gained
–6 on US dollar weakness, while some Central Asian currencies
–7
(Kazakhstan, the Kyrgyz Republic) have weakened with the
Bank equities Russian ruble.
–8 Overall equities

–9 Further stress could test ME&CA countries. Additional

bouts of global financial market turbulence would strain
PAK
QAT
EGY
BHR
UAE
JOR
OMN
SAU
KAZ
MAR
TUN

private and public sector funding, especially in countries

Sources: Bloomberg Finance L.P.; and IMF staff with large debt burdens. Capital flow reversals, including
calculations. the inability to access external markets, would increase the
Note: Data refers to March 15, 2023. Country
abbreviations are International Organization for reliance of the public sector on domestic bank financing,
Standardization country codes. SVB = Silicon further exacerbating bank-sovereign interlinkages. Banking
Valley Bank.
systems could face liquidity risks as financial conditions
tighten further, forcing asset sales that could result in bank
capital losses and undercapitalization in some cases. Lending to firms and households would decline,
eroding assets quality, dragging down growth, and further straining bank capital. In highly dollarized
economies, such as in the Caucasus and Central Asia, capital outflows and weaker currencies could result
in heightened credit risk and balance sheet strains. Lastly, sustained oil price volatility could weigh on oil
exporters’ external and fiscal balances and undermine financial market conditions, and prolonged global
policy uncertainty could drag consumer and investor sentiment and ultimately depress economic activity.

Prepared by Bashar Hlayhel, Thomas Kroen, and Roy Randen.

INTERNATIONAL MONETARY FUND • May 2023

 2. Monetary Policy: Where Does the Middle East and Central Asia Stand? 21

2. Monetary Policy: Where Does the

Middle East and Central Asia Stand?1
The monetary policy response of Middle East and Central Asian (ME&CA) countries to the 2021–22 surge
in inflation has varied widely. The current stance is appropriately tight or neutral for many countries using
a policy rate, but it needs further tightening in others. The response to the latest inflation shock has been
in line with or, in some cases, even more forceful than during previous inflation episodes. Nevertheless, in
several countries monetary policy implementation continues to be undermined by a lack of coordination
with fiscal policy or fiscal dominance. Monetary policy transmission in countries with floating or managed
exchange rate regimes is stronger than in those with a peg, it operates mainly through the exchange rate
channel, and the credit channel is relatively weak. Even countries that have responded appropriately would
benefit from strengthening monetary policy frameworks and fostering financial development. Activating
additional transmission channels would enhance central bankers’ ability to fight inflation while reducing their
economic costs. In addition, greater exchange rate flexibility and the use of macroprudential policies could
help strengthen monetary policy effectiveness. In countries where state-owned banks play an important role
in financial intermediation, policymakers should also reduce their quasi-monetary and quasi-fiscal activities
to improve transmission.

2.1. Introduction
Restoring price stability remains a key policy challenge for ME&CA countries. Inflation surged over the past
two years, reflecting a combination of demand and supply factors, including a rise in food prices and disrup-
tions to global supply chains (April 2022 Regional Economic Outlook: Middle East and Central Asia). Inflation
may have peaked in several countries (see Chapter 1), but food and energy prices are still high relative to their
pre-pandemic levels, inflation is above target in most countries that have a target, and core inflation remains
stubbornly elevated.

This chapter assesses what central banks should do next to restore or maintain price stability. Central banks have
responded to rising inflation with a series of monetary policy actions, including increasing policy interest rates.
Whether this tightening was sufficient to control inflation depends on various factors, including how the increase
in nominal rates has translated into increases in real rates, the level of the natural rate of interest, monetary policy
transmission lags, and the effectiveness of monetary transmission. Furthermore, the appropriateness of the
monetary policy stance depends on factors beyond policy interest rates (for example, on financial conditions
more broadly, including longer-term interest rates and net capital inflows). Several standard methods are used
to assess the monetary policy stance and estimate its impact on inflation, the strength of its main transmission
channels, and the lags with which monetary policy operates.2

1
Prepared by Will Abel, Mohamed Belkhir, Vizhdan Boranova, Rodrigo García-Verdu (lead), Filippo Gori, Bashar Hlayhel, Thomas Kroen,
Troy Matheson (lead), and Christine Richmond, with excellent research assistance from Azhin Abdulkarim.
2
Because of data limitations, this chapter does not cover some important aspects of monetary policy, including the inflation expectations
channel of monetary policy. Also, the evolution of nominal and real wages and measures of labor market slack, which are important
determinants of inflation, are not analyzed.

May 2023 • INTERNATIONAL MONETARY FUND

22 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

2.2. Monetary Policy Instruments and Recent Actions

Policy interest rates and reserve requirements are the main monetary policy instruments in the region.3 Two-thirds
of ME&CA central banks use a policy rate to signal their monetary policy stance, while nearly three-quarters of
central banks use reserve requirements on domestic currency liabilities as an instrument of monetary policy and
slightly more than half use them on foreign currency liabilities. However, countries vary in their instrument mix
and use (Figure 2.1). Most central banks raised policy rates over the past two years, although by varying degrees
(Figure 2.2). While most central banks kept reserve requirement rates unchanged relative to their averages in
the first half of 2021, during 2021–22, seven raised reserve requirement rates on domestic currency liabilities
and four on foreign currency liabilities. However, in most instances, these changes reflected the unwinding of
COVID-19-related measures.4

In addition to raising policy rates and reserve requirements, over the past two years, most of the region’s
central banks have acted to mop up excess liquidity, including by issuing their own securities, selling govern-
ment securities, engaging in reverse repurchase agreements, and intervening in foreign exchange markets by
selling foreign currency (Online Annex 1). However, they have made limited use of macroprudential tools (about
half of central bank actions were related to unwinding pandemic-related measures). On the communications
front, almost two-thirds of central banks publish a communiqué after a monetary policy decision, while only
a few provide forward guidance on interest rates. Lack of coordination between monetary and fiscal policies

Figure 2.1. ME&CA Central Banks’ Instruments Figure 2.2. ME&CA: Change in Policy Interest
Rates and Inflation
(Percent, January 2021 to latest)
14 30
Floating
Managed peg
ALG TUN Pegged 25
MRT BHR* 12
Policy Rate Domestic Reserve Changes in inflation (right scale)
IRQ* IRN
MAR Requirements 20
JOR LBY 10
KWT ARM GEO▲ AZE*▲ 15
KAZ TJK* UZB▲
8
KGZ
SAU QAT OMN 10
LBN
UAE PAK* SDN*▲ 6
EGY* TKM 5

4
0

2 –5
Foreign Reserve
Requirements
WBG 0 –10
PAK
EGY
OMN
UAE
BHR
QAT
JOR
SAU
MRT
KWT
TUN
MAR
ALG
IRQ
KGZ
KAZ
ARM
GEO
AZE
TJK
UZB

MENA and PAK CCA

Source: IMF desk survey.
Note: Country names in black font are Middle East and North Africa, Sources: Haver Analytics; and IMF staff calculations.
and Pakistan; country names in white font are Caucasus and Central Note: Data on policy rates are as of March 31, 2023. Data on inflation
Asia. Countries with a * increased their domestic currency reserve are as of February 2023 except for Bahrain (January 2023) and
requirements and with a ▲ increased their foreign currency reserve Tajikistan and United Arab Emirates (December 2022). Country
requirements since January 2021. Country abbreviations are abbreviations are International Organization for Standardization (ISO)
International Organization for Standardization (ISO) country codes. country codes. CCA = Caucusus and Central Asia; MENA and PAK =
ME&CA = Middle East and Central Asia. Middle East and North Africa, and Pakistan; ME&CA = Middle East
and Central Asia.

3
See Poghosyan and others (forthcoming) for a more complete characterization of monetary policy frameworks in the Caucasus and
Central Asia, including the legal and accountability framework of central banks in the region.
4
Egypt’s decision to raise the required reserve ratio from 14 percent to 18 percent in September 2022 was for monetary policy purposes.

INTERNATIONAL MONETARY FUND • May 2023

 2. Monetary Policy: Where Does the Middle East and Central Asia Stand? 23

and fiscal dominance hamper monetary policy

Figure 2.3. Central Banks’ Net Claims on Central
effectiveness.5 These are present in about half Government and Claims on Public Nonfinancial
of ME&CA countries, resulting in an inconsistent Corporations
policy mix likely to thwart central bank efforts to (Percent, 2020–21 average)
control inflation. Moreover, the incidence of fiscal 40
CB net claims on CG + PNFCs as share of
dominance has increased in several countries monetary base
over the past two years, reflecting the pandemic, CB claims on CG + PNFCs as share of broad
30
money
Russia’s war in Ukraine, and tighter external Average 2016–19 (pre-COVID-19 levels)
financing (Figure 2.3; Online Annex 1). 20

10
2.3. Assessing the
Monetary Policy Stance 0

This section assesses whether current monetary –10

policy stances in ME&CA are tight or loose relative
to two benchmarks and whether monetary policy –20
actions (including higher policy interest rates) and
external conditions have translated into tighter –30
Countries assessed to have Countries assessed to have not
domestic financial conditions. First, estimates of experienced fiscal dominance experienced fiscal dominance
natural rates in ME&CA countries were compared
Sources: IMF, International Financial Statistics database; and IMF staff
with the current policy rate using two different calculations.
methods. Next, an assessment was made of how Note: The classification of the countries that experienced fiscal
dominance and those that did not is based on IMF country teams’
the current monetary policy stance compares assessment. See Online Annex 1 for details. CB = central bank;
with that implied by a flexible monetary policy CG = central government; PNFCs = public nonfinancial corporations.
rule that can fit different monetary and exchange
rate frameworks. Finally, the section presents the
results of an estimation of a financial conditions index (FCI) for ME&CA.

What Is the Current Monetary Policy Stance?

Central banks across the region have tightened monetary policy using a variety of instruments, the most
important of which is raising policy interest rates. But are these rates above or below levels consistent with stable
economic growth and inflation—that is, their “natural” levels? Or do they need to rise further to stabilize inflation?

Natural rates are useful to gauge the monetary policy stance, but their estimates are subject to significant
uncertainty.6 The natural rate refers to the interest rate that neither stimulates nor contracts the economy and is
consistent with output at potential and stable inflation. However, natural rates are notoriously difficult to measure
in real time because they are unobservable, differ across countries, and are subject to short-term volatility. This
chapter defines two different measures of natural rates: a short-term rate and a long-term rate. The short-term
rate—the natural policy rate—is defined as the real natural rate plus one-year-ahead inflation expectations from
World Economic Outlook databases; this indicates where nominal rates should be to stabilize inflation in the
short term.7 The long-term rate—the terminal rate—is defined as the real natural rate plus five-year-ahead inflation
expectations from World Economic Outlook databases; this is an estimate of where nominal rates will eventually
converge when inflation is at its long-term desired level. Natural rates are estimated using two methods: a small

5
Fiscal dominance is defined as subordination to fiscal policy of monetary policy and its primary goal of maintaining price stability,
generally with the objective of contributing to financing the fiscal deficit. It may be difficult to measure, depending on the form it takes.
See Online Annex 1 for a discussion on some of the forms it can take.
6
The uncertainty surrounding natural rate estimates has implications for the conduct of monetary policy. See Online Annex 2 for a
discussion.
7
In other words, it is the policy rate required to prevent changes in real interest rates. Monetary policy is contractionary or tight when
the policy rate is higher than the natural policy rate and expansionary or easy when the policy rate is lower than the natural policy rate.

May 2023 • INTERNATIONAL MONETARY FUND

24 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

semistructural open economy model that jointly

Figure 2.4. Nominal Policy Interest Rates
(Percent) estimates natural rates, potential output, and the
equilibrium exchange rate; and a time-varying
45
Policy rate (end of 2020) parameter vector autoregression.8
Policy rate change (end of 2020 to most recent)
40
Terminal rate (model)
Natural policy rate (model) Point estimates of natural policy rates suggest
35
Terminal rate (TVP-VAR) that the monetary policy stance was appropriately
30 tight or neutral in many countries in early 2023.
25 However, monetary policy remains loose (policy
interest rate below natural policy rates) and may
20
need to be tightened further to stabilize inflation
15 in some countries (Egypt, Pakistan, Tunisia;
10 Figure 2.4).9 Once short-term inflation pressures
are contained, policy interest rates—currently well
5
above estimates of terminal rates—will eventually
0 converge to lower levels.
–5
How Does Recent Monetary
PAK
EGY
KAZ
UZB

TJK
GEO
ARM
AZE
TUN
JOR
BHR
QAT
SAU
OMN
UAE
KWT
KGZ

MAR
Policy Tightening Compare with
Source: IMF staff calculations. Peers and Earlier Responses?
Note: The ranges around the natural policy rate estimates reflect one
standard deviation confidence intervals based on the estimated The analysis in the previous section sought to
model and one-year-ahead inflation forecast errors from World determine whether current policy interest rates are
Economic Outlook databases. Country abbreviations are International
Organization for Standardization (ISO) country codes. The cutoff date above their natural levels and thus disinflationary.
for the policy rate changes is March 31, 2023. TVP-VAR = time-varying This section focuses on assessing the reaction of
parameter vector autoregressions.
central banks to price pressures to characterize
how monetary policy has tightened with respect
to coincident and expected price dynamics.

To do so, the policy reaction of ME&CA central banks was benchmarked using a historical and cross-country
comparison. Simple reactive interest rate rules were identified using two different monetary policy reaction
benchmarks—the monetary policy reaction of ME&CA countries over the last two decades as estimated by
a monetary policy rule, and the corresponding reaction of a subset of emerging market central banks that
engaged in the early and relatively successful adoption of inflation-targeting regimes—the emerging market and
developing economy (EMDE) benchmark (see Online Annex 3).

The exercise shows positive monetary rule residuals since 2021 for countries with an inflation-targeting regime
and conventional peggers,10 suggesting that these countries increased policy interest rates more than when
facing previous shocks of comparable magnitude (Figure 2.5). In countries with an inflation-targeting monetary
policy framework (all in the Caucasus and Central Asia), the rise in policy interest rates was also consistent
with the EMDE benchmark. This suggests that their monetary policy response to the recent inflation surge was
consistent with a steadfast commitment to fighting inflation pressures; it also reflects improvements in their
monetary policy frameworks relative to the past. Conversely, countries with other monetary frameworks (Egypt,
Tunisia) increased interest rates consistent with their historical norms and less than the EMDE benchmark,
suggesting that they are less reactive to inflation developments than other peers, likely because the trade-offs
in these countries between higher interest rates and debt sustainability are critical.

8
See Online Annex 2 for model details and estimation results.
9
See the section titled “The Monetary Policy Transmission Mechanism in ME&CA” for estimated impacts on inflation from higher policy
rates.
10
For countries with a conventional peg exchange rate framework, changes in interest rates reflect the uncovered interest rate parity
condition (see Online Annex 3 for more details).

INTERNATIONAL MONETARY FUND • May 2023

 2. Monetary Policy: Where Does the Middle East and Central Asia Stand? 25

How Have Financial Figure 2.5. Difference between Actual and

Conditions Changed? Rule-Based Policy Interest Rate Changes
The previous subsections documented that in (2021:Q1–22:Q4)
ME&CA countries, the current monetary policy Actual interest rate change
6
Past benchmark
stance—measured by policy interest rates—is tight Largest five Latin America inflation
or neutral for many countries but loose for others targeters
5
and that the rise in policy interest rates since 2021
has been approximately consistent with domestic
4
and international benchmarks. This section
complements the analysis by characterizing the

Percent
evolution of domestic financial conditions at a 3

time when rises in policy interest rates and other

tightening measures, including reserve requi- 2
rements, have coincided with a period of large
capital inflows (for example, Caucasus and Central 1
Asia countries) or asset price appreciation (for
example, Gulf Cooperation Council countries).
0
This analysis is important to determine the extent Inflation targeting Other Exchange rate
to which monetary policy tightening has trans- anchor
mitted to financial conditions, which have an Source: IMF staff calculations.
impact on demand and ultimately on prices.11 To Note: Bars represent actual changes in interest rates from the first
quarter of 2021 through the fourth quarter of 2022. Other marks
do so, a monthly nominal FCI was estimated for 14 represent predicted changes from two benchmark monetary policy
ME&CA countries using indicators that provide a reaction functions estimated for (1) individual countries (horizontal
bars) and (2) the five largest Latin American economies with an
comprehensive measure of financial conditions in inflation-targeting monetary policy framework (Brazil, Chile, Colombia,
money, debt, and equity markets and from condi- Mexico, Peru). We call this the emerging market and developing
economy benchmark. Countries considered in the analysis are Egypt
tions stemming from external factors (see Online and Tunisia (other); Armenia, Georgia, and Kazakhstan (inflation
Annex 4). targeting); and Bahrain, Jordan, Kuwait, Morocco, Oman, Qatar, and
Saudi Arabia (exchange rate anchor).
Financial conditions in some advanced economies
have eased somewhat in recent months, but they
remain tight in ME&CA relative to two years ago. Nevertheless, financial conditions have tightened in recent
weeks following bank stress episodes in a few advanced economies. The results show that the FCI co-moves
positively with policy interest rates and that financial conditions have tightened across ME&CA since the end of
2021, although with significant heterogeneity across countries, driven mainly by a sharp rise in overall interest
rates and changing global factors (Figure 2.6, panel 1).

The relationship between increases in policy interest rates and tighter financial conditions is positive but
dispersed across the region (Figure 2.6, panel 2). A widely diverse reaction of financial conditions to changes in
policy interest rates partially reflects ME&CA central banks’ use of different instruments to tame recent inflation
pressures. However, it is also consistent with relatively large heterogeneity in the monetary transmission channel,
including the magnitude and timing of interest rate pass-through.

11
The impact of financial conditions on inflation is determined by various factors, including market structure and price frameworks
(including the presence of administrative prices or price subsidies). The overall impact of interest rates on prices is covered in the next
section on monetary policy transmission channels.

May 2023 • INTERNATIONAL MONETARY FUND

26 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Figure 2.6. ME&CA: Financial Conditions Indices

1. FCIs Changes and Contributions 2. FCIs Change versus Policy Rate Change
(January 2021 to latest) (January 2021 to latest)
4.5 External factors Exchange rates 4.0
Stock and bond markets Credit
4.0 SAU
Risk premiums Monetary aggregates PAK 3.5
JOR
Interest rates
3.5 OMN
FCIs change
3.0
(Jan. 2021–latest) QAT
3.0
FCIs change
TUN
(Jan. 2021–Dec. 21) 2.5
2.5
FCIs change

FCIs change
EGY
ARM KAZ
2.0 2.0
GEO
1.5
1.5
MAR KGZ
1.0
KWT 1.0
0.5
0.5
0.0
UZB
–0.5 0.0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
SAU

PAK
OMN

QAT

TUN
ARM

KAZ

GEO
EGY

KWT
MAR

UZB
KGZ
JOR

Policy rate change

Sources: Bloomberg Finance L.P.; Haver Analytics; IMF, International Financial Statistics database; national authorities; and IMF staff calculations.
Note: Data on policy rates are as of March 31, 2023. The latest data point for FCIs is December 2022 except for Egypt and Morocco (January
2023), Tunisia and Uzbekistan (February 2023), and the Kyrgyz Republic (October 2022). Country abbreviations are International Organization for
Standardization (ISO) country codes. FCIs = financial conditions indices; ME&CA = Middle East and Central Asia.

2.4. The Monetary Policy Transmission Mechanism in ME&CA

How Does Monetary Policy Tightening Reduce Inflation?
Monetary policy tightening reduces inflation and output, although with heterogeneity across exchange rate
regimes.12 Figure 2.7 reports estimates of the peak impact of monetary policy tightening on inflation and real
GDP, with countries grouped according to their exchange rate regime. The estimated effects are the largest in
countries with floating exchange rates and managed pegs, while the responses are more muted for countries
with pegged exchange rates, suggesting that the exchange rate channel might be key for the transmission of
monetary policy for countries in the sample.13 Looking across countries, peak effects on quarterly inflation occur
between one and three quarters after a monetary shock, with inflation eventually reaching half of the peak
impact about four to 11 quarters after the shock (for year-over-year inflation, these lags are about four to six
quarters and six to 13 quarters, respectively).

Is the Exchange Rate Channel Functioning?

A surprise increase in interest rates should attract capital into a country, causing the exchange rate to appre-
ciate. This appreciation should subsequently raise the cost of exports (to the extent that they are priced in the
local currency) and lower the cost of imports, leading to declines in output and inflation. Following a surprise
monetary policy tightening, a large appreciation of the nominal exchange rate was observed for all countries
in the sample, and this appreciation occurs within the same quarter as the tightening (Figure 2.7). For countries
with a floating or managed exchange rate, the analysis found that a 100 basis point monetary policy shock
leads to an appreciation in the nominal exchange rate of almost 2 percent on an annualized basis. Additional

12
Estimates in this section are based on the model described in Online Annex 2. See Online Annex 7 for results based on structural vector
autoregressions.
13
The relatively low impact of interest rates on inflation among currency peggers may also reflect a prevalence of price subsidies in these
countries over the sample period examined. For an analysis of the evolution of price subsidies in the Middle East and North Africa
region, see the October 2022 Regional Economic Outlook: Middle East and Central Asia.

INTERNATIONAL MONETARY FUND • May 2023

 2. Monetary Policy: Where Does the Middle East and Central Asia Stand? 27

Figure 2.7. Peak Effect of a 100 bps Contractionary Figure 2.8. Peak Effect of a 100 bps Contractionary
Monetary Policy Shock on Inflation, Real GDP, and Monetary Policy Shock on Inflation in ME&CA
the Exchange Rate in ME&CA Countries Countries
(Percentage points) (Percentage points)
0.0 0.0 12

10
–0.5 –0.5

8
–1.0 –1.0

6
–1.5 –1.5

–2.0 –2.0
2

–2.5 –2.5 0
Inflation GDP ER Inflation GDP ER Inflation GDP Without ER With ER Without ER With ER
channel channel channel channel
F MP CP
Peak inflation response Peak quarter (quarters,
(percentage points) right scale)
Source: IMF staff calculations.
Note: Circles represent the median peaks, and the error bars show
Source: IMF staff calculations.
the ranges across countries. Inflation is quarter-over-quarter
Note: The figure shows the peak effect of a 100 basis point contrac-
annualized percentage rates. Real GDP and exchange rates are in
tionary MP shock on quarter-over-quarter inflation in countries with a
percent. Note that for CP, the monetary tighening is a 100 basis point
statistically significant response of inflation, estimated using Jordà’s
increase in foreign interest rates with an equivalent increase in
(2005) local projections method. Circles represent the median peaks,
domestic rates. bps = basis points; CP = conventional pegger;
and the error bars show the ranges across countries. “Without ER
ER = exchange rate; F = floater; ME&CA = Middle East and Central
channel” points to the impulse response of inflation when the
Asia; MP = managed pegger.
exchange rate channel is muted. “With ER channel” measures the
inflation response when the nominal effective exchange rate
analysis is consistent with the exchange rate being appreciates by one standard deviation simultaneously with a
monetary policy tightening. bps = basis points; ER = exchange rate;
a key channel for magnifying the effect of monetary ME&CA = Middle East and Central Asia.
policy on inflation in the region. In a structural vector
autoregression framework, estimates show that on
average, 40 percent of the peak impact on inflation from monetary policy shocks is driven by the exchange rate
(see Online Annex 7). Similarly, local projection estimates, based on Jordà (2005), suggest that in countries with
flexible or managed exchange rate regimes, inflation tends to decline by a larger magnitude when the exchange
rate also appreciates following a contractionary monetary policy shock (Figure 2.8). Transmission lags also tend
to be shorter under the amplifying effect of the exchange rate.

Is the Bank Lending Channel Functioning?

The pass-through of monetary policy tightening to bank lending and deposit rates and credit provision were
estimated using local projection methods with quarterly bank-level data for a panel of countries in the region. For
countries with pegged exchange rates, the pass-through of US monetary policy was considered; for managed
peggers and exchange rate floaters, the impact of an increase in the policy interest rate was estimated.

In countries with fixed exchange rates, at the peak, a 100 basis point US monetary tightening leads to 81 basis
points higher asset rates (a proxy for effective lending rates), 66 basis points higher liability rates (a proxy for
effective deposit rates), and a reduction of 3.2 percent in real credit growth (Figure 2.9, panel 1).14 Yet the trans-

14
The sample of peggers consists of Azerbaijan, Bahrain, Jordan, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates.

May 2023 • INTERNATIONAL MONETARY FUND

28 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Figure 2.9. Impact of Monetary Policy Tightening on Effective Interest Rates and Credit Growth

1. Maximum Impulse Responses to a 100 bps Monetary 2. Oil-Exporting ER Peggers: Response of Interest Rates and
Policy Shock Credit Growth to a 100 bps Monetary Policy Shock,
Depending on Oil Price
160 0.0 80 –4.0
Pass-through at $65/bl
Pass-through at $82/bl
140 –1.0 70 –3.5

120 60 –3.0
–2.0

Percentage change
Percentage change
100 50 –2.5
Basis points

–3.0

Basis points
80 40 –2.0
–4.0
60 30 –1.5

–5.0
40 20 –1.0

20 –6.0 10 –0.5

0 –7.0 0 0.0
F MP CP F MP CP F MP CP Asset rates Liabilities rates Loan growth
(right scale)
Asset rates Liabilities rates Real credit
growth
(right scale)
Source: IMF staff calculations.
Notes: Panel 1 shows peak response from local projection estimation for country groups, sorted by exchange rate regime. Panel 2 shows how the
peak response in exchange rate peggers depends on the level of the oil price. According to the World Economic Outlook database, $65 is the
current medium-term projection for the oil price; $82 was the prevailing oil price in the week of January 18, 2023. bl = barrel; bps = basis points;
CP = conventional pegger; ER = exchange rate; F = floater; MP = managed pegger.

mission of higher US policy rates into domestic banks’ asset and liability rates operates with sizable lags. In the
year following a 100 basis point tightening, asset and liability rates rise by approximately 30 basis points on
average. The peak responses are reached after eight to 10 quarters (see Online Annex 6).15

In this context, the level of the oil price is a critical determinant of monetary transmission in oil-exporting
countries. When liquidity is ample because of high oil revenues, the transmission of US monetary policy into
domestic financial conditions is dampened. Quantitatively, the pass-through of a 100 basis point US interest rate
rise into domestic asset and liability rates is more than 20 basis points stronger at an oil price of $65 per barrel
(consistent with medium-term projections) compared with an $82 oil price (the prevailing price in the week of
January 18, 2023; Figure 2.9, panel 2). Higher oil prices also attenuate the pass-through into real credit growth.
With oil prices expected to revert to their 2019 levels over the next five years, spillovers from US monetary policy
will likely strengthen, increasing the need for macroprudential buffers.

Monetary policy transmission to bank asset and liability rates is weaker on average in countries with a managed
peg or floating exchange rate regime,16 partly reflecting their lower level of financial development compared
with ME&CA peggers and emerging markets in general, largely due to the high level of development among
Gulf Cooperation Council countries. Asset and liability rate pass-through peaks at 60 and 34 basis points for
floaters (28 and 22 basis points for managed peggers), respectively, for a 100 basis point rise in the policy
interest rate; the response of credit growth is economically small and statistically insignificant for all countries
except for Pakistan. There is significant heterogeneity across the region, with pass-through stronger in countries

15
Such long lags reflect the use of effective asset and liability rates instead of marginal interest rates.
16
The sample of managed peggers based on the 2021 Annual Report on Exchange Arrangements and Exchange Restrictions consists of
Egypt, Morocco, and Tunisia. Since then, Egypt has de jure transitioned to a floating exchange rate arrangement. The sample of floaters
consists of Armenia, Georgia, Kazakhstan, and Pakistan.

INTERNATIONAL MONETARY FUND • May 2023

 2. Monetary Policy: Where Does the Middle East and Central Asia Stand? 29

Figure 2.10. Estimated Impacts of Higher Policy Rates

1. Impact of Higher Policy Rates on Inflation 2. Projected Impact of End of 2022 Policy Rates on Inflation
(Average percentage, 2021–22) (Average percentage, 2023; deviation from baseline
projections)
14 0.0
Estimated inflation without higher
policy rates
–0.5
12 Average inflation (deviation from
estimated target)
–1.0

10 –1.5

–2.0
8
–2.5
6
–3.0

4 –3.5

–4.0
2
–4.5

0 –5.0
F MP CP F MP CP

Source: IMF staff calculations.

Note: Counterfactual analysis based on small structural model (see Online Annex 2). Panel 1 shows the reduction in average inflation over 2021
and 2022 from the increase in policy interest rates between the end of 2020 and the end of 2022. The counterfactual scenario assumes that all
interest and exchange rates are unchanged over this period. Panel 2 shows estimated inflation responses to the monetary policy stance at the end
of 2022 (policy rates less terminal rates). Circles represent the median impacts across countries, and the error bars show the cross-country range
of estimates. CP = conventional pegger; F = floater; MP = managed pegger.

with a smaller footprint of state-owned banks (see Online Annex 6). These results suggest that the banking sector
may be playing only a limited role in monetary transmission to the real economy for exchange rate floaters and
managed peggers in the region on average, particularly for countries where state-owned banks are dominant.

Putting It Together: Where to Next?

Inflation rates have been relatively high since 2021, but inflation could have been notably higher if central banks
had not increased policy interest rates. The analysis suggests that interest rate increases since 2020 have acted
to reduce inflation for all countries examined, with larger inflation reductions among countries with greater
exchange rate flexibility (Armenia, Georgia, Kazakhstan, Pakistan; Figure 2.10, panel 1). However, inflation has
continued to rise in Egypt, Pakistan, and Tunisia, with the comparison of current policy interest rates relative to
natural policy rate estimates suggesting that further interest rate increases are needed to stabilize inflation (see
subsection titled “What Is the Current Monetary Policy Stance?”).

The high level of policy interest rates relative to terminal rates at the end of 2022 can be expected to continue
putting downward pressure on inflation throughout 2023 (Figure 2.10, panel 2). The extent to which policy rates
need adjustment in the short term will be determined by the evolution of inflation and inflation expectations,
considering the impact of past policy changes and domestic and global economic conditions.

May 2023 • INTERNATIONAL MONETARY FUND

30 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

2.5. Policy Recommendations

Headline inflation appears to have peaked in 2022, but core inflation remains stubbornly high in many countries.
Although monetary policy actions taken since 2020 have been broadly appropriate and helped curb inflation for
the majority of countries using a policy rate, other countries still need to tighten further, and risks remain for all
countries as policymakers search for clear signs of an inflection point amid heightened uncertainty.

Where to next? Heightened uncertainty requires close vigilance. Calibrating and communicating monetary
policy in a data-dependent manner will be essential to prevent inflation expectations from becoming de-
anchored. Specifically:

ƒ Where the policy stance is tight or neutral, and inflation appears to have peaked (for example, Armenia and
Georgia), central banks should remain data dependent and not start loosening until there are clear signs that
core inflation is on a downward trajectory.
ƒ Countries with a currency peg should continue following US monetary policy and consider the use of additional
macroprudential policies (for example, lower loan-to-value and debt-to-income ratios) in case of significant
asset price appreciation or if financial conditions remain loose or loosen.
ƒ Where the policy stance is loose and inflationary pressures persist, tighter monetary policy should be consid-
ered to stabilize inflation and inflation expectations (for example, in Egypt, Pakistan, and Tunisia).
ƒ Where there is a lack of coordination between monetary and fiscal policy or where there is fiscal dominance,
policymakers will need to address fiscal imbalances so that monetary policy can become an effective tool to
stabilize inflation. Until then, monetary policy will need to be tightened more than if fiscal policy were acting
in coordination.
ƒ Where high oil prices dampen the bank-lending channel (energy exporters), the policy rate will need to be
complemented with other monetary or macroprudential tools.
ƒ Across the region, and in countries that will tighten monetary policy further in particular, central banks should
be mindful of financial stability risks and closely monitor financial system vulnerabilities that could arise from
increasing interest rates.

In parallel, further efforts are needed to improve monetary policy frameworks and monetary policy transmission
in the region. Given that inflation expectations data are not available in most countries in ME&CA, policymakers
need to develop surveys of inflation expectations. The strong estimated response of inflation to monetary policy
shocks and the short time lag with which it responds in countries with a floating or managed exchange rate—and
the bank-level data evidence that the lending channel is weak—suggest that the exchange rate is a key transmis-
sion channel for many countries.

ƒ Strengthening the lending channel would also require developing the financial sector, including by promoting
well-functioning and highly liquid interbank markets for reserves and secondary markets for government secu-
rities with a broad range of maturities, and by promoting measures to de-dollarize those financial systems with
a high degree of dollarization. This would subsequently facilitate greater exchange rate flexibility, allowing the
exchange rate to act as a shock absorber to better isolate economies from shocks and improve the efficiency
of monetary policy.
ƒ All countries could benefit from closer coordination of monetary policy with financial and fiscal policies. For
example, state-owned commercial banks should operate on a level playing field with private banks, and the
use of state-owned banks for monetary or fiscal purposes should be avoided (for example, through phasing
out quasi-fiscal activities and subsidized lending).
ƒ The use of macroprudential measures in countries with fixed exchange rate regimes can help strengthen
the link between changes in the policy rate and financial conditions, which is particularly important now for
Caucasus and Central Asia countries that are experiencing large capital inflows and for Gulf Cooperation
Council countries that are experiencing rapid asset price appreciation (for example, in equity or housing
markets).

INTERNATIONAL MONETARY FUND • May 2023

 2. Monetary Policy: Where Does the Middle East and Central Asia Stand? 31

ƒ Monetary policy frameworks should be improved by enhancing central bank communications and increasing
the transparency of monetary operations and foreign exchange interventions.

References
Jordà, Òscar. 2005. “Estimation and Inference of Impulse Responses by Local Projections.” American Economic
Review 95 (1): 161–82.

Poghosyan, Tigran, Klakow Akepanidtaworn, Maria Atamanchuk, Ezequiel Cabezon, Selim Cakir, Mariarosaria
Comunale, Omer Faruk, Vahid Khatami, Marina Conesa Martinez, and Filiz D. Unsal. Forthcoming.
“Strengthening Monetary Policy Frameworks in the Caucasus and Central Asia.” IMF Departmental Paper,
International Monetary Fund, Washington, DC.

May 2023 • INTERNATIONAL MONETARY FUND

32 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

ME&CA: Selected Economic Indicators, 2000–24

(Percent of GDP, unless otherwise indicated)
Projections
Average
2000–19 2020 2021 2022 2023 2024
ME&CA 1,2

Real GDP (annual growth) 4.5 –2.7 4.6 5.3 2.9 3.5
of which non-oil growth 5.3 –2.7 5.3 4.5 3.2 3.7
Current Account Balance 5.8 –3.0 3.3 7.5 3.6 2.1
Overall Fiscal Balance 1.4 –7.9 –2.5 1.4 –1.5 –2.2
Inflation (year average; percent) 7.2 10.4 12.8 14.3 15.9 12.0
ME&CA oil exporters
Real GDP (annual growth) 4.5 –3.9 4.7 5.4 3.2 3.2
of which non-oil growth 5.6 –3.7 5.8 4.0 3.7 3.5
Current Account Balance 8.9 –2.8 6.5 12.5 6.5 4.3
Overall Fiscal Balance 3.3 –8.5 –1.0 4.3 0.2 –0.6
Inflation (year average; percent) 6.7 8.7 11.0 13.6 12.1 8.7
ME&CA emerging market and middle-income countries1
Real GDP (annual growth) 4.2 –0.8 4.6 5.6 2.4 4.1
Current Account Balance –3.6 –3.1 –3.5 –4.8 –3.5 –3.5
Overall Fiscal Balance –5.4 –7.3 –6.3 –6.2 –6.6 –7.2
Inflation (year average; percent) 7.1 8.2 7.8 11.5 21.5 17.1
ME&CA low-income developing countries2
Real GDP (annual growth) 4.4 –1.4 4.3 3.1 3.5 4.3
Current Account Balance 1.0 –5.1 –6.8 –4.8 –6.8 –6.4
Overall Fiscal Balance –2.0 –3.8 –2.8 –2.7 –2.7 –2.5
Inflation (year average; percent) 13.9 38.9 67.0 38.1 24.7 19.4
Sources: National authorities; and IMF staff calculations and projections.
1
2011–24 data exclude Syrian Arab Republic.
2
2021–24 data exclude Afghanistan.
Notes: Data refer to the fiscal year for the following countries: Afghanistan (March 21/March 20) until 2011, and December 21/December 20
thereafter, the Islamic Republic of Iran (March 21/March 20), and Egypt and Pakistan (July/June).
The 32 ME&CA countries and territories are divided into three (nonoverlapping) groups, based on export earnings and level of develop-
ment: (1) Oil Exporters
(ME&CA OE), (2) Emerging Market and Middle-Income Countries (ME&CA EM&MI); and (3) Low-Income Developing Countries (ME&CA LIC).
ME&CA OE include Algeria, Azerbaijan, Bahrain, the Islamic Republic of Iran, Iraq, Kazakhstan, Kuwait, Libya, Oman, Qatar, Saudi Arabia,
Turkmenistan, and the United Arab Emirates.
ME&CA EM&MI include Armenia, Egypt, Georgia, Jordan, Lebanon, Morocco, Pakistan, the Syrian Arab Republic, Tunisia, and the West
Bank and Gaza.
ME&CA LIC include Afghanistan, Djibouti, the Kyrgyz Republic, Mauritania, Somalia, Sudan, Tajikistan, Uzbekistan; and Yemen.

INTERNATIONAL MONETARY FUND • May 2023

 Selected Economic Indicators 33

MENA: Selected Economic Indicators, 2000–24

(Percent of GDP, unless otherwise indicated)
Projections
Average
2000–19 2020 2021 2022 2023 2024
MENA 1

Real GDP (annual growth) 4.2 –3.1 4.3 5.3 3.1 3.4
of which non-oil growth 5.2 –3.0 5.2 4.0 3.6 3.7
Current Account Balance 6.8 –3.3 4.2 9.0 4.5 2.7
Overall Fiscal Balance 1.6 –8.4 –2.0 2.5 –1.0 –1.7
Inflation (year average; percent) 7.1 10.9 13.9 14.8 14.8 11.1
MENA oil exporters
Real GDP (annual growth) 4.3 –4.1 4.7 5.7 3.1 3.0
of which non-oil growth 5.5 –3.9 5.9 3.8 3.7 3.5
Current Account Balance 9.6 –2.9 7.2 13.0 6.9 4.6
Overall Fiscal Balance 3.3 –8.9 –0.8 4.6 0.4 –0.5
Inflation (year average; percent) 6.6 9.0 11.3 13.5 12.0 8.7
MENA emerging market and middle-income countries1
Real GDP (annual growth) 4.1 –0.5 3.6 5.1 3.4 4.4
Current Account Balance –4.0 –3.7 –4.7 –5.1 –4.1 –4.1
Overall Fiscal Balance –5.8 –7.4 –6.6 –5.6 –6.9 –7.1
Inflation (year average; percent) 7.1 6.8 7.1 11.2 19.1 14.9
MENA low-income developing countries
Real GDP (annual growth) 2.2 –4.1 0.6 –0.6 1.3 2.9
Current Account Balance –3.5 –12.0 –8.4 –8.8 –10.5 –9.8
Overall Fiscal Balance –3.2 –3.8 –0.2 –1.7 –2.1 –1.8
Inflation (year average; percent) 17.1 92.1 175.9 83.2 45.9 35.0
MENA excl. conflict-affected countries
Real GDP (annual growth) 4.3 –2.7 3.9 5.6 2.9 3.3
of which non-oil growth 5.3 –2.7 5.2 4.2 3.4 3.6
Current Account Balance 6.8 –3.2 4.3 9.1 4.6 2.7
Overall Fiscal Balance 1.6 –8.2 –2.2 2.5 –1.1 –1.8
Inflation (year average; percent) 7.1 10.9 14.1 14.9 15.0 11.2
MENA excl. fragile states and conflict-affected countries
Real GDP (annual growth) 3.9 –1.7 3.9 5.7 2.9 3.3
of which non-oil growth 5.1 –1.4 4.5 4.5 3.5 3.6
Current Account Balance 7.6 –2.3 4.4 9.5 4.9 3.4
Overall Fiscal Balance 1.9 –7.9 –2.4 2.3 –0.9 –1.5
Inflation (year average; percent) 6.8 8.4 9.6 12.6 13.9 10.7

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34 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Projections
Average
2000–19 2020 2021 2022 2023 2024
MENAP 1,2

Real GDP (annual growth) 4.3 –2.8 4.5 5.4 2.7 3.4
of which non-oil growth 5.2 –2.7 5.3 4.3 3.1 3.7
Current Account Balance 6.4 –3.0 3.8 7.8 3.9 2.3
Overall Fiscal Balance 1.3 –8.2 –2.4 1.6 –1.5 –2.3
Inflation (year average; percent) 7.1 10.8 13.2 14.4 16.4 12.5
Gulf Cooperation Council
Real GDP (annual growth) 4.2 –4.7 3.5 7.7 2.9 3.3
of which non-oil growth 5.9 –4.1 5.2 4.9 4.2 3.9
Current Account Balance 12.8 –1.1 8.6 15.2 8.6 6.5
Overall Fiscal Balance 6.0 –8.0 0.0 6.0 2.4 1.6
Inflation (year average; percent) 2.3 1.3 2.2 3.3 2.9 2.3
Arab World 1

Real GDP (annual growth) 4.5 –4.5 4.2 5.9 3.3 3.7
of which non-oil growth 5.5 –4.2 5.4 4.4 3.9 4.0
Current Account Balance 7.4 –3.5 4.3 9.4 4.8 2.8
Overall Fiscal Balance 2.4 –8.6 –1.8 3.1 –0.5 –1.2
Inflation (year average; percent) 4.8 6.1 9.1 8.9 9.9 7.7
Arab World oil exporters
Real GDP (annual growth) 4.7 –6.5 4.7 6.7 3.4 3.4
of which non-oil growth 6.0 –6.1 6.4 4.2 4.2 3.9
Current Account Balance 11.3 –3.2 7.7 14.0 7.6 5.0
Overall Fiscal Balance 4.8 –9.2 –0.3 5.7 1.2 0.3
Inflation (year average; percent) 3.0 1.3 3.2 4.2 3.9 2.8
Sources: National authorities; and IMF staff calculations and projections.
1
2011–24 data exclude Syrian Arab Republic.
2
2021–24 data exclude Afghanistan.
Notes: Data refer to the fiscal year for the following countries: Afghanistan (March 21/March 20) until 2011, and December 21/December 20
thereafter, the Islamic Republic of Iran (March 21/March 20), and Egypt and Pakistan (July/June).
MENA: Algeria, Bahrain, Djibouti, Egypt, Iran, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Qatar, Saudi Arabia,
Somalia, Sudan, Syrian Arab Republic, Tunisia, United Arab Emirates, West Bank and Gaza, and Yemen.
MENA oil exporters: Algeria, Bahrain, the Islamic Republic of Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, and the United
Arab Emirates.
MENA emerging market and middle-income countries: Egypt, Jordan, Lebanon, Morocco, the Syrian Arab Republic, Tunisia, and the West
Bank and Gaza.
MENA low-income developing countries: Djibouti, Mauritania, Somalia, Sudan, and Yemen.
MENA excl. fragile states and conflict-affected countries: Algeria, Bahrain, Egypt, the Islamic Republic of Iran, Jordan, Kuwait, Mauritania,
Morocco, Oman, Qatar, Saudi Arabia, Tunisia, and the United Arab Emirates.
MENAP: MENA, Afghanistan, and Pakistan.
Gulf Cooperation Council: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
Arab World oil exporters: Algeria, Bahrain, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

INTERNATIONAL MONETARY FUND • May 2023

 Selected Economic Indicators 35

CCA: Selected Economic Indicators, 2000–24

(Percent of GDP, unless otherwise indicated)
Projections
Average
2000–19 2020 2021 2022 2023 2024
CCA
Real GDP (annual growth) 6.7 –2.1 5.6 4.8 4.2 4.5
Current Account Balance –0.2 –3.0 –0.6 5.8 1.1 0.5
Overall Fiscal Balance 2.0 –5.4 –3.0 0.1 –1.6 –1.4
Inflation (year average; percent) 8.9 7.4 9.6 13.0 11.8 8.5
CCA oil and gas exporters
Real GDP (annual growth) 7.0 –3.0 4.5 3.3 3.8 4.1
of which non-oil growth 7.0 –2.1 5.3 5.2 3.4 3.2
Current Account Balance 0.2 –2.4 1.5 8.6 3.1 2.5
Overall Fiscal Balance 2.6 –5.6 –2.3 1.4 –1.1 –0.8
Inflation (year average; percent) 7.7 5.9 9.2 14.3 13.0 8.7
CCA emerging market and middle-income countries
Real GDP (annual growth) 5.9 –6.9 8.5 11.1 4.6 5.0
Current Account Balance –9.1 –8.6 –7.5 –1.7 –3.0 –3.8
Overall Fiscal Balance –1.7 –6.9 –4.6 –1.9 –2.1 –1.9
Inflation (year average; percent) 4.3 3.5 8.6 10.5 6.4 4.0
CCA low-income developing countries
Real GDP (annual growth) 6.4 1.2 7.3 6.0 5.1 5.2
Current Account Balance 1.0 –3.0 –5.5 –1.1 –4.0 –4.1
Overall Fiscal Balance 0.0 –4.3 –5.0 –3.6 –3.1 –3.1
Inflation (year average; percent) 13.0 11.7 10.7 11.1 11.0 9.3
Sources: National authorities; and IMF staff calculations and projections.
CCA oil and gas exporters: Azerbaijan, Kazakhstan, and Turkmenistan.
CCA emerging market and middle-income countries: Armenia and Georgia.
CCA low-income developing countries: the Kyrgyz Republic, Tajikistan, and Uzbekistan.

May 2023 • INTERNATIONAL MONETARY FUND