INTERNATIONAL MONETARY FUND

REGIONAL
ECONOMIC
OUTLOOK
MIDDLE EAST AND
CENTRAL ASIA
Navigating the Evolving
Geoeconomic Landscape

2024
OCT
INTERNATIONAL MONETARY FUND

REGIONAL
ECONOMIC
OUTLOOK
MIDDLE EAST AND
CENTRAL ASIA
Navigating the Evolving
Geoeconomic Landscape

2024
OCT
Copyright ©2024 International Monetary Fund

Cataloging-in-Publication Data
IMF Library

Names: International Monetary Fund, publisher.

Title: Regional economic outlook. Middle East and Central Asia : navigating the evolving geoeco-
nomic landscape.
Other titles: Middle East and Central Asia : navigating the evolving geoeconomic landscape. | Middle East and
Central Asia. | Navigating the evolving geoeconomic landscape. | Regional economic outlook: Middle East
and Central Asia.
Description: Washington, DC : International Monetary Fund, 2024. | Oct. 2024. | Includes bibliograph-
ical references.
Identifiers: ISBN:
9798400287350 (paper)
9798400292415 (ePub)
9798400292392 (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 R44 2024

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.

Publication orders may be placed online or through the mail:

International Monetary Fund, Publication Services
P.O. Box 92780, Washington, DC 20090, U.S.A.
T. +(1) 202.623.7430
F. +(1) 202.623.7201
publications@IMF.org
IMFbookstore.org
elibrary.IMF.org
 Contents iii

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

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

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

Middle East and Central Asia: Country Abbreviations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii

Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

1. Regional Developments and Economic Outlook: Navigating the Evolving Geoeconomic Landscape. . . . . . . . 1
1.1. Global Backdrop: Uncertainty Seeping in as Policies Shift. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. MENA Region and Pakistan: Stronger Growth but Lingering Vulnerabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3. Caucasus and Central Asia: Robust Growth but Uncertain Outlook .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.4. Risks Skewed to the Downside. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.5 Policy Prioritization Essential amid Shifting Headwinds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
References.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

2. Reversing the Trend: Enhancing Medium-Term Growth Prospects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

2.1 Deteriorating Growth Prospects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.2 Main Contributors to Growth Differ from the Rest of the World.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.3 Fading Employment Contributions to Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.4 Subdued Capital Deepening . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.5 Lackluster Total Factor Productivity Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.6 Adverse Shocks Dampen Total Factor Productivity Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.7 Fostering Stronger and More Sustainable Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
References.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

3. Strengthening Growth through Financial Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

3.1 Financial Development Remains Incomplete. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.2 Key Structural Factors Weigh on Financial Development.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.3 Reforms Can Spur Financial Development and Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.4 Policies to Foster Sustainable Financial Development and Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
References.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

BOXES
Box 1.1. Gulf Cooperation Council: Economic Diversification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Box 3.1. Bridging the Gap: How Financial Development Mitigates Inequality.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

FIGURES
Figure 1.1. MENA Oil Exporters: Real GDP Growth.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Figure 1.2. Oil Exporters: Consumer Price Inflation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Figure 1.3. MENA Oil Exporters: Oil and Non-Oil Contributions to Real GDP Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

October 2024 • INTERNATIONAL MONETARY FUND

iv REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Figure 1.4. MENA Oil Exporters: Current Account and Fiscal Balances.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Figure 1.5. Red Sea Shipping Volume and Cost, 2023–24. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Figure 1.6. MENA EM&MIs: Contributions to Changes in Gross Public Debt.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 1.7. MENA EM&MIs: Maturity of Eurobond Issuances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 1.8. MENA EM&MIs: Cost of Eurobond Issuances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 1.9. MENA, Afghanistan, and Pakistan: Impact of Extreme Climate Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Figure 1.10. MENA EM&MI and Pakistan: Headline CPI and Change in Policy Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Figure 1.11. MENA Oil Importers and Pakistan: Real GDP Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Figure 1.12. MENA Oil Importers and Pakistan: Change in Primary Balance, 2023–24.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Figure 1.13. MENA EM&MIs and Pakistan: Public Gross Financing Needs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Figure 1.14. MENA LICs: Public Gross Financing Needs and Sources.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Figure 1.15. CCA: Consumer Price Inflation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Figure 1.16. CCA: Growth in Exports and Imports, Q1 2023–24. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Figure 1.17. CCA Oil Exporters: Contributions to Real GDP Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Figure 1.18. CCA Oil Importers: Sectoral Contributions to Real GVA Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Figure 1.19. CCA: Impact of Extreme Climate Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Figure 1.20. MENA: Current Financing Needs for Climate Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Figure 2.1. Real GDP per Capita Growth Projections, Forecast Errors, and Income Convergence. . . . . . . . . . . . . . . 22
Figure 2.2. Contributions to Real GDP per Capita Growth, 1995–2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Figure 2.3. Employment per Capita: Contributions to Growth, 2001–22. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Figure 2.4. Labor Market: Selected Demographic Indicators.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Figure 2.5. Working-Age Population Shares: Actual and Projected Growth, 2020–34. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Figure 2.6. Contributions to Capital Deepening, 1995–2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Figure 2.7. Capital−Labor Ratio and Real GDP per Capita, 2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Figure 2.8. Drivers of TFP Growth, 2000–23. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Figure 2.9. Total Factor Productivity: Share of Total Variation in TFP Growth Explained by Region, 2000–23. . . . . . 31
Figure 2.10. Total Factor Productivity: Impacts of Conflict and Climate Shocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Figure 3.1. MENA and CCA: Financial Reforms and Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Figure 3.2. Banking Sector Structure and Financial Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Figure 3.3. MENA and CCA: Private Savings, Islamic Debt, and Equity Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Figure 3.4. Impact of Rule of Law and Monetary Stability on Financial Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Figure 3.5. Impact of Financial Sector Reform Package. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Figure 3.6. Five-Year Impact of Specific Financial Sector Reforms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

TABLES
Table 3.1. Key Factors Underpinning Financial Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
MENA & CCA: Selected Economic Indicators, 2000–24. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

INTERNATIONAL MONETARY FUND • October 2024

 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 the 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), Lone Christiansen
(Chief, MCD Regional Analytics and Strategy Division), and John Bluedorn and Cesar Serra (Deputy Chiefs, MCD
Regional Analytics and Strategy Division).

The primary contributors to this report were Faris Abdurrachman, Will Abel, Nordine Abidi, Razan Al Humaidi,
Apostolos Apostolou, Vizhdan Boranova, Bronwen Brown, Steven Dang, Hasan Dudu, Yuan Monica Gao Rollinson,
Seyed Vahid Hassani, Colombe Ladreit, Troy Matheson, Borislava Mircheva, Hela Mrabet, Salem Nechi, Nora
Neuteboom, Thomas Piontek, Bilal Tabti, Subi Suvetha Velkumar, and Qirui Zhang.

Vizhdan Boranova compiled the statistical appendix and managed the database. Research assistance was
provided by Faris Abdurrachman, Steven Dang, Subi Suvetha Velkumar, and Qirui Zhang.

Bronwen Brown edited the report. Cheryl Toksoz led COM’s editorial team and managed report production.
Adetoro Olatidoye and Joanna Zaffaroni provided production support. Razan Al Humaid, Botir Baltabaev, Mona
ElShazly, Colombe Ladreit, Salem Mohamed Nechi, and Bilal Tabti reviewed the translations and collaborated
on the content with Heba Khalil and Noha ElShalkany (Arabic), Benjamin Corbel, Monica Nepote-Cit, and Marion
Delépine (French), and Mikhail Surin, Alexandra Akchurin, Inna Davidova, Denis Pshenichnikov, and Svetlana
Andryunina (Russian), with coordination support from Kirill Vompe (Translation Coordination Center)—all from
Language Services, Corporate Services, and Facilities Department.

October 2024 • INTERNATIONAL MONETARY FUND

vi REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Country Groupings
Middle East and Central Asia: Regional Groupings

Middle East and Central Asia Other Regional Groupings

Caucasus and Central Asia Middle East and North Other Arab World North Africa
(CCA) Africa (MENA)
Armenia Algeria Afghanistan Algeria Algeria
Azerbaijan Bahrain Pakistan Bahrain Djibouti
Georgia Djibouti Djibouti Egypt
Kazakhstan Egypt Egypt Libya
Kyrgyz Republic Iran Iraq Mauritania
Tajikistan Iraq Jordan Morocco
Turkmenistan Jordan Kuwait Sudan
Uzbekistan Kuwait Lebanon Tunisia
Lebanon Libya
Libya Mauritania
Mauritania Morocco
Morocco Oman
Oman Qatar
Qatar Saudi Arabia
Saudi Arabia Somalia
Somalia Sudan
Sudan Syrian Arab Republic
Syrian Arab Republic Tunisia
Tunisia United Arab Emirates
United Arab Emirates West Bank and Gaza
West Bank and Gaza Yemen
Yemen

INTERNATIONAL MONETARY FUND • October 2024

 Country Groupings vii

MENA, Afghanistan, and Pakistan: Analytical Groupings1

Oil Exporters Oil Importers Fragile and Conflict-Affected States (FCS)

Gulf Other Emerging Market Low-Income All FCS Conflict-Affected
Cooperation and Middle-Income Countries (LICs) States
Council (GCC) Economies (EM&MIs)
Bahrain Algeria Egypt Afghanistan Afghanistan Afghanistan
Kuwait Iran Jordan Djibouti Iraq Iraq
Oman Iraq Lebanon Mauritania Lebanon Lebanon
Qatar Libya Morocco Somalia Libya Somalia
Saudi Arabia Pakistan Sudan Somalia Sudan
United Arab Emirates Tunisia Syrian Arab Republic Sudan Syrian Arab Republic

West Bank and Gaza Yemen Syrian Arab Republic West Bank and Gaza
West Bank and Gaza Yemen
Yemen

Caucasus and Central Asia: Analytical Groupings

Oil Exporters Oil Importers

Emerging Market Low-Income Countries (LICs)
and Middle-Income Economies
(EM&MIs)
Azerbaijan Armenia Kyrgyz Republic

Kazakhstan Georgia Tajikistan

Turkmenistan Uzbekistan

1
The Middle East and Central Asia region is divided into two main nonoverlapping groupings, based on export earnings, namely (1) oil
exporters; and (2) oil importers. The oil importers grouping comprises (1) emerging market and middle-income economies (EM&MI)
and (2) low-income countries (LICs) based on the income level. Additional analytical and regional groupings might be used to provide
a more granular breakdown for analysis and continuity.

October 2024 • INTERNATIONAL MONETARY FUND

viii REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Assumptions and Conventions

Several assumptions have been adopted for the projections presented in the October 2024 Regional Economic
Outlook: Middle East and Central Asia. It is assumed that the established policies of national authorities will
be maintained, the price of oil2 will average $81.29 a barrel in 2024 and $72.84 a barrel in 2025, and the three-
month nominal yield on US Treasury bills will average 5.4 percent in 2024 and 3.9 percent in 2025. These are
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 2024 and 2025 data in the figures and tables are
projections. Unless otherwise noted, these projections are based on statistical information available through
late September 2024.

This publication uses the following conventions:

ƒ Minor discrepancies between sums of constituent figures and totals are because of rounding.
ƒ An en dash (–) between years or months (for example, 2023–24 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, 2023/24) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY 2024).
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).

The term “oil” includes gas in several instances, as it is also an important resource in several countries.

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 IMF, any judgment on the legal status of any territory or any endorsement or acceptance of such boundaries.

Middle East and Central Asia: Country Abbreviations

AFG Afghanistan IRN Iran MRT Mauritania SYR Syrian Arab Republic
ALG Algeria IRQ Iraq MAR Morocco TJK Tajikistan
ARM Armenia JOR Jordan OMN Oman TUN Tunisia
AZE Azerbaijan KAZ Kazakhstan PAK Pakistan TKM Turkmenistan
BHR Bahrain KWT Kuwait QAT Qatar UAE United Arab Emirates
DJI Djibouti KGZ Kyrgyz Republic SAU Saudi Arabia UZB Uzbekistan
EGY Egypt LBN Lebanon SOM Somalia WBG West Bank and Gaza
GEO Georgia LBY Libya SDN Sudan YEM Yemen

2
Simple average of prices of UK Brent, Dubai Fateh, and West Texas Intermediate crude oil.

INTERNATIONAL MONETARY FUND • October 2024

 Executive Summary ix

Executive Summary
Eighty years after the landmark Bretton Woods conference catalyzed multilateral cooperation, the global
economic landscape faces growing challenges, including related to the rise of geoeconomic fragmentation. In
the Middle East and North Africa (MENA) and Caucasus and Central Asia (CCA) regions, changes to regional
landscapes have prompted new trade patterns. At the same time, economies are navigating frequent shocks.
Conflicts, including in Gaza, Lebanon, and Sudan, cause immense human suffering, economic damage, and
heightened uncertainty. Climate-related disasters add to the challenges. For many MENA and CCA economies,
near-term growth is projected to remain subdued, and the medium-term growth forecast has deteriorated
during the past two decades (Chapter 2), partly reflecting still limited access to credit for the private sector,
which is essential to boost investment (Chapter 3).

In MENA economies, growth is expected to remain sluggish in 2024 at 2.1 percent amid global geoeconomic
fragmentation, conflicts, climate-related shocks, and country-specific factors. This is a downward revision of 0.6
percentage point since the April 2024 Regional Economic Outlook in light of prolonged voluntary oil production
cuts and continued conflicts. A rebound is expected in 2025, with growth projected at 4 percent, conditional
on the expiration of oil production cuts and headwinds subsiding, including from conflicts. MENA oil exporters
have navigated the global landscape well, but the twin surpluses that helped cushion recent shocks have
started to narrow amid ambitious investment strategies and falling oil revenues. MENA oil importers continue to
grapple with vulnerabilities related to conflicts and high gross financing needs. Even as these issues gradually
abate, uncertainty remains high and structural gaps will likely hold back productivity growth in many economies
over the forecast horizon.

In CCA economies, growth is projected to remain robust and broad-based at 4.3 percent in 2024 and
4.5 percent in 2025. Notwithstanding the positive outlook, growth remains subject to high uncertainty, mainly
because of the region’s exposure to broader geoeconomic developments. Notably, there are tentative signs
of a potential slowdown in some economies, as trade and other inflows—particularly remittances—related to
Russia’s war in Ukraine have started to moderate. Over the medium term, growth prospects for oil exporters in
the CCA are weighed down by subdued oil production, whereas growth projections in oil importers are reliant
on effective reform implementation.

Risks to the outlook for the MENA and CCA regions remain tilted to the downside. Adverse shocks could originate
from within or close to the MENA and CCA regions. Notably, the continuation or further escalation of conflicts
would result in even larger human tolls and further weigh on growth, as conflicts tend to have long-lasting adverse
economic impacts. Other risks include insufficient reform implementation hindering growth and financial insta-
bility caused by an abrupt reversal of trade and financial flows associated with Russia’s war in Ukraine.

In this context, adopting policies to bolster future growth prospects will be crucial. Lifting medium-term growth
will require the acceleration of structural reforms, particularly in governance. Given labor market challenges,
which are expected to intensify because of shifting demographics in the years ahead, decisive action is needed
to enhance participation and job creation, including encouraging more female and youth employment, particu-
larly in several economies in the MENA region (Chapter 2). At the same time, implementing reforms to promote
private sector investment and deepening financial development would help boost relatively low levels of capital
per worker across the MENA and CCA regions (Chapter 2). In this respect, financial sector policies that foster
competition, reduce the dominance of state-owned banks, and encourage the broadening of the investor base
can advance financial development and facilitate higher growth and inclusion (Chapter 3). Moreover, countries
should maintain a strong focus on ensuring fiscal sustainability and rebuilding fiscal buffers. Policies that put
debt on a durable decline are essential for highly indebted economies. Despite a decline in inflation and expec-
tations for continued moderation, policymakers also must remain vigilant and maintain their focus on achieving
inflation targets in accordance with their frameworks.

October 2024 • INTERNATIONAL MONETARY FUND

 1. Regional Developments and Economic Outlook: Navigating the Evolving Geoeconomic Landscape 1

1. Regional Developments and Economic Outlook:

Navigating the Evolving Geoeconomic Landscape1
Eight decades after the landmark Bretton Woods conference catalyzed multilateral cooperation, the geoeco-
nomic landscape is increasingly rocky. Global linkages are shifting amid a mix of economic interests and
national security considerations. At the same time, many economies in the Middle East and North Africa (MENA)
and Caucasus and Central Asia (CCA) regions are navigating frequent shocks, including from conflicts and
climate-related disasters. Medium-term growth prospects also remain relatively weak. Coupled with risks that
remain on the downside, policymakers will need to focus on bolstering growth and resilience while ensuring
fiscal sustainability and maintaining low inflation. Beyond carefully calibrated monetary and fiscal policies,
decisive reform efforts, particularly in governance and job creation, are essential to lift medium-term growth.

1.1. Global Backdrop: Uncertainty Seeping in as Policies Shift

Global growth is projected to continue at a similar pace in 2024 and 2025 (3.2 percent) and remain relatively flat
through 2029 (3.1 percent), largely unchanged from the April 2024 World Economic Outlook.2 Economic activity in the
United States is revised upward to 2.8 percent in 2024, reflecting stronger outturns in consumption and residential
investment. Meanwhile, China’s growth slowdown is expected to be more gradual, with the economy now expected to
grow at 4.8 percent this year (0.2 percentage point higher than the April forecast), because of renewed fiscal support
and a rebound in exports. At the same time, the world is witnessing an escalation in geoeconomic fragmentation, with an
increase in cross-border trade restrictions. In turn, although global trade to GDP is projected to remain broadly stable,
trade is increasingly occurring within geopolitical blocs, rather than between them. Specifically, when comparing the
period-average for 2017–22 to the first quarter of 2024, goods trade declined by approximately 2.5 percentage points
more between geopolitically distant blocs than within blocks (see Chapter 1 of the October 2024 World Economic
Outlook; Gopinath 2024).

Global inflation continues to gradually decline toward targets, with global headline inflation projected to
moderate to 5.8 percent in 2024 and 4.3 percent in 2025 (from 6.7 percent in 2023). However, disinflation is
expected to be faster in advanced economies and to stall in emerging markets and developing economies.
Nonetheless, with inflation in many major economies approaching central bank targets and governments striving
to manage debt dynamics, the policy mix is expected to shift from monetary to fiscal tightening. Notably, the
US Federal Funds rate is projected to reach its long-term equilibrium of 2.9 percent in the second quarter of
2026, almost a year before what was expected in April. Alongside, and in part as OPEC+, voluntary produc­tion
cuts have been extended, average petroleum price assumptions have been revised since April and are now
projected to gradually moderate from $81.3 on average in 2024 (above the 2023 average price) to $67 in 2029.
Meanwhile, food commodity prices have eased somewhat faster than previously projected, and the continued
moderation should help alleviate pressures on consumer food prices worldwide.

1
This chapter is prepared by Faris Abdurrachman, Vizhdan Boranova, Bronwen J. Brown, Hasan Dudu, Colombe Ladreit, Borislava
Mircheva (lead), Salem Nechi, Thomas Piontek (lead), Bilal Tabti, and Qirui Zhang.
2
The projection horizon in the World Economic Outlook and Regional Economic Outlook spans through 2029.

October 2024 • INTERNATIONAL MONETARY FUND

2 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

1.2. MENA Region and Pakistan: Stronger Growth but

Lingering Vulnerabilities
Economies in the MENA region and Pakistan face a fragile recovery amid global geoeconomic fragmentation,
conflicts, climate-related shocks, and country-specific challenges. Thus, average growth in the MENA region is
projected to remain sluggish at 2.1 percent in 2024, before accelerating to 4 percent next year, tempered from the
April MENA forecasts of 2.7 and 4.2 percent, respectively. However, experiences vary markedly across the region.
MENA oil exporters3 have generally navigated the global landscape well, even as geopolitical tensions continue to
provide headwinds to the broader region. Still, the twin surpluses that have helped cushion shocks have started to
narrow, as ambitious investment strategies are implemented to diversify the economy and voluntary oil production
cuts weigh on growth and revenues. MENA oil importers are facing subdued near-term growth before a gradual
recovery, as vulnerabilities related to conflicts and uncertainty remain and necessary tight policy settings to bring
down debt levels weigh on economic activity. Over the medium term, growth in the MENA region is projected to
stabilize at about 3.6 percent, held back by persistent structural gaps.

MENA Oil Exporters

Recent Developments: Narrowing Twin Surpluses
MENA oil exporters have adeptly navigated the challenging and uncertain global economic landscape. The impact
of conflicts in the broader MENA region on oil exporters has remained generally contained amid limited economic
ties with the immediately affected countries and because the use of alternative trade routes has partially offset
declining cargo trade volumes. Nonetheless, OPEC+ voluntary oil product cuts have held back oil production and
related economic activity.

Despite ongoing challenges from geoeconomic fragmentation, economies within the Gulf Cooperation Council
(GCC) have remained committed to economic reforms. In turn, decisive policy implementation has boosted
investment and labor force participation, and
economic activity in the non-oil sector has helped
Figure 1.1. MENA Oil Exporters: Real GDP Growth
(Year-over-year percent change, simple averages) counterbalance a contraction of the oil sector
for most GCC economies (Figure 1.1; Box 1.1).
12
GCC: Overall GDP Outside the GCC, oil exporters have seen rela-
10 Non-GCC: Overall GDP
tively stable growth, with some countries having
8 GCC: Oil GDP
benefited from elevated oil prices and robust
GCC: Non-oil GDP
6 production (Islamic Republic of Iran, Libya) and
4 higher natural gas prices (Algeria).4 In Iraq, strong
2 non-oil activity, propelled by fiscal stimulus and
0 robust agricultural performance, has supported
−2 economic growth.
−4 However, reduced oil revenues from lower oil
−6 production, combined with spending pressures,
−8 has weighed on the fiscal and external balances
2022:Q1 22:Q3 23:Q1 23:Q3 24:Q1
of many MENA oil exporters. As a result, these
Sources: Haver Analytics; and IMF staff calculations. countries saw a narrowing of the overall fiscal
Note: GCC 2024:Q1 consists of data for Kuwait, Oman, and Saudi
Arabia. Non-GCC is the average of the Islamic Republic of Iran and
Iraq. GCC = Gulf Cooperation Council; MENA = Middle East and
North Africa.

3
Throughout the October 2024 Regional Economic Outlook: Middle East and Central Asia, the term “oil” often includes natural gas, which
is also an important resource in several countries.
4
In Lybia, a standoff over the leadership of the central bank led to the shutdown of some oil fields and the suspension of oil exports in
late August and September. A recent agreement to end the standoff paved the way for the resumption of oil production and exports.

INTERNATIONAL MONETARY FUND • October 2024

 1. Regional Developments and Economic Outlook: Navigating the Evolving Geoeconomic Landscape 3

Figure 1.2. Oil Exporters: Consumer Price Inflation Figure 1.3. MENA Oil Exporters: Oil and Non-Oil
(Year-over-year percent change) Contributions to Real GDP Growth
(Percent)
41 32 32
10
December 2023 10
June 2024 Oil GDP Non-oil GDP Real GDP growth
8 August 2024
8

6 6

4 4

2
2

0
0
−2
−2
BHR KWT OMN QAT SAU ALG IRN IRQ −4

2022

23

24

25

29

2022

23

24

25

29

2022

23

24

25

29
GCC Non-GCC

Sources: Haver Analytics; and IMF staff calculations. MENA GCC Non-GCC
Note: Data labels in the figure use International Organization for
Standardization (ISO) country codes. GCC = Gulf Cooperation Sources: IMF, World Economic Outlook database; and IMF staff
Council. calculations.
Note: Data for 2024, 2025, and 2029 are projections. GCC = Gulf
Cooperation Council; MENA = Middle East and North Africa.

balance in 2023, which reached an average of 1.5 percent of GDP (−0.4 percentage point revision from April).
Similarly, current account surpluses narrowed to 7.2 percent of GDP in 2023 (−0.2 percentage point revision from
April).

Meanwhile, price pressures remained low in most MENA oil exporters during 2024, with nearly all GCC countries
experiencing inflation rates under or near 2 percent. Beyond the GCC, Algeria saw a decrease in inflation,
attributed to a strong dinar and reduced fresh food and import prices, whereas inflation in the Islamic Republic
of Iran remained elevated (Figure 1.2).

Outlook: On a Path to Resilience

Looking ahead, growth among MENA oil exporters is projected to strengthen to 2.3 percent this year (up from
1.7 percent in 2023) and further to 4 percent in 2025. However, the near-term outlook for 2024 and 2025 has
been revised downward by 0.6 and 0.4 percentage points, respectively, from the April forecast, mainly reflecting
the extension of voluntary oil production cuts (most GCC countries, Algeria, Iraq). Moreover, growth is forecast
to moderate to 3 percent over the medium term, as the non-oil sector only gradually generates momentum.
Overall, the non-oil sector is forecast to underpin growth in both the short and medium terms (Figure 1.3).
Among GCC economies, for instance, non-oil growth is projected to remain strong, at 3.7 and 4 percent in 2024
and 2025, respectively, in part supported by ongoing diversification efforts. Nonetheless, economic diversifi-
cation reforms will take time to yield results, and while the interconnection between oil and non-oil sectors has
decreased, the oil sector is forecast to maintain a significant role over the forecast horizon.

Meanwhile, most MENA oil exporters are expected to maintain generally low and stable rates of inflation. In
GCC countries, headline inflation is projected to hover at about 2 percent in 2025 and over the medium term.

With oil production experiencing a downturn this year and oil prices expected to decline gradually in the years
ahead, current account balances for oil-exporting countries are expected to deteriorate over the medium term.
Notably, the current account surplus for the GCC as a whole is projected to narrow to about 2.5 percent of GDP
over the medium term (down from above 6.1 percent in 2024), a reduction of more than $63 billion compared

October 2024 • INTERNATIONAL MONETARY FUND

4 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

to the 2024 estimate (Figure 1.4). Moreover,

Figure 1.4. MENA Oil Exporters: Current Account
sizable investment-related imports are expected
and Fiscal Balances
(Percent of GDP) to contribute to a current account deficit in
Saudi Arabia in 2025—a deficit that is projected to
20 GCC current account widen over time—and the double-digit surpluses in
GCC general government
15 overall balance Kuwait and Qatar are forecast to narrow markedly
Non-GCC current account in the years ahead.
10 Non-GCC general government
overall balance Meanwhile, investment spending, along with
5 declining oil revenues in some cases, is expected
0
to gradually worsen overall fiscal positions in
some economies over the forecast horizon
−5 despite narrowing primary non-oil deficits.
Notably, Saudi Arabia and Kuwait are projected to
−10
continue public investments, and Bahrain is facing
−15 a structural decline in oil revenues. Still, efforts to
2020 21 22 23 24 25 26 27 28 29
enhance revenue streams are underway, which
Sources: IMF, World Economic Outlook database; and IMF staff are expected to help narrow primary non-oil
calculations.
Note: The years 2024 and onwards denote projections. GCC = Gulf deficits. Notably, after adopting or committing
Cooperation Council; MENA = Middle East and North Africa. to adopt a value-added tax, some GCC countries
are now in the process of introducing a corporate
income tax, in part amid implementation of the
global minimum corporate income tax. In addition, Oman is in the final legislative stages of adopting a personal
income tax on high-income earners. Overall, fiscal balances in GCC countries are generally expected to remain
in surplus (except Bahrain and Saudi Arabia), whereas some non-GCC countries are projected to continue
grappling with sizable fiscal deficits, exacerbated by falling revenues and, in some cases, increased recurrent
government expenditures in the form of higher wages and transfers (Algeria, Iraq). Meanwhile, moderate public
debt and adequate reserve positions in most MENA oil exporters are expected to continue to provide comfort-
able buffers for those economies.

MENA Oil Importers

Recent Developments: Multiple Factors Weighing on Growth
Growth among several MENA oil importers continued to be held back by conflict, uncertainty, and country-­
specific challenges. Stronger growth in some economies in the first quarter of 2024 reflected improvements in
agriculture following infrastructure investment (Mauritania), greater security and favorable weather conditions
(Somalia), and economic recovery after extensive flooding and an increase in manufacturing, particularly related
to apparel and pharmaceutical products (Pakistan). However, in Egypt, weak confidence and foreign exchange
shortages constrained economic activity in the first half of fiscal year 2023/24, with the conflict in Gaza and
Israel and the disruptions in the Red Sea exacerbating uncertainty. Overall, real GDP growth among several
economies remained subdued, and growth in the first quarter of 2024 averaged just 1.8 percent for the group
of emerging market and middle-income economies (EM&MIs) for which data are available.5

A year after the onset of the conflict in Gaza and Israel, humanitarian and trade-related challenges also persist. By
the end of September 2024, the conflict had resulted in more than 40,000 fatalities and displaced over 1.9 million
people (UNOCHA 2024a, 2024b). The conflict escalated in Lebanon in late September, and by October 6 the
number of casualties recorded since October 2023 reached over 2,000. Furthermore, neighboring countries
have continued experiencing trade disruptions. As of mid-September 2024 the volume of container shipping
through the Suez Canal was more than 70 percent below pre-conflict levels as trade continued to be diverted

5
Based on the average for Egypt, Jordan, Tunisia, and Morocco.

INTERNATIONAL MONETARY FUND • October 2024

 1. Regional Developments and Economic Outlook: Navigating the Evolving Geoeconomic Landscape 5

Figure 1.5. Red Sea Shipping Volume and Cost, 2023–24

(Millions of metric tons, seven-day moving average; index, October 1, 2023 = 100)

12 Cape of Good Hope (volume) 600

First attack in the Suez Canal (volume)
Red Sea after onset Europe/Mediterranean–China route (right scale, cost)
10 of the conflict World shipping cost (right scale, cost) 500

8 400

6 300

4 200

2 100

0 0
Oct. 2023 Dec. 23 Feb. 24 Apr. 24 June 24 Aug. 24 Sept. 24

Sources: Bloomberg Finance L.P.; PortWatch; and IMF staff calculations.

around the Cape of Good Hope and shipping costs remained elevated (Figure 1.5).6 By contrast, tourism activity
appears highly dependent on country-specific factors. Although tourism-related sectors in Lebanon have
continued to struggle tourism has shown resilience in Egypt and Jordan, buoyed by regional visitors, which
helped hotel occupancy rates rebound to pre-conflict levels.

Conflicts are also present elsewhere in the MENA region.7 These cause immense human suffering and compro-
mise the provision of basic services and damage infrastructure. In Sudan, as of August 2024 and after 500 days
of war, more than 10 million people have been displaced and famine and disease are widespread (UNHCR 2024;
UNOCHA, n.d.).

Compounding these challenges, opportunities for employment remain insufficient in the MENA region. Youth
unemployment increased steadily to 33 percent by 2023 after standing above 25 percent for the past two
decades. This alarming rate highlights the region’s difficulties in creating sufficient jobs for its young and vibrant
population. In addition, the average female labor force participation rate among MENA oil importers stands
at about 20 percent, significantly below rates in many economies elsewhere (averaging about 50 percent) and
underscoring gender disparity in employment opportunities.8

MENA oil-importing economies also continue to face elevated debt burdens. Although several countries have
embarked on fiscal consolidation, debt levels have remained broadly stable in recent years, as persistently high
interest payments and currency adjustments have eroded efforts (Figure 1.6).

In addition to high financing needs, some EM&MIs and low-income countries (LICs) have struggled to secure
external financing.

6
In August, about 1.2 million metric tons of container shipping passed through the Suez Canal and Bab el-Mandeb Strait, down from
4.4 million metric tons in mid-November 2023.
7
Beyond West Bank and Gaza and Lebanon, six economies in the region have faced conflicts since April 2024. These economies are
Iraq, Pakistan, Somalia, Sudan, Syria, and Yemen (Armed Conflict Location and Event Data Project, https://acleddata.com). A country is
considered to be in a conflict if at least 25 battle-related fatalities were recorded by the Armed Conflict Location & Event Data Project
between May 1, 2024, and August 30, 2024 (data last updated October 7, 2024).
8
Based on a sample of countries comprising Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Somalia, Sudan, Syria, Tunisia, West
Bank and Gaza, and Yemen. International Labour Organization modeled estimates database, ILOSTAT, can be found at https://ilostat.
ilo.org/data/.

October 2024 • INTERNATIONAL MONETARY FUND

6 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Figure 1.6. MENA EM&MIs: Contributions to Figure 1.7. MENA EM&MIs: Maturity of Eurobond
Changes in Gross Public Debt Issuances
(Percent of GDP, simple average) (Weighted average maturities in years; three-year rolling
average)
Interest rate Inflation Real growth
20
Primary deficit Grants Residual 18
excluding grants Foreign exchange depreciation MENA EM&MIs
15 Gross debt change Other EMs
16
10
14
5

12
0

−5 10

−10 8

−15
2019 20 21 22 23 6
2010 12 14 16 18 20 22 24
Sources: IMF, World Economic Outlook database; and IMF staff
calculations. Sources: Bond Radar; and IMF staff calculations.
Note: Data for Egypt and Pakistan are based on the fiscal year (for Note: EMs = emerging market economies; EM&MIs = emerging
example, 2019 data cover July 2019 to June 2020). EM&MIs = market and middle-income economies; MENA = Middle East and
emerging market and middle-income economies; MENA = Middle North Africa.
East and North Africa.

Figure 1.8. MENA EM&MIs: Cost of Eurobond

� For EM&MIs, tight external financing conditions
Issuances
(Weighted average coupon rate in percent; three-year have continued to constrain new debt issuance.
rolling average) EM&MIs have not issued eurobonds since the
first half of 2023, in stark contrast to an average
12
MENA EM&MIs of $6 billion in annual issuance during 2021–23.
Other EMs 11
Moreover, countries have faced shorter debt
10
rollover periods and higher costs, as average new
9 debt maturities have declined and coupon rates
8 have risen more than in most other emerging market
7 economies (Figures 1.7 and 1.8). Compounding
6 these challenges, the financial systems in many
5 EM&MIs rely heavily on banks and lack access to
4 more diversified sources of funding amid under-
3 developed capital markets (Chapter 3). Hence,
2
difficulties in accessing markets-based financing
2010 12 14 16 18 20 22 24 both domestically and internationally mean that
Sources: Bond Radar; and IMF staff calculations. many of these countries have turned to borrowing
Note: EMs = emerging market economies; EM&MIs = emerging from domestic banks, further intensifying the
market and middle-income economies; MENA = Middle East and
North Africa. sovereign-bank nexus. Moreover, the shift toward
debt with shorter maturities has heightened the
risks associated with refinancing, leaving debt rollover needs vulnerable to fluctuations in investor sentiment.

� LICs face the additional challenge of plateauing international aid. Although the financing needs of MENA LICs
are smaller in absolute terms than those of EM&MIs, they are predominantly met through external sources, with
a heavy reliance on grants reflecting significant borrowing constraints. However, as global demand for donor
financing has increased over time, official donors have been increasingly constrained by national budgets and
the dollar value of grants remained broadly unchanged in 2023.

INTERNATIONAL MONETARY FUND • October 2024

 1. Regional Developments and Economic Outlook: Navigating the Evolving Geoeconomic Landscape 7

Figure 1.9. MENA, Afghanistan, and Pakistan: Figure 1.10. MENA EM&MIs and Pakistan: Headline
Impact of Extreme Climate Events CPI and Change in Policy Rate
(Year-over-year percent change)
70 Number of events 7
Number of people affected (millions) End of December 2023
60 Material damage (billions of dollars, right scale) 6 20 28 26 inflation 22
Number of deaths (thousands) 15 End of August inflation
End of June inflation
50 5
Change in policy rate
12 (latest versus
40 4 December 2023)
9 2010–19 average
30 3 inflation

20 2 6

10 1 3

0 0 0
1990–2014 2017 20 23
year average
−3
Sources: EMDAT database; and IMF staff calculations. EGY JOR MAR PAK TUN
Note: MENA = Middle East and North Africa.
Sources: Haver Analytics; and IMF staff calculations.
Note: Data labels in the figure use International Organization for
Moreover, the persistent effects of climate change Standardization (ISO) country codes. CPI = consumer price index;
EM&MIs = emerging market and middle-income economies; MENA =
are increasingly subjecting many economies in the Middle East and North Africa.
MENA region, particularly LICs, to frequent and
severe climate-related events such as heat waves,
droughts, and floods. Examples include droughts in Morocco, severe storms in Libya, wildfires in Algeria,
floods in Mauritania, Somalia, and Sudan, storms in Yemen, and heat waves and flooding in GCC countries.
Consequently, there has been a significant rise in deaths and the number of people affected. During the first six
months of 2024, the number of people affected by extreme climate hazards across the MENA region had almost
reached the 1990–2014 annual average. In addition, material damages more than doubled in 2023 compared to
the 1990–2014 average of $2.8 billion (Figure 1.9).

On the positive side, and in line with global trends, inflation has continued to decelerate in several economies,
remaining elevated in only a few cases amid country-specific challenges. Inflation in Jordan and Morocco
stood at below 2 percent as of August 2024, reflecting subdued economic activity (Jordan) and food price
drops (Morocco) (Figure 1.10). In Egypt, after peaking at 38 percent in September 2023, annual urban headline
inflation has trended downward (aside from a temporary spike in February, partly because of a substantial
depreciation of the parallel exchange rate in January). In Pakistan, amid steady disinflation, the central bank
cut the policy rate by 100 basis points in July. Among LICs, triple-digit inflation in Sudan and Yemen persists,
driven by ongoing conflicts that have disrupted access to essential goods and prompted high food and fuel
prices and currency depreciation.

Outlook: Stronger Growth if Fragilities Subside

For MENA EM&MIs and Pakistan, growth is projected to slow to 2.4 percent in 2024 before strengthening to
3.6 percent in 2025 (in line with April projections) and further improve modestly over the medium term as current
headwinds gradually subside and reform implementation takes hold. Notably, an assumed easing of the conflict
in Gaza and Israel next year and steady implementation of reforms are projected to help lift growth in Egypt to
4.1 percent in 2025 and above 5 percent over the medium term (Figure 1.11).9 In addition, Jordan’s growth is
projected to gradually strengthen to 3 percent over the medium term, supported by improved consumer and

9
For projection purposes, the forecast for Egypt assumes that the conflict in Gaza and Israel and Red Sea disruptions abate in the second
half of Egypt’s fiscal year 2024/25, which ends in June 2025.

October 2024 • INTERNATIONAL MONETARY FUND

8 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Figure 1.11. MENA Oil Importers and Pakistan: Figure 1.12. MENA Oil Importers and Pakistan:
Real GDP Growth Change in Primary Balance, 2023–24
(Year-over-year percent change) (Percentage points of GDP)
10 October 2024 World Economic Outlook 2
April 2024 World Economic Outlook
8

6 1

2 0

−2 −1
Change in total revenues excluding grants
−4 Change in non-interest expenditures
−20.3 Change in primary balance
−6 −2
PAK TUN EGY MAR JOR MRT SDN YEM SOM
2024
25
29
2024
25
29
2024
25
29
2024
25
29
2024
25
29
2024
25
29
2024
25
29
2024
25
29
2024
25
29
2024
25
29
EM&MIs LIC
MAR EGY JOR PAK TUN DJI MRT SOM YEM SDN
MENA and Pakistan EM&MI MENA LIC Sources: IMF, World Economic Outlook database; and IMF staff
calculations.
Sources: IMF, World Economic Outlook database; and IMF Note: Data labels in the figure use International Organization for
staff calculations. Standardization (ISO) country codes. Data for Egypt and Pakistan are
Note: Data labels in the figure use International Organization for based on the fiscal year (for example, 2024 data cover July 2024 to
Standardization (ISO) country codes. EM&MI = emerging market and June 2025). EM&MIs = emerging market and middle-income
middle-income economy; LIC = low-income country; MENA = Middle economies; LIC = low-income country; MENA = Middle East and
East and North Africa. North Africa.

investor sentiment, trade, and tourism. Positive outlooks for Morocco and Pakistan are supported by the normal-
ization of agricultural output and an improvement in the industrial and service sectors. Nonetheless, persistent
structural challenges are expected to keep medium-term economic activity below historical averages in several
economies (Chapter 2).

Among MENA LICs, the ongoing conflict in Sudan is driving a marked downward revision to growth
forecasts. Economic activity in LICs is now projected to shrink by 8.3 percent on average in 2024 (a revision of
−6.9 percentage points from our April projection). Yet, this projection masks resilient growth in some economies
following favorable commodity price developments (Mauritania, Somalia), peace agreements, and improved
security conditions (Somalia). Assuming the war in Sudan ends,10 average growth in MENA LICs is set to improve
to 5.5 percent in 2025. Further ahead, although offshore gas production (Mauritania) and investments and
scaled-up structural reforms (Somalia) are projected to support activity, the completion of initial large invest-
ments (Djibouti, Mauritania) is resulting in some moderation in growth projections over the medium term.

Meanwhile, monetary policy is expected to help guide headline inflation toward historical averages. Headline
inflation in Egypt is projected to near 16 percent by the end of fiscal year 2024/25, as base effects unwind and
policy tightening takes hold, and further ease toward the target rate in the years ahead.11 By contrast, Jordan
and Morocco are expected to experience a modest increase in inflation to above 2 percent next year, driven by
strengthening domestic demand (Jordan) and the phaseout of butane gas subsidies (Morocco). Nonetheless,
inflation in these countries is expected to remain close to historical averages over the forecast horizon.

Amid continued efforts to bring down debt levels, primary deficits as a share of GDP are projected to improve
steadily for most EM&MIs and LICs. These efforts have been supported by varying degrees of expenditure ratio-
nalization and revenue mobilization (Figure 1.12). For example, in 2024, Egypt and Jordan have made efforts to

10
For the purposes of making economic projections, the war in Sudan is assumed to conclude by the end of 2024.
11
The Central Bank of Egypt has two inflation targets: 7 percent initially and then 5 percent in the medium term.

INTERNATIONAL MONETARY FUND • October 2024

 1. Regional Developments and Economic Outlook: Navigating the Evolving Geoeconomic Landscape 9

Figure 1.13. MENA EM&MIs and Pakistan: Public Figure 1.14. MENA LICs: Public Gross Financing
Gross Financing Needs Needs and Sources
(Percent of fiscal revenue) (Billions of dollars, total)

250 4.0
October 2024 World Economic Outlook Grants
April 2024 World Economic Outlook Other sources
Public gross financing needs 3.5
200
3.0

150
2.5

100 2.0

1.5
50
1.0

0 0.5
2024
25
26
2024
25
26
2024
25
26
2024
25
26
2024
25
26 0
EGY PAK TUN MAR JOR 2024 25 26

Sources: IMF, World Economic Outlook database; and IMF staff Sources: IMF, World Economic Outlook database; and IMF staff
calculations. calculations.
Note: Data labels in the figure use International Organization for Note: LICs = low-income countries; MENA = Middle East and North
Standardization (ISO) country codes. Data for Egypt and Pakistan are Africa.
based on the fiscal year (for example, 2024 data cover July 2023 to
June 2024). EM&MIs = emerging market and middle-income
economies; MENA = Middle East and North Africa.

improve revenue collection (tax revenue and social contributions) and reduce subsidies. Moreover, in Egypt,
ongoing consolidation efforts, coupled with plans to allocate a portion of the proceeds from the Ras el-Hekma
land deal toward reducing government debt, are anticipated to lower public debt by about 6 percentage points
of GDP in fiscal year 2024/25. Overall, sustained fiscal consolidations efforts are projected to help bring down
the average public debt ratio for EM&MIs from 88.7 percent in 2024 to just above 70 percent over the medium
term. Among LICs, decisive tax revenue mobilization efforts in Mauritania are supporting an overall improve-
ment in the primary balance despite a drop in other revenues and an uptick in subsidies and transfers.

Financing needs are expected to remain sizable. Total gross public financing needs for MENA EM&MIs and
Pakistan are projected to reach $268.2 billion in 2025 (the equivalent of above 100 percent of fiscal revenues),
marking an increase from $260.6 billion in 2024 (Figure 1.13). In turn, financing needs are likely to be met by
$235.9 billion in domestic and $32.3 billion in external debt issuance in 2025, indicating a continued high
dependence on domestic financing. Nonetheless, structural reforms and official financing are projected to help
increase gross foreign reserves in some countries (Egypt, Jordan, Morocco, Pakistan). Meanwhile, grant inflows
to LICs are expected plateau over 2024-2026 (Figure 1.14). As such, LICs will likely need to further rely on alter-
native financing sources, including borrowing on concessional terms.

1.3. Caucasus and Central Asia: Robust Growth but Uncertain Outlook
Economic growth in the CCA remains robust and broad-based. However, the region is highly exposed to geoeco-
nomic developments, and the positive outlook is subject to uncertainty amid tentative signs that trade and other
inflows related to Russia’s war in Ukraine are moderating. Although reform implementation is projected to support
growth in some economies, particularly oil importers, subdued hydrocarbon production over the medium term is
expected to result in more moderate growth among oil and gas exporters.

October 2024 • INTERNATIONAL MONETARY FUND

10 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Figure 1.15. CCA: Consumer Price Inflation Figure 1.16. CCA: Growth in Exports and Imports,
(Year-over-year, percent change) 2023–2024:Q1
(Year-over-year percent change)
25
2023:Q1
2024:Q1 102 50
20 2024:Q2
30
Change in policy rate (latest versus December 2023)
10
15
−10
−30
10
−50
5 −70
−90

Exports
Exports
excluding
O&G
Imports

Exports
Exports
excluding
O&G
Imports

Exports
Exports
excluding
O&G
Imports

Exports
Exports
excluding
O&G
Imports
0

−5
KAZ AZE TKM KGZ UZB GEO ARM TJK United States European China Russia
Oil exporter Oil importer Union

Sources: Haver Analytics; and IMF staff calculations. Sources: Comtrade; and IMF staff calculations.
Note: Consumer price index inflation data are seasonally adjusted Note: Excluding trade of jewelry and pearls (HS71), which impacts
except for Turkmenistan. Data labels in the figure use International Armenia’s imports from Russia but is expected to be transitory.
Organization for Standardization (ISO) country codes. CCA = Comtrade data is available for Armenia, Azerbaijan, Georgia,
Caucasus and Central Asia. Kazakhstan, the Kyrgyz Republic, and Uzbekistan. As of October 8,
March 2024 figures were unavailable for Kazakhstan, and 2023:Q1
figures exclude March 2023 for Kazakhstan to ensure comparability.
CCA = Caucasus and Central Asia; O&G = oil and gas.

CCA Oil Exporters

Recent Developments: Non-Oil Sectors Have Bolstered Growth
Amid a global downturn in oil and gas prices, robust non-oil sector activity has provided the main impetus
to growth among the CCA’s oil-exporting economies. Specifically, strong domestic demand, characterized by
still-elevated consumer lending and strong credit growth to businesses (Azerbaijan, Kazakhstan), has been met
by robust economic activity in construction and service sectors. In Azerbaijan, increased public and private
investments also supported an acceleration of growth in the first quarter of 2024.

At the same time, headline and core inflation have continued to slow. In Azerbaijan, price pressures eased
sharply in early 2024 as the effects of imported inflation subsided, prompting a 75 basis-point reduction in the
policy interest rate (Figure 1.15). In Kazakhstan, inflation pressures proved persistent in mid-2024, including
because of increasing domestic utility tariffs and exchange rate depreciation, and the central bank signaled that
the policy interest rate may not be reduced further before the end of 2024. Meanwhile, looser monetary and
fiscal policies in Turkmenistan, including an increase in public wages and pensions by 10 percent annually, have
led to a pick-up in inflation.

However, the broadly favorable trade flows and terms-of-trade shock that the region experienced in 2022
are weakening. For example, trade between CCA oil exporters and Russia appears to be slowing, with first
quarter exports to Russia declining by more than 20 percent in Kazakhstan and 10 percent in Azerbaijan
(Figure 1.16). Similarly, the early months of 2024 saw a contraction in overall imports and exports, albeit
to a lesser magnitude. In turn, external positions have worsened, compounded by falling global oil and
gas prices.

Furthermore, fiscal balances have been affected by a combination of lower oil and gas revenues and higher
spending pressures. Notably, investment (Azerbaijan) and increased public sector wages and pensions
(Turkmenistan) have contributed to a deterioration in primary fiscal balances. Meanwhile, in Kazakhstan, fiscal

INTERNATIONAL MONETARY FUND • October 2024

 1. Regional Developments and Economic Outlook: Navigating the Evolving Geoeconomic Landscape 11

underperformance has been driven by lower-

Figure 1.17. CCA Oil Exporters: Contributions to
than-expected non-oil revenue. Nonetheless,
Real GDP Growth
public sector debt has remained low in these (Year-over-year, percent change; contributions in
countries at around or below 20 percent of GDP percentage points)
at the end of 2023. Hydrocarbon Non-hydrocarbon Real GDP growth
Real GDP growth (April 2024 World Economic Outlook)
5
Outlook: Cooling Growth
Growth among CCA oil exporters is projected 4
to slow to 3.3 percent this year (from 3.9 percent
in 2023) as oil growth in Kazakhstan comes to a 3
halt. Still, this forecast reflects a 0.4 percentage
point increase from April, driven by robust 2

non-oil activity and expanded public invest-

1
ment in Kazakhstan and Azerbaijan. For 2025, a
temporary increase in GDP growth to 3.9 percent
0
is expected, largely dependent on the Tengiz
oil field expansion in Kazakhstan (Figure 1.17). −1
Further ahead, overall growth for oil exporters is 2021 22 23 24 25 26 27 28 29

projected to slow to just below 3 percent over the Sources: IMF, World Economic Outlook database; and IMF staff
medium term. Notably, hydrocarbon production calculations.
Note: CCA = Caucasus and Central Asia.
is forecast to stabilize, including amid capacity
constraints (absent substantial investments) in
Azerbaijan and Turkmenistan, and nonhydrocarbon growth is projected to remain subdued given the need for
further reforms to bolster private sector development and diversification.

External balances across oil exporters are expected to narrow amid falling energy commodity prices, with the
average current account maintaining a surplus of 0.8 percent of GDP this year before shifting into a deficit over
the medium term. Nonetheless, this forecast is an upward revision of 1.5 percentage point of GDP from April,
reflecting higher oil revenues and lower repatriation of dividends in Kazakhstan. Looking ahead, current account
balances are projected to worsen across all oil and gas exporters because of lower hydrocarbon prices (Azerbaijan,
Turkmenistan), an overvalued currency (Turkmenistan), and imports of manufactured goods outpacing oil exports
(Kazakhstan).

At the same time, fiscal challenges are set to become more pronounced amid diminished hydrocarbon revenues.
Notably, primary balances are projected to weaken in Azerbaijan and Kazakhstan. Although both countries are
implementing measures to mitigate the effects of lower hydrocarbon revenues (for example, by reducing tax exemp-
tions [Azerbaijan and Kazakhstan] and increasing corporate tax rates [Kazakhstan]), these measures are insufficient to
prevent rising public debt levels (Kazakhstan). Still, public sector debt levels are projected to remain contained at or
below 27 percent of GDP over the forecast horizon.

In line with global trends, overall headline inflation among the CCA’s oil-exporting countries is projected to ease
to 7 percent in 2024 and further toward 5.2 percent over the medium term. However, markedly different inflation
paths also reflect variations in monetary policy actions. For example, still-tight policy settings in Kazakhstan
should support the continued disinflation process, while loose policy settings in Turkmenistan are expected to
keep inflation elevated over the medium term.

October 2024 • INTERNATIONAL MONETARY FUND

12 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Figure 1.18. CCA Oil Importers: Sectoral CCA Oil Importers

Contributions to Real GVA Growth
(Growth in percent change, year-over-year, contributions
Recent Developments: Robust Growth but
in percentage points) Early Signs of Slowing
Agriculture and mining Manufacturing and utilities
Among CCA oil importers, economic growth
12 remains broad-based and robust, but there are
Construction Trade and transportation
Tourism Information technology and
10 early signs of slowing growth momentum. The
Finance and real estate professional services
Other services first quarter of 2024 saw growth strengthen to
8 about 8 percent relative to the same period the
previous year, fueled by strong activity in the
6
construction sector (Kyrgyz Republic, Tajikistan,
4 Uzbekistan), transportation and trade (Armenia,
Georgia, Kyrgyz Republic, Uzbekistan), and other
2
services (Armenia, Georgia, Uzbekistan) (Figure
0 1.18).

−2 However, while remittance inflows remain histor-

2023:Q1 23:Q2 23:Q3 23:Q4 24:Q1
ically high in Tajikistan, they have returned to or
Sources: Haver Analytics; and IMF staff calculations. are near pre-war trends in Armenia and Georgia.
Note: Haver Analytics sectoral data are available for Armenia,
Georgia, and the Kyrgyz Republic. CCA = Caucasus and Central Asia; In addition, the labor market in Armenia is cooling,
GVA = gross value added. and credit growth in Uzbekistan has started
to slow.

The early months of 2024 also saw a continued slowdown in headline inflation across most of the region’s oil
importers. Weaker external pressures from commodity prices (all countries), currency appreciation (Armenia,
Georgia, Kyrgyz Republic), and slower wage growth (Armenia) supported this trend (Figure 1.15). Notably,
Armenia experienced deflation early in the year. Consequently, some central banks (Armenia, Georgia, Kyrgyz
Republic) lowered their policy interest rates. Nonetheless, domestic demand pressures have kept core inflation
somewhat elevated in the Kyrgyz Republic.

A moderation in external flows, combined with strong domestic demand, resulted in weaker external balances
in early 2024. Notably, exports to Russia have recently come down relative to the high levels seen in recent years
(except in Uzbekistan, where textile exports to Russia have seen an increase) (Figure 1.16). Moreover, remittances
declined during the first half of 2024 in Armenia and Georgia. In addition, strong domestic demand is driving an
increase in imports (Armenia, Kyrgyz Republic, Uzbekistan).

Revenue overperformance (Georgia) and spending under-execution (Armenia, Kyrgyz Republic) helped keep
primary fiscal deficits small across most CCA oil importers in 2023.

CCA economies are also highly exposed to climate-related disasters, particularly those related to rising tempera-
tures and fluctuations in rainfall. For example, average annual temperatures across the CCA region have risen by
more than 1°C from their 1990–2010 average, and precipitation patterns have become more volatile. As a result,
more people are being affected by extreme climate events, especially floods (Figure 1.19).

Outlook: Continued Strong Growth Hinges on Policy Action

Economic growth in CCA oil-importing countries is projected to remain strong despite a slight moderation of
GDP growth to 6.1 percent in 2024 (from 6.8 percent in 2023) and 5.5 percent in 2025. As positive trade and
financial spillovers from Russia’s war in Ukraine continue to wane, average growth is expected to stabilize above
5 percent over the medium term. However, this is contingent on the implementation of structural reforms aimed
at enhancing the business environment, fostering competition, improving public sector governance, and, in
many countries, reducing and refocusing the role of the state in the economy (Gigineishvili and others 2023).

INTERNATIONAL MONETARY FUND • October 2024

 1. Regional Developments and Economic Outlook: Navigating the Evolving Geoeconomic Landscape 13

In addition, increasing labor force participation

Figure 1.19. CCA: Impact of Extreme
(Armenia, Georgia) and investing in infrastructure
Climate Events
to reduce trade costs (Georgia) are essential for (Units shown in legend)
strong growth.
60
Number of events
In terms of inflation, Armenia and Georgia are Number of people affected (ten thousands)
50 Material damage (millions of dollars)
projected to maintain relatively low headline Number of deaths
inflation rates over the forecast horizon.
40
Meanwhile, inflation in the Kyrgyz Republic is
expected to remain stable at the lower band of 30
the Central Bank’s target over the medium-term,
whereas inflation in Uzbekistan is expected to 20
rise in 2024 following a large increase in adminis-
trated energy prices in early May before gradually 10
falling toward the inflation target, helped by tight
monetary policy and fiscal consolidation. 0
2015 16 17 18 19 20 21 22 23

Although primary fiscal deficits are expected to Sources: EMDAT database; and IMF staff calculations.
Note: CCA = Caucasus and Central Asia.
narrow on average to 2.1 percent of GDP in 2024,
with a further reduction to about 1.6 percent of
GDP in subsequent years, this forecast masks
marked divergence across countries. In Armenia, the Kyrgyz Republic, and Tajikistan fiscal deficits are projected to
widen because of higher capital expenditure, the cost of integrating ethnic Armenians (Armenia), and moderating
revenue (Kyrgyz Republic). Conversely, Uzbekistan’s phaseout of energy subsidies is helping to strengthen buffers.
Over the medium term, fiscal primary deficits are projected to persist across most oil-importing countries, albeit
while allowing for low and stable levels of public sector debt.

Current account deficits are expected to remain sizable over the forecast period, at about 5 percent of GDP on
average. In Armenia, Georgia, and Tajikistan current account deficits will widen over the medium term, reflecting
slowing inflows from Russia and falling re-exports to Russia (Armenia, Georgia), coupled with strong domestic
demand, which will widen trade deficits. By contrast, in Uzbekistan, fiscal consolidation and higher mining
exports are expected to help strengthen the trade balance.

1.4. Risks Skewed to the Downside

Risks to the outlook for the MENA and CCA regions remain tilted to the downside. In addition to global uncertain-
ties, the MENA and CCA regions are also contending with adverse regional risks.

Uncertainty remains high for the MENA and CCA regions. On the one hand, the materialization of global upside
risks would help ease challenges for the MENA and CCA regions. For example, easing trade tensions, stronger
recovery in investment in advanced economies, or a stronger reform momentum would stimulate global demand
and trade and help lift growth. On the other hand, should adverse global risks come into play, the ramifications
for the MENA and CCA regions could be substantial. The most vulnerable economies within these regions would
likely bear the brunt of the impact, given their limited ability to absorb and respond to shocks.

ƒ The threat of increased geoeconomic fragmentation could materialize through a higher tendency among
countries to adopt inward-looking policies, scale back international cooperation, and engage in broader
conflicts. For the MENA and CCA regions, this could lead to changes in trade links, reduced capital flows,
and a potential decline in aid flows that would disproportionately impact LICs (see Chapter 3 of the April

October 2024 • INTERNATIONAL MONETARY FUND

14 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

2024 Regional Economic Outlook: Middle East and Central Asia). In addition, industrial policies that have
spillovers beyond national borders heighten the risk of countermeasures by other countries, undermining
the principles of multilateral cooperation that are essential for regional economic stability and growth.
ƒ Although policy rates are projected to normalize, still-tight monetary policy could nonetheless lead to a
faster-than-anticipated deceleration of near-term growth and rising unemployment. Spillovers from such a
scenario would negatively impact growth in the MENA and CCA regions and add to uncertainty ahead.
In addition, if underlying inflation proves more persistent than expected, central banks may be forced to
adjust the path of monetary policy normalization, leading to market repricing and a resurgence of financial
market turbulence.
ƒ Commodity price volatility could increase. Conflicts, export restrictions, OPEC+ oil production decisions, or
the transition to green energy could spur fluctuations in commodity supply and demand dynamics, resulting in
recurrent commodity price volatility and exerting external and fiscal strains on both commodity exporters and
importers, as well as impact inflation. Volatility in the price of key staples would pose a particular challenge for
countries grappling with food insecurity. Social and economic instability could also emerge.
ƒ Renewed climate shocks such as droughts and floods would have a material impact. Adverse climate events
would affect water security, infrastructure, agricultural yields, and food prices across the MENA and CCA regions.

Adverse shocks could also originate from within or close to the MENA and CCA regions:

ƒ Ongoing conflicts could persist or expand to other areas. The conflict in Gaza and Israel could escalate further
and spread to the wider region. Conflicts elsewhere, including in Sudan, may also persist. Such developments
would prompt a devastating increase in displacement and human suffering. Economies directly involved
in conflicts, as well as their neighbors, would likely also suffer lasting economic losses (April 2024 Regional
Economic Outlook: Middle East and Central Asia). An escalation of Russia’s war in Ukraine or a faltering of
Russia’s growth prospects could impact CCA economies through disruptions to trade flows and remittances.
ƒ Insufficient reform implementation could hold back growth. Economies embarking on crucial but chal-
lenging structural reforms could face rising social discontent, political resistance, and stagnating policy
execution. Limited progress on implementing reforms would weigh on medium-term growth prospects,
complicate bringing down debt ratios, and undermine the region’s resilience to shocks given long-standing
structural gaps (October 2023 Regional Economic Outlook: Middle East and Central Asia).
ƒ An abrupt reversal of trade and financial flows stemming from an escalation of Russia’s war in Ukraine or
increased sanctions, including secondary sanctions, could present significant risks to CCA economies, particu-
larly financial stability risks. Although several CCA oil-importing countries have implemented or strengthened
macroprudential measures to address financial stability risks amid elevated lending to households and firms,
sudden reversals in flows could cause disruptions (for example, through disorderly depreciation or increased
nonperforming loans).

1.5 Policy Prioritization Essential amid Shifting Headwinds

Amid heightened uncertainty and lackluster medium-term growth forecasts, it is crucial for policies to help
improve prospects for future growth and rebuild fiscal buffers to bolster resilience. To this effect, the acceleration
of structural reforms, particularly in governance, remains key. For highly indebted economies, including some
MENA EM&MIs, a durable decline in debt levels is essential and would over time also facilitate access to lower
cost financing and help open fiscal space for much needed development and social spending. Although inflation
has receded in many economies, vigilance in maintaining price stability remains vital as it creates a predictable
environment conducive to investment and sustainable economic growth.

INTERNATIONAL MONETARY FUND • October 2024

 1. Regional Developments and Economic Outlook: Navigating the Evolving Geoeconomic Landscape 15

Reforms and Climate Policy: Boost Growth Prospects and Resilience

Implementing structural reforms is crucial for boosting productivity and enhancing medium-term growth
prospects. Policy efforts should include reforms targeted at labor markets and human capital development,
as well as efforts to improve the institutional and regulatory environment. Addressing the impacts of climate
change is also crucial.

A number of structural policies are essential for achieving stronger and more inclusive growth:

ƒ Strengthening governance would be particularly valuable. The October 2023 Regional Economic Outlook:
Middle East and Central Asia highlighted how governance reforms—such as enhancing the rule of law and
government effectiveness—are crucial in fostering an economic environment that encourages private invest-
ment and helps boost growth. Moreover, prioritizing governance reforms before other reforms can magnify
their overall growth dividends, and the strategic packaging of reforms—for example, by combining external
sector and credit market reforms—can amplify positive output effects.
ƒ Policy action is needed to address labor market challenges, increase relatively low levels of capital per worker,
and boost total factor productivity (TFP). Specifically, policies designed to enhance participation and job
creation, particularly for women and youth, and promote competition and openness in markets would be
essential and would help secure stronger and more sustainable growth. Supporting macroeconomic stability
and taking steps to increase levels of digitalization, enhance trade complexity, and reduce the state footprint
would help reinforce these efforts (Chapter 2).
ƒ Reducing long-standing trade barriers can help economies harness the benefits from trade amid increasing
geoeconomic fragmentation and global uncertainty. Diversifying products and markets would help enhance
economic resilience. Making investments in infrastructure to leverage new trade corridors would also be
beneficial. Financial reforms play a crucial role in making economic growth more inclusive and sustainable,
and countries stand to gain from facilitating competition within the financial sector. Essential reforms include
strengthening macroeconomic and policy frameworks and reducing the role of the state in banking systems
(Chapter 3). In turn, this approach would help support private sector investment. For those non-GCC MENA
and CCA countries with highly bank-centric financial systems, developing financial markets to diversify sources
of funding would be particularly beneficial.

Given their vulnerability to the impacts of climate change and transition risks, countries in the MENA and CCA
regions should continue efforts to build economies that are both greener and more resilient. Beyond mitigation
efforts by commodity-exporting countries, especially through economic diversification, there is a pressing need
for climate adaptation measures in all countries. Investing in water infrastructure and adopting cost-recovery
pricing for water use would be helpful in this regard.12 However, financing needs for climate-related initiatives
are sizable (Figure 1.20). Moreover, they will remain high in the years ahead—for example, investment needs for
the green transition and adaptation are estimated at more than $120 billion for MENA LICs through 2035. In this
respect, financial institutions can help play a pivotal role in fostering a green economy through the implementa-
tion of “green inclusive” finance (Radzewicz-Bak and others 2024). Engaging with global green finance networks
can further aid in sharing knowledge and best practices.

Fiscal Policy: Rebuild Buffers

Across the MENA and CCA regions, ensuring fiscal sustainability is a priority, particularly considering headwinds
from conflicts in the region, still-tight financing conditions for several economies, and risks posed by shifting
trade patterns. In this respect, strengthening fiscal risk management by implementing or bolstering medi-
um-term fiscal frameworks is vital for increasing transparency and credibility. At the same time, it is crucial to
safeguard social protection systems and ensure access to education and health care, and focusing essential
spending on the most vulnerable would not only promote inclusion but also help preserve fiscal sustainability.

12
Detailed analysis and policy suggestions on adaptation investments can be found in Duenwald and others (2022) and Radzewicz-Bak
and others (2024).

October 2024 • INTERNATIONAL MONETARY FUND

16 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Figure 1.20. MENA: Current Financing Needs for Climate Policy

(Percent of 2021 GDP; billions of dollars)
453 178
90 Mitigation financing needs (percent of 2021 GDP) 250

80 Adaptation financing needs (percent of 2021 GDP)

Other financing needs (percent of 2021 GDP)
70 Median financing needs (percent of 2021 GDP) 200
Total financing needs in 2021 GDP (percent)
60 Total financing (billions of dollars, right scale)
150
50

40
100
30

20 50
10

0 0
MRT

DJI

SDN

MAR

IRQ

PAK

TUN

ARE

JOR

EGY

IRN

YEM

SOM

LBN

KWT

KGZ

AZE

KAZ

ARM

SSA

EMDE

EMDA

LAC
MENA and Pakistan CCA Rest of the world

Sources: UN Framework Convention on Climate Change; and IMF staff calculations.

Note: Afghanistan’s financing needs are in percent of 2020 GDP because of the unavailability of the 2021 GDP data. The United Arab Emirates
has a 2050 Energy strategy that specifies AED 600 billion investment needs for energy transition. West Bank and Gaza is not included in the figure
as IMF staff is not able to corroborate the estimates. Figures for aggregate regions show the financing need of the median country in each region.
Other financing needs covers activities such as research, developing climate data/information, and so on, that are not directly linked to mitigation
or adaptation activities. Total financing shows cumulative investments needs until the target years in countries’ Nationally Determined
Contributions which are either 2030 or 2035. Mitigation investment needs for Djibouti and Mauritania include the expansion of power grids to
increase access to electricity, especially in rural areas. Data labels in the figure use International Organization for Standardization (ISO) country
codes. CCA = Caucasus and Central Asia; EMDA = emerging and developing Asia; EMDE = emerging and developing Europe; LAC = Latin
America and the Caribbean; MENA = Middle East and North Africa; SSA = sub-Saharan Africa.

In particular, scaling back regressive and inefficient subsidies and avoiding generalized wage increases and
transfers would help redirect resources toward more targeted social protection programs. For some economies,
expanding the tax base to increase the revenue stream could provide the funds needed to meet social and
developmental needs.

Given the significant variations in public sector debt levels across countries, tailored fiscal policy is essential:

ƒ For countries facing high debt levels and financing needs, especially MENA EM&MIs, a concerted effort toward
continuing fiscal consolidation is crucial to bring down debt burdens decisively. To this end, containing current
spending on subsidies, mobilizing additional revenue, and phasing out tax exemptions would be critical. Over
time, strengthening fiscal positions would also facilitate access to lower-cost financing. In addition, authorities
should consider ways to mitigate fiscal risks from state-owned enterprises.
ƒ MENA LICs should focus on ensuring fiscal sustainability while addressing food insecurity. Where financing
constraints prevent the provision of basic services or progress toward the Sustainable Development
Goals, particularly in fragile and conflict-affected states, strong efforts are needed to mobilize domestic
fiscal revenues. Amid persistent climate hazards and food insecurity, spending aimed at supporting live-
lihoods should target the most pressing social needs (such as acute food insecurity). Assistance from the
international community is essential in this regard to help mitigate ongoing humanitarian crises.
ƒ In the current environment of oil price volatility and reduced oil production, MENA oil exporters should
focus on fostering resilience and sustainability while ensuring intergenerational equity. To this effect, reforms
to provide an enabling environment for the private sector would support non-oil growth and longer-term
economic resilience. For the GCC, continuing to diversify revenue sources and implement tax reforms

INTERNATIONAL MONETARY FUND • October 2024

 1. Regional Developments and Economic Outlook: Navigating the Evolving Geoeconomic Landscape 17

(through the introduction and expansion of value-added, personal income, and corporate income taxes)
remain key priorities. In addition, facilitating the green transition is crucial to global climate change efforts.
Where relevant, eliminating inefficient energy subsidies would align with these objectives.
ƒ Amid slowing medium-term growth and weakening revenues, CCA countries should conserve fiscal buffers
and debt sustainability, including through gradual fiscal consolidation. Moreover, in the current environment
of robust growth, fiscal consolidation is needed to support disinflation. Strengthening fiscal institutions and
improving public financial management and public investment management processes would support these
efforts. Moreover, enhancing the transparency of state-owned enterprises and public sector statistics, more
generally, would help reduce fiscal risks and support access to external financing. In addition, oil exporters
should support climate mitigation efforts by reforming subsidies to reflect the true cost of natural resources
and carbon emissions.

Monetary and Financial Policies: Lock in Low Inflation and Safeguard

Financial Stability
Maintaining price stability should remain the cornerstone of monetary policy, accompanied by clear communi-
cation of policy objectives and transparency in monetary policy operations. In countries with a fixed exchange
rate (such as GCC, Jordan), any policy interest rate change should be made in accordance with their policy
frameworks. Elsewhere, for countries grappling with persistently elevated inflation (Egypt, Kazakhstan, Pakistan,
Tunisia, Uzbekistan), monetary policy should remain tight. Where inflation indicators signal a lasting return to
price stability (such as in several CCA countries), a cautious approach to monetary easing could be considered.
More broadly, the pace of adjustment in the monetary policy stance should remain data dependent and vigilant
to changes in underlying inflation pressures.

Monetary policy implementation should be accompanied with prudent fiscal policy. As such, in countries
where monetary and fiscal policy are not well coordinated or where fiscal policy overshadows monetary policy
decisions, addressing fiscal imbalances alongside an independent central bank is essential for enhancing the
effectiveness of monetary policy tools in controlling inflation.

In addition, developing and strengthening regulatory, supervisory, and macroprudential frameworks remains a
priority for financial sectors in the region. These frameworks provide essential guardrails to safeguard financial
stability and include implementing adequate and comprehensive regulatory standards and conducting appro-
priately resourced and intensive supervisory oversight. On macroprudential tools, ramping up the use of
broad-based tools, such as the countercyclical capital buffer, would help to prevent a sharp credit contraction
during downturns, and using borrower-based tools, such as caps on debt-service-to-income ratios and loan-to-
value ratios, would help guard against rapid credit growth and asset quality deterioration (see Chapter 3 of the
October 2023 Regional Economic Outlook: Middle East and Central Asia).

The IMF Remains Committed to Providing Support

Since early 2020, the IMF has approved over $47.7 billion in financing to countries across MENA, Pakistan,
and the CCA. Notably, since the start of 2024, more than $13.4 billion in new funding has been approved for
programs in Egypt (augmentation under the Extended Fund Facility), Jordan (Extended Fund Facility), and
Pakistan (Extended Fund Facility). In addition, a nonfinancial policy coordination instrument was approved
for Tajikistan to support the authorities’ structural reform program. The IMF has also carried out about 361
technical assistance and capacity development projects in 31 countries, totaling $32.6 million during fiscal
year 2023/24.13 Moreover, it maintains a significant regional footprint through its resident representative offices,
technical assistance centers, and the new regional office in Riyadh, Saudi Arabia, all of which help strengthen the
IMF’s partnership with countries across these regions.

13
The fiscal year 2024 runs from May 1, 2023, to April 30, 2024.

October 2024 • INTERNATIONAL MONETARY FUND

18 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Box 1.1. Gulf Cooperation Council: Economic Diversification

Over the past two decades, oil exporters in the Gulf Cooperation Council (GCC) have actively implemented
reforms to diversify their economies.1 Reform efforts have encompassed investing in nonhydrocarbon
sectors, strategically utilizing sovereign wealth funds,2 fostering entrepreneurship, enhancing human
capital, and committing resources to renewable energy and digitalization.

Although the importance of the oil sector as a share of GDP has moderated, it remains sizable in most GCC
economies—and higher than in other oil-­dependent economies. Since 2000, the share of oil in the GCC’s
GDP has diminished from 50 percent to approximately 33 percent in 2023—while the average for other
oil-dependent economies stood at about 26 percent in 2023. Nonetheless, for Kuwait, Qatar, and Saudi
Arabia, oil and related goods constituted roughly 90 percent of total goods and commodity exports as
of 2023. For most GCC economies, oil activities also help generate about 70 percent of total fiscal revenue
(Box Figure 1.1.1), and economic activity in several sectors, especially chemicals and petrochemicals,
remains closely linked to activities in the oil sector (Box Figure 1.1.2).

The growth in non-oil sectors has been notable along with diversification efforts—though it remains
partially dependent on oil-related activity and the size of these sectors remains small. Notably, financial
services, manufacturing, trade, and tourism sectors have made significant contributions to non-oil growth
(Box Figure 1.1.3). High technology exports have also seen a sizable increase, rising from 1.5 percent of

Box Figure 1.1.1. GCC: Oil Shares Box Figure 1.1.2. GCC: Chemical Industry
(Percent of total) Export Revenue and Oil Price
(Year-over-year percent change)
100
KWT
90 80 Value of export revenue
KWT
Volume of export revenue
80
60 Oil price
70
KWT 40
60
UAE
50 20
40
0
30
20 Interquartile range −20
BHR Average UAE
10 Minimum-maximum range
−40
0
2000–09 10–23 2000–09 10–23 2000–09 10–23
−60
Oil GDP Oil revenue Oil exports 2010 12 14 16 18 20 22
in total GDP in total revenue in total exports
Sources: Gulf Petrochemicals and Chemicals Association
Sources: IMF, World Economic Outlook database; and IMF (2024); IMF, World Economic Outlook database; and IMF
staff calculations. staff calculations.
Note: Data labels in the figure use International Note: GCC = Gulf Cooperation Council.
Organization for Standardization (ISO) country codes.
GCC = Gulf Cooperation Council.

The author of this box is Vizhdan Boranova.

1
Saudi Vision 2030, Qatar National Vision 2030, Oman Vision 2040, Bahrain Economic Vision 2030, UAE Vision 2031, and Kuwait
Vision 2035.
2
Sovereign wealth funds are investment vehicles owned by the state, designed to manage and invest surplus revenues, mainly
derived from the export of oil and gas. The role of sovereign wealth funds varies significantly across GCC economies. Sizable
GCC sovereign wealth funds include the following: Public Investment Fund (Saudi Arabia); Abu Dhabi Investment Authority,
Mubadala Investment Company, Investment Corporation of Dubai, Emirates Investment Authority (the United Arab Emirates);
Kuwait Investment Authority (Kuwait); Qatar Investment Authority (Qatar); Oman Investment Authority (Oman); and Mumtalakat
Holding Company (Bahrain).

INTERNATIONAL MONETARY FUND • October 2024

 1. Regional Developments and Economic Outlook: Navigating the Evolving Geoeconomic Landscape 19

Box 1.1. (Continued)

total manufacturing exports in 2015–19 to an average of 4 percent in 2020–22. However, construction,
transport, and information technology sectors—despite being high-priority sectors that have received
substantial public investment—remain relatively small in terms of contributions to growth, collectively
accounting for slightly over 12 percent of overall GDP. Moreover, the surge in several sectors can be partly
attributed to an increase in available project financing, which, in turn, has been spurred by record-high
revenues from energy exports (Korniyenko and Xin, forthcoming).

Public sector investment has been an important driver of diversification across GCC members. Specifically,
average public capital expenditure has risen steadily over the past two decades—by 3.9 percent annually on
average since 2010—as regional governments accelerated the pace at which they execute their long-term
diversification plans. In addition, sovereign wealth funds have supported domestic investments. Moreover,
the significant uptick in GCC cross-border investment in recent years, particularly in the services sector, has
been a major contributor to nonhydrocarbon growth (Box Figure 1.1.4; Korniyenko and Xin, forthcoming).

Countries in the GCC have also taken several steps to attract investments and lift growth. These include:

� Enhancements to business environments to bolster GCC members’ roles as global trade hubs and
attractive investment destinations. For example, some GCC countries have revised their investment
and bankruptcy codes. They have also signed free trade agreements and increased investments in
high-growth, high-value added, and knowledge-intensive sectors. Investments in infrastructure devel-
opment have also been sizable.
� Efforts to strengthen the labor market. To support the development of a skilled and diverse labor force,
several GCC countries have initiated or are considering reforms to boost female labor force participa-
tion, bolster private sector employment, and enhance labor market flexibility by lifting restrictions (see
also Chapter 2).

Box Figure 1.1.3. GCC: Real Oil GDP Box Figure 1.1.4. GCC: Foreign Direct
Growth Contributions and Shares Investment, Net Inflows
(Year-over-year percent change for growth; (Percent of GDP)
percentage points for contributions; percent of
total for shares) 8
2015–19 2020–23
7 GCC, 2015–19 GCC, 2020–23
Financial services Trade and hotels Other EMs, Other EMs,
Manufacturing Construction 6 2015–19 2020–23
Transport and ICT Utilities
Agriculture Public services and defense 5
Other services and taxes GDP growth
4
5 100
3
4 80
2

3 60 1

0
2 40
−1
OMN UAE BHR SAU KWT QAT
1 20
Sources: IMF, World Economic Outlook database; World
0 0 Bank, World Development Indicators; and IMF staff
2012–19 21–23 2012–19 21–23 calculations.
Contributions Shares (right scale) Note: Data labels in the figure use International
Organization for Standardization (ISO) country codes.
Sources: Haver Analytics; IMF, World Economic Outlook EMs = emerging markets; GCC = Gulf Cooperation
database; and IMF staff calculations. Council.
Note: GCC = Gulf Cooperation Council; ICT = information
and communication technologies.

October 2024 • INTERNATIONAL MONETARY FUND

20 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

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

Gigineishvili, Nikoloz, Iulia Ruxandra Teodoru, Narek Karapetyan, Yulia Ustyugova, Jean van Houtte, Jiri Jonas,
Wei Shi, and others. 2023. “Strengthening Monetary Policy Frameworks in the Caucasus and Central Asia.”
IMF Departmental Paper 2023/004, International Monetary Fund, Washington, DC.

Gopinath, Gita. 2024. “Geopolitics and Its Impact on Global Trade and the Dollar.” May 7. https://www.imf.org/
en/News/Articles/2024/05/07/sp-geopolitics-impact-global-trade-and-dollar-gita-gopinath

Gulf Petrochemicals and Chemicals Association. 2024. “GPCA Annual Report 2023.” New York.

Korniyenko, Yevgeniya, and Weining Xin. Forthcoming. “GCC Growth and Diversification: The Role of
Cross-Border Investment and Sovereign Wealth Funds.” Working Paper, International Monetary Fund,
Washington, DC.

Radzewicz-Bak, Bozena, Jerome Vacher, Gareth Anderson, Filippo Gori, Mahmoud Harb, Yevgeniya
Korniyenko, Jiayi Ma, and others. 2024. “Preparing Financial Sectors for a Green Future: Managing Risks
and Securing Sustainable Finance.” IMF Departmental Paper 2024/002, International Monetary Fund,
Washington, DC.

UN High Commissioner for Refugees (UNHCR). 2024. “Sudan Emergency: Population

Movements from Sudan.” August 26. https://reliefweb.int/map/sudan/
sudan-emergency-population-movements-sudan-26-august-2024

UN Office for the Coordination of Humanitarian Affairs (UNOCHA). 2024a. “Reported Impact Snapshot: Gaza
Strip.” August 28. https://www.ochaopt.org/content/reported-impact-snapshot-gaza-strip-28-august-2024

UN Office for the Coordination of Humanitarian Affairs (UNOCHA). 2024b. “Humanitarian Situation Update
#226: Gaza Strip.” October 4. https://www.unocha.org/publications/report/occupied-palestinian-territory/
humanitarian-situation-update-226- gaza-strip-enarhe

UN Office for the Coordination of Humanitarian Affairs (UNOCHA). n.d. “Sudan.” https://www.unocha.org/
sudan

INTERNATIONAL MONETARY FUND • October 2024

 2. Reversing the Trend: Enhancing Medium-Term Growth Prospects 21

2. Reversing the Trend: Enhancing

Medium-Term Growth Prospects1
Medium-term growth prospects for countries in the Middle East and North Africa (MENA)2 and Caucasus and
Central Asia (CCA) regions have been gradually deteriorating over the past 15 years, and realized growth has
repeatedly fallen short of expectations. Although living standards have improved, they have stagnated relative
to advanced economies and fallen behind trends seen among emerging markets and developing economies
elsewhere. Growth decompositions reveal that increases in employment per capita has been a key contributor to
per capita output growth across the MENA and CCA regions, but its role has diminished over time. By contrast,
growth in other regions has largely relied on contributions from capital deepening and Total Factor Productivity
(TFP). Policy action is needed to resume income convergence and foster stronger and more sustainable growth.
Changing demographics will require policies designed to enhance participation and job creation, including for
women and youth, especially in the MENA region. Increasing relatively low levels of capital per worker could
also yield significant growth dividends and would require deepening financial development and reforms to
promote private sector investment. Meanwhile, policies to boost TFP will need to be tailored to country-specific
needs. On average, the most important policy actions include those that help support macroeconomic stability,
increase levels of digitalization, enhance trade complexity, and reduce the state footprint. Such efforts are also
critical in light of the adverse impacts of conflicts and climate-related disasters on TFP.

2.1 Deteriorating Growth Prospects

Recent trends indicate a concerning decline in growth prospects around the world, primarily because of a
slowdown in TFP growth (April 2024 World Economic Outlook). Medium-term growth expectations for the MENA
and CCA regions have also deteriorated over the past two decades (Figure 2.1, panel 1). This deterioration
has been broad-based across countries, although GCC countries exhibit more volatility than elsewhere, mainly
because of global oil price fluctuations. In addition to forecasts becoming progressively more pessimistic,
actual economic growth has consistently fallen short of expectations, particularly since the global financial crisis
(Figure 2.1, panel 2).

Starting in the early 2000s and consistent with global trends, economies across the MENA and CCA regions
generally experienced an upswing in growth, which lasted until the onset of the global financial crisis when
a noticeable slowdown set in.3 Even though living standards have continued to improve since then, the gap
in income per capita between MENA and CCA economies on the one hand and advanced economies on the
other has either remained static (CCA) or widened (MENA, excluding the GCC). Moreover, growth in income
per capita has not kept pace with those in emerging market economies elsewhere (Figure 2.1, panel 3). For
GCC economies, although income per capita levels have generally been above those of the average advanced
economy, relative average income per capita in the GCC has been gradually declining over time and is now close
to that of advanced economies.

1
This chapter was prepared by Faris Abdurrachman, Nordine Abidi, Razan Al Humaidi, Vizhdan Boranova, Bronwen J. Brown, Steven
Dang, Yuan Monica Gao Rollinson, Troy Matheson (co-lead), Borislava Mircheva (co-lead), and Nora Neuteboom.
2
For analytical purposes, Middle East and North Africa (MENA) includes Pakistan in this chapter. In addition, the Gulf Cooperation
Council (GCC) economies and MENA excluding the GCC are studied as separate country groupings.
3
The global financial crisis had lasting scarring effects that significantly lowered medium-term growth by reducing investment in innovation
and technology, restricting credit access for small and medium-sized enterprises, and causing a misallocation of resources, all of which
hindered productivity gains (Fernald 2015; IMF 2015). In addition, the crisis led to a deterioration in human capital amid prolonged
unemployment, further exacerbating the decline in total factor productivity (TFP) (Ball 2014)

October 2024 • INTERNATIONAL MONETARY FUND

22 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Figure 2.1. Real GDP per Capita Growth Projections, Forecast Errors, and Income Convergence

1. Five-Year-Ahead Projections 2. Five-Year-Ahead Forecast Errors

(Year-over-year percent change) (Difference in actual and predicted real GDP per capita;
percentage points)
8 10
CCA GCC MENA excluding GCC ROW CCA GCC MENA excluding GCC ROW

6 Actual growth above forecast 5

4 0

2 −5

Actual growth below forecast

0 −10

−2 −15
1995 2000 05 10 15 20 2000 03 06 09 12 15 18 20 23
World Economic Outlook vintages

3. Real GDP per Capita Relative to Advanced Economies

(Percent; by economy group)
40
CCA GCC MENA excluding GCC EMs
20

−20

−40

−60

−80

−100
1995 2000 05 10 15 20

Sources: IMF, World Economic Outlook database; and IMF staff calculations.
Note: Panel 1 illustrates five-year-ahead growth projections published in fall vintages of the World Economic Outlook from 1995 to 2023.
Panel 2 shows the difference between realized growth of a given year (between 2000 and 2023) and projected growth in the World Economic
Outlook published five years earlier. Countries are weighted using purchasing power in international dollar weights. EMs and the rest of the world
exclude CCA and MENA countries (and Pakistan). CCA = Caucasus and Central Asia; EMs = emerging markets; GCC = Gulf Cooperation Council;
MENA = Middle East and North Africa (including Pakistan); ROW = rest of the world.

2.2 Main Contributors to Growth Differ from the Rest of the World
A growth accounting approach helps to unpack the growth experience. This approach reveals that employment
per capita has been a key contributor to growth of GDP per capita across the MENA and CCA regions, but its
role has diminished over time and unemployment rates have remained persistently high.4 In contrast, growth in
other regions has largely relied on contributions from capital deepening and TFP (Figure 2.2, panel 1).5 That said,
the relative importance of growth in employment, capital, and TFP has varied over time and country groups.

ƒ Employment. Unlike in the rest of the world, employment per capita has been a larger contributor to growth
than capital deepening across the MENA and CCA regions on average. However, outside GCC economies, its
contribution has dropped markedly since the global financial crisis. In MENA excluding the GCC, employment’s

4
Many countries in the MENA and Caucasus and Central Asia (CCA) regions have a long history of high unemployment rates and relatively
low labor force participation rates. In this context, it is important to note that growth in employment per capita can still occur even
if unemployment and participation rates are unchanged, provided the working-age population grows more rapidly than the overall
population (see Online Annex 2).
5
The analysis assumes a simple, constant coefficient Cobb−Douglas production function for each group of economies. It breaks down
real per capita output growth into three main components: capital deepening (growth in capital per employed worker), growth in
employment per capita, and growth in TFP. In this model, growth in real output per capita equals the capital compensation share
multiplied by capital deepening plus growth in employment per capita plus growth in TFP.

INTERNATIONAL MONETARY FUND • October 2024

 2. Reversing the Trend: Enhancing Medium-Term Growth Prospects 23

Figure 2.2. Contributions to Real GDP per Capita Growth, 1995–2023

(Percent)
TFP Labor Capital deepening Labor productivity Real GDP per capita
1. All Economies
4

−1

−2
MENA excluding GCC GCC CCA Rest of the world

2. MENA excluding GCC 3. GCC

4 4

3
2

2
0
1

−2
0

−1 −4
1995–2000 2001–07 08–19 20–23 1995–2000 2001–07 08–19 20–23

4. CCA 5. Rest of the World

10 4

8
3
6

4 2

2
1
0

−2 0
1995–2000 2001–07 08–19 20–23 1995–2000 2001–07 08–19 20–23

Sources: International Labour Organization; Penn World Table version 10.01; United Nations, World Population Prospects; and IMF staff
calculations.
Note: Countries are weighted using purchasing power in international dollar weights. Contribution figures were obtained through a growth
decomposition exercise of real GDP per capita assuming a standard Cobb–Douglas production function. Labor productivity is real GDP per
employed worker. Contributions of capital deepening and employment per capita reflect the shares of the respective factor inputs in output and
their growth rates. Per capita growth decomposition sample for the world comprises 140 economies. CCA includes data for Armenia, Kazakhstan,
and the Kyrgyz Republic; GCC includes data for Bahrain, Kuwait, Oman, Saudi Arabia, and the United Arab Emirates; MENA includes data for
Algeria, Bahrain, Djibouti, Egypt, the Islamic Republic of Iran, Jordan, Kuwait, Mauritania, Morocco, Oman, Pakistan, Saudi Arabia, Tunisia, the
United Arab Emirates, and Yemen. CCA = Caucasus and Central Asia; GCC = Gulf Cooperation Council; MENA = Middle East and North Africa
(including Pakistan); TFP = total factor productivity.

contribution to growth dropped from about 2.2 percentage points during 2001–07 to 0.5 percentage point
in the years after the global financial crisis (2008–19) (Figure 2.2, panel 2). The CCA region observed a similar
trend, with employment’s contribution to growth declining from 2 percentage points during 2001–07 to
almost zero in the later period (Figure 2.2, panel 4).

October 2024 • INTERNATIONAL MONETARY FUND

24 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

ƒ Capital. There was a notable pickup in contributions from capital deepening observed from 2008 to 2019,
surpassing the contribution of employment and similarly to trends elsewhere (Figure 2.2, panels 2 and 4).
This likely reflects the prolonged period of low global interest rates following the global financial crisis and
continuing during the COVID-19 pandemic. Nonetheless, capital’s contribution to growth has been smaller in
the MENA and CCA regions compared with the rest of the world on average (Figure 2.2, panel 1).
ƒ TFP. TFP’s contribution to growth exhibits more heterogeneity across time and economy groups.
y In MENA excluding the GCC, TFP’s contribution was small from 1995 to 2007 (about 0.8 percentage point)
and in the years following the global financial crisis up until before the COVID-19 pandemic (Figure 2.2,
panel 2). Subsequently, TFP significantly contributed to growth during 2020–23, but primarily because of
developments in the Islamic Republic of Iran (Figure 2.2, panel 2).6
y In GCC economies, TFP’s contributions have been notably large and negative (Figure 2.2, panel 3). In
addition to the need for structural reforms, this is possibly related to developments in the hydrocarbon
sector, where periods of lower oil prices or voluntary production cuts led to declining output with little or
no impact on production capacity.7
y In the CCA region, TFP’s contribution to growth declined as the economic benefits from structural
reforms following independence in the early 1990s began to wane. Notably, contributions decreased from
7.5 percent over 2001–07 to about 1.5 percent during 2008–19. Moreover, the contribution of TFP to growth
was negligible from the onset of the COVID-19 pandemic until 2023.

These factors are discussed in more detail in sections 2.3 through 2.5.

2.3 Fading Employment Contributions to Growth

The decline in the contribution of employment to growth in GDP per capita in many economies largely reflects a
slowdown in the growth of working-age population shares, which have not been fully offset by increases in labor
force participation and the employed share of the labor force.8 Notably, in line with global trends, growth in the
size of the working-age population relative to the total population has typically slowed, albeit to varying degrees
(Figure 2.3). In MENA (excluding the GCC), the employed share of the labor force has risen in recent years. However,
these improvements have been insufficient to counteract declines in the growth of the ­working-age population
share, resulting in an overall decline in employment per capita’s contribution to growth over time. In contrast,
GCC countries have seen strong gains in labor force participation, whereas the working-age p ­ opulation share’s
contribution has remained broadly stable, leading to a rise in employment per capita’s contribution to growth.9
By contrast, across CCA economies, labor force participation rates have dropped significantly.

Potential Growth Gains if Gaps Are Closed

In GCC and CCA economies, progress has been made in increasing female labor force participation and reducing
youth unemployment. Yet, significant challenges remain in MENA countries outside the GCC. Although partici-
pation by women in the labor force has increased in recent decades (with the CCA being an exception, given the
already high participation of women in the labor force), the rates of nonparticipation by women in MENA (excluding
the GCC) remain above the average for the rest of the world (Figure 2.4, panel 1). Moreover, this is associated with

6
For MENA (excluding the GCC), the observed increase in TFP growth over 2020–23 is primarily driven by the Islamic Republic of Iran,
where data is highly volatile because of the impact of external sanctions.
7
Employment and capital stock data are not available separately for the hydrocarbon and nonhydrocarbon sectors of the economy to
undertake a more detailed assessment of their relative roles.
8
The working-age population is defined as the size of population between the ages of 15 and 64 years.
9
Although not studied in this chapter, it is important to recognize that foreign workers are key to the workforce in the GCC.

INTERNATIONAL MONETARY FUND • October 2024

 2. Reversing the Trend: Enhancing Medium-Term Growth Prospects 25

Figure 2.3. Employment per Capita: Contributions to Growth, 2001–22

(Year-over-year percent change; contributions in percentage points)

2.5
Working-age population share
Labor force participation rate
2.0 Employed share of labor force
Employment per capita
1.5

1.0

0.5

−0.5

−1.0
2001–07 08–19 20–22 2001–07 08–19 20–22 2001–07 08–19 20–22 2001–07 08–19 20–22
MENA excluding GCC GCC CCA Rest of the world

Sources: International Labour Organization; United Nations, World Population Prospects; and IMF staff calculations.
Note: The employed share of labor force is defined as 100 percent minus the unemployment rate. Countries weighted using purchasing power in
international dollars. CCA = Caucasus and Central Asia; GCC = Gulf Cooperation Council; MENA = Middle East and North Africa (including
Pakistan).

a sizable participation gender gap in the workforce in these countries compared to other regions. Among GCC
economies, even though the rate of nonparticipation by women has shrunk over the past two decades as economies
have actively implemented reforms to diversify their economies, it remains above levels seen elsewhere.10

Youth inactivity is another dimension that holds significant opportunities for improvement in the MENA region.
Excluding the GCC countries (where the youth inactivity rate is slightly above 10 percent), over 30 percent of young
people in the MENA region are neither working nor engaged in education or training, well above the average in
the rest of the world of under 20 percent (Figure 2.4, panel 2). Several factors drive these high youth inactivity rates,
including a mismatch between education systems and labor market needs, rigid labor markets with strong protec-
tion for existing workers and few incentives to hire young workers, and economic structures with wealth concentrated
in specific sectors (such as commodities) that do not create broad-based employment opportunities (ILO 2015).
Although youth inactivity rates have fallen over time and the gaps with adults (the age gaps) have narrowed, these
gaps remain notably large in MENA countries outside the GCC, where overall unemployment rates are also high.

Increasing female labor force participation and youth employment to levels seen in the rest of the world could lead
to significant gains in employment and economic output. Based on a growth decomposition from a Cobb–Douglas
production function and assuming all other factors of production remain unchanged, a 1-percentage-point increase
in female labor force participation rates could yield about 1 percentage point higher output per capita on average
in MENA (excluding the GCC) and about 0.4 percentage point higher in the GCC. Similarly, output per capita in
MENA (excluding the GCC) would be about 0.2 percentage point higher for every 1 percentage point reduction in
youth unemployment rates toward average levels seen in other parts of the world (see Online Annex 2).

10
See Bahrain Economic Vision 2030, Kuwait Vision 2035, Oman Vision 2040, Qatar National Vision 2030, Saudi Vision 2030, and UAE
Vision 2031.

October 2024 • INTERNATIONAL MONETARY FUND

26 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Figure 2.4. Labor Market: Selected Demographic Indicators

1. Female Labor Force Nonparticipation 2. Youth Inactivity Rate and the 3. Human Capital Index, 2020
Rate and Gender Gap Age Gap (Score)
(Percent, 2022) (Percent, 2022)
100 35 0.7
Female labor force Youth inactivity rate
nonparticipation rate Age gap
Gender gap 2005 level 30 0.6
80 2000 level
25 0.5

60 20 0.4

15 0.3
40

10 0.2
20
5 0.1

0 0 0
MENA GCC CCA ROW MENA GCC CCA ROW MENA GCC CCA ROW
excluding excluding excluding
GCC GCC GCC

Sources: International Labour Organization; World Bank, World Development Indicators; and IMF staff calculations.
Note: The gender gap is the difference in male and female labor force nonparticipation rates. The youth inactivity rate is defined as the share of
the population aged 15–24 years not in employment, education, or training. The age gap is the difference between the youth inactivity rate and
the unemployment rate for adults over 25 years. The Human Capital Index is an international metric that benchmarks key components of human
capital, including health and education, across countries. The index measures the level of human capital that a child could expect to attain by the
age of 18. The index ranges between 0 and 1, with 1 meaning the maximum possible level is reached. CCA = Caucasus and Central Asia; GCC =
Gulf Cooperation Council; MENA = Middle East and North Africa (including Pakistan); ROW = rest of the world.

Some economies also lag global averages in terms of human capital. On a positive note, in the CCA
and GCC regions, human capital development, which helps boost worker employability and adaptability,
has surpassed the global average. However, the MENA region (excluding the GCC) continues to lag the
average in the rest of the world, underscoring the importance of prioritizing investment in human capital
(Figure 2.4, panel 3).11

Making the Most of Demographic Changes

Looking forward, demographic shifts are poised to reshape workforce dynamics and influence the drivers of
employment growth. The United Nations predicts that, over the next five years, economies in the MENA and
CCA regions will benefit from a faster increase in the share of working-age people in their total populations,
also when compared to the rest of the world (Figure 2.5). To fully reap the benefits of these demographic
shifts, labor markets will need to become more flexible and capable of generating sufficient jobs to absorb the
influx of new workers (by improving labor force participation rates and the share of those employed). Further
ahead, especially in the latter half of the decade, as demographic conditions in MENA economies become
less favorable, especially in the GCC, it will become even more important to increase labor force participation
and reduce unemployment rates, particularly for women and the youth, to sustain growth in employment
per capita.

11
The gap in human capital is evident across various dimensions, including educational attainment, skill levels, and health outcomes. For
example, according to UN Educational, Scientific and Cultural Organization, the secondary school enrollment rate in the MENA region
was about 75 percent in 2020, below the global average of 84 percent.

INTERNATIONAL MONETARY FUND • October 2024

 2. Reversing the Trend: Enhancing Medium-Term Growth Prospects 27

Figure 2.5. Working-Age Population Shares: Actual and Projected Growth, 2020–34
(Average year-over-year percent change)

0.50

0.25

−0.25

−0.50
2020–23 24–28 29–34 2020–23 24–28 29–34 2020–23 24–28 29–34 2020–23 24–28 29–34
MENA excluding GCC GCC CCA Rest of the world

Sources: United Nations, World Population Prospects; and IMF staff calculations.
Note: Figures for the period 2020–23 are based on official statistics from national statistical offices (blue bars); figures for the periods 2024–28 and
2029–34 (yellow bars) are based on population projections provided by the United Nations. Countries are weighted by population. CCA =
Caucasus and Central Asia; GCC = Gulf Cooperation Council; MENA = Middle East and North Africa (including Pakistan).

2.4 Subdued Capital Deepening

The less significant contribution of capital deepening to growth in the MENA and CCA regions relative to the
rest of the world could be partly because of the sizable role that governments play in most financial sectors,
crowding out private sector investment (see Chapter 3). Although the average rates of investment and capital
accumulation have generally kept pace with global trends (except in the CCA), relatively strong employment
growth rates (despite high unemployment rates) have led to disappointing growth in capital−labor ratios, thus
limiting their contributions to labor productivity (Figure 2.6).

Significant Potential Growth Dividends

A higher level of capital per worker can boost labor productivity (output per worker). In this respect, a higher
capital−labor ratio is associated with higher real GDP per capita. Moreover, a 1 percent increase in capital per
worker is associated with roughly a two-thirds increase in output per capita on average in the MENA and CCA
regions, with countries that have relatively capital-intensive economies, such as hydrocarbon producers in the
GCC and Kazakhstan, seeing larger gains in output (Figure 2.7).

Economies in the MENA and CCA regions would need to achieve an annual increase of about 2 percent in capital
deepening to close the gap in capital deepening observed since 1995 with the rest of the world. Assuming
that all other factors of production remain unchanged, achieving this could yield an estimated annual increase
in GDP per capita of more than 1.3 percentage points. However, the expected benefits vary by region, with
GCC countries potentially seeing a 1.5-percentage-point increase, MENA countries (excluding the GCC) a
1.3-percentage-point increase, and CCA countries a 1.4-percentage-point increase (see Online Annex 2). To
close this gap, reforms that promote private investment and diversification are essential, including measures to
improve financial market functioning (see Chapter 3 for a more detailed analysis of the role of financial market
deepening in the MENA and CCA regions).

October 2024 • INTERNATIONAL MONETARY FUND

28 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Figure 2.6. Contributions to Capital Deepening, 1995–2023

(Average year-over-year percent change; contributions in percentage points)

8 Capital Employment Capital deepening

−2

−4

−6

−8
1995– 2001– 08–19 20–23 1995– 2001– 08–19 20–23 1995– 2001– 08–19 20–23 1995– 2001– 08–19 20–23
2000 07 2000 07 2000 07 2000 07
MENA excluding GCC GCC CCA Rest of the world

Sources: IMF, World Economic Outlook database; and IMF staff calculations.
Note: Countries weighted using purchasing power in international dollar weights. Figures obtained through a decomposition exercise of capital
deepening, where capital deepening is defined as the amount of capital utilized per employed worker. CCA = Caucasus and Central Asia; GCC =
Gulf Cooperation Council; MENA = Middle East and North Africa (including Pakistan).

Figure 2.7. Capital—Labor Ratio and Real GDP per Capita, 2023
(Natural logs)

12
AEs, EMs, and LICs averages CCA GCC MENA excluding GCC
UAE
AEs KWT BHR
11
Log real GDP per capita

OMN SAU
KAZ

ARM
10
EGY
TUN EMs IRN
ALG
JOR
9 KGZ MAR
PAK
LICs DJI MRT

8
10 11 12 13 14
Log capital—labor ratio

Sources: IMF, World Economic Outlook database; and IMF staff calculations.
Note: Countries are weighted using purchasing power in international dollar weights. Data labels in the figure use International Organization for
Standardization (ISO) country codes. AEs = advanced economies; CCA = Caucasus and Central Asia; EMs = emerging markets; GCC = Gulf
Cooperation Council; LICs = low-income countries; MENA = Middle East and North Africa (including Pakistan).

INTERNATIONAL MONETARY FUND • October 2024

 2. Reversing the Trend: Enhancing Medium-Term Growth Prospects 29

2.5 Lackluster Total Factor Productivity Growth

As shown, weak TFP growth is a significant concern for many economies in the MENA and CCA regions. This
section explores key factors that have been particularly relevant for TFP growth in these regions.12 The historical
analysis spans 2000–23 and includes 18 economies from the MENA and CCA regions (reflecting data availability).

The following factors are identified as structural drivers of TFP growth:

ƒ Macroeconomic stability. This factor is captured in the analysis by the standard deviations in inflation and real
GDP growth from their long-term averages (Fischer 1993; Barro 1995; Ramey and Ramey 1995).
ƒ Trade complexity. Trade complexity is measured by the diversity and sophistication of exports (Grossman and
Helpman 1991; Hausmann, Hwang, and Rodrik 2007).
ƒ Capital account openness. The analysis uses the ratio of net FDI inflows to GDP to measure capital account
openness. The measure evaluates the extent to which a country allows or attracts cross-border capital flows
(Borensztein, De Gregorio, and Lee 1998; IMF 2018).
ƒ Digitalization. Digitalization is measured using fixed broadband subscriptions and the ratio of high-­technology
exports to total manufactured exports. These indicators measure the extent of digital infrastructure and
access (Brynjolfsson and Hitt 2000; Abidi, El Herradi, and Sakha 2022; Dabla-Norris and others 2023).
ƒ Labor and inclusion. This factor is measured using the female labor force participation rate, which captures
labor quantity and market reforms aimed at promoting inclusiveness (McGuckin and van Ark 2005; Klasen and
Lamanna 2009).
ƒ Institutional quality. This measure captures the quality of institutions and regulatory frameworks, reflecting
governance and the rule of law (Hall and Jones 1999; Acemoglu, Johnson, and Robinson 2004; Acemoglu and
Robinson 2015).
ƒ Financial integration. This driver is measured by a financial market and institutions index, credits to the private
sector, market capitalization, and rating of credit market regulations. It evaluates the development of financial
markets and institutions (Levine 2005; Lane and Milesi-Ferretti 2017).
ƒ State footprint. The analysis uses several indicators to measure state footprint, including a government effec-
tiveness index, share of banking assets held by stated-owned enterprises, government consumption, rating of
property rights protection, and rating of fiscal transfers. This driver measures the extent and effectiveness of
government intervention (Barro 1991; Ghali 1999; Dar and Khalkhali 2002; Loko and Diouf 2009).

In the analysis, improvements to digitalization, macroeconomic stability, and trade complexity, and reductions
to the state footprint stand out as strongly associated historically with higher TFP growth for MENA and CCA
economies. Digitalization appears to have the strongest positive effect on TFP growth (Figure 2.8, panel 1). On
average, countries with relatively high levels of digitalization experience TFP growth that is about 1.8 percentage
points higher than those with lower levels. Yet, other factors are also important. Improved macroeconomic
stability is associated with about 1.4 percentage points higher TFP growth. Moreover, countries that moved from
low to high levels of trade complexity typically saw an increase in TFP growth of about 0.9 percentage point. In
contrast, a larger state footprint was found to negatively impact TFP growth by more than 2 percentage points.13

12
Variables underlying the factors (which are the first principal components of the related variables in a category) were selected based
on data availability and their statistical distribution and correlation with TFP growth, helping to ensure their relevance and robustness.
Each factor is then transformed into a high/low indicator (above or below the sample median). In the regression analysis, the estimated
effect of a factor represents the TFP growth impact of moving from the low to the high group. See the Online Annex 2 for further details.
While other categories, such as human capital quality and trade openness, are often cited in the literature, they are not the focus of
this analysis.
13
Although our analysis indicates a negative impact for the MENA and CCA regions, some studies suggest that a larger state footprint
could positively affect productivity growth by fostering legal institutions, infrastructure, and market corrections (Ghali 1999). In contrast,
other regional empirical evidence suggest that a larger government is not conducive to higher productivity growth or better economic
performance (Loko and Diouf 2009; see also Barro (1991) and Dar and Khalkhali (2002)). Therefore, the results should be interpreted
with caution as they depend on public sector efficiency, which could vary significantly by sample and subregion.

October 2024 • INTERNATIONAL MONETARY FUND

30 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Figure 2.8. Drivers of TFP Growth, 2000–23

1. Estimated Marginal Impact 2. Share of Total Variation in TFP Explained

(Percentage points) (Percent contribution to total variation in TFP)

Digitalization 10.5 Digitalization 1.75

Macroeconomic Macroeconomic
11.0 1.37
stability stability

Trade Trade
7.6 0.94
complexity complexity

Institutional Institutional
6.8 0.90
quality quality

Capital account Capital account

7.1 0.85
openness openness

State footprint 7.6 State footprint −2.23

0 2 4 6 8 10 12 −3 −2 −1 0 1 2

Source: IMF staff calculations.

Note: The bars in panel 1 represent the estimated beta coefficients of the drivers (βi). All estimates are significant at the 10 percent level. The bars
in panel 2 show the contribution of each explanatory variable in percentage terms (following the methodology of Sterck (2019) based on data
dispersion measured by mean absolute deviation). The contributions of the six key drivers listed do not add up to 100 percent in the chart, as
contributions from insignificant explanatory variables (labor and inclusion; financial integration) and the residual term are not shown for brevity.
See the Online Annex 2 for full results. TFP = total factor productivity.

Accounting also for the size of the variation in the underlying factors over the sample suggests that changes to
macroeconomic stability and digitalization were, on average, the largest overall contributors to the variability
of TFP growth. Notably, the average absolute deviation of macroeconomic stability is more than twice that of
the state footprint for the MENA and CCA regions. As a result, macroeconomic stability accounts for a greater
proportion of the total variation in realized TFP growth, despite its smaller estimated marginal effect. A similar
finding applies to digitalization. In fact, each factor accounts for roughly 11 percent of the total variation in TFP
growth. Moreover, the positive effects of improved trade complexity and the negative impact from an increase
in the state footprint are also notable, with each contributing nearly 8 percent to the total variation in TFP growth
observed in the estimation sample (Figure 2.8, panel 2).

However, the key factors contributing to variations in TFP growth have varied markedly across the MENA and
the CCA regions, although macroeconomic stability and digitalization stand out as significant factors for both.
For the MENA region (excluding the GCC), macroeconomic stability and digitalization contributed 11 and
9 percent, respectively, to the variation in TFP growth. At the same time, the contribution of changes to the state
footprint was less than 6 percent. In contrast, for the GCC, the importance of the state footprint and digitalization
stood out, contributing 13 and 11 percent, respectively.14 In the CCA region, digitalization contributed about
14 percent to the variation of TFP growth, and macroeconomic stability contributed about 11 percent, with the
importance of changes to the state footprint somewhat smaller, contributing about 4 percent (Figure 2.9). These
findings underscore the critical role of digitalization and macroeconomic stability in explaining the variation
in TFP growth across these regions, while also highlighting the significant impact of the state footprint on TFP
growth variability.

14
The large contribution of the state footprint is driven by heterogeneity across GCC economies.

INTERNATIONAL MONETARY FUND • October 2024

 2. Reversing the Trend: Enhancing Medium-Term Growth Prospects 31

Figure 2.9. Total Factor Productivity: Share of Total Variation in TFP Growth Explained by Region, 2000–23
(Percent contribution to total variation in TFP growth)

CCA GCC MENA excluding GCC MENA and CCA

Digitalization

Macroeconomic
stability

Trade
complexity

Institutional
quality

Capital account
openness

State footprint

0 2 4 6 8 10 12 14 16

Source: IMF staff calculations.

Note: The bars represent the relative contributions of the drivers to the mean absolute variation of TFP growth within each subregion,
following the methodology of Sterck (2019). The contributions of the six key drivers listed do not add up to 100 percent in the chart, as
contributions from insignificant explanatory variables (labor and inclusion; financial integration) and the residual term are not shown for
brevity. See Online Annex 2 for full results. CCA = Caucasus and Central Asia; GCC = Gulf Cooperation Council; MENA = Middle East and
North Africa (including Pakistan).

2.6 Adverse Shocks Dampen Total Factor Productivity Growth

Beyond the structural factors that have influenced TFP growth, the MENA and CCA regions have also been
more affected by frequent adverse shocks stemming from conflict and climate change. Since the early 1990s,
MENA and CCA economies have seen a greater incidence of high-intensity violent conflicts than elsewhere, with
profound and enduring impacts on economic output (Chapter 2 of the April 2024 Regional Economic Outlook:
Middle East and Central Asia). Moreover, these regions have also suffered from numerous severe climate-related
disasters (such as heat waves, droughts, and floods), as the negative economic effects from climate change are
becoming more evident (Chapter 1; Acevedo and others 2020).

An analysis using local linear projections demonstrates that conflicts have large and long-lasting negative
impacts on productivity for the average economy in the MENA region, with the level of TFP nearly 10 percent
lower for five years after a severe conflict shock (Figure 2.10, panel 1).15 This evidence suggests that the negative
and long-lived effects of high-intensity conflicts on economic output may be largely attributable to their cumu-
lative negative impact on TFP. Similarly, the material damages arising from extreme climate events have, on
average, been associated with persistently worse productivity outcomes for the average economy in the MENA
region, with the level of TFP about 0.5 percent lower five years after a climate shock that caused damages of
about 1 percent of GDP (Figure 2.10, panel 2).16 These findings point to the profound economic challenges for the
MENA region posed by conflicts and climate change.

15
Owing to data coverage limitations, the empirical analysis of climate and conflict shock impacts on TFP does not include CCA economies.
16
Material damages are defined as the US dollar amount as a share of nominal GDP and comprise damages from climate-related disasters
as defined by the EM-DAT database

October 2024 • INTERNATIONAL MONETARY FUND

32 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Figure 2.10. Total Factor Productivity: Impacts of Conflict and Climate Shocks

1. Conflict Shock 2. Climate Shock

(Percent difference relative to baseline) (Percent difference relative to baseline)
5 0.4

0.2
0
0
−5
−0.2

−10 −0.4

−0.6
−15
−0.8
MENA MENA
−20
ROW ROW −1.0

−25 −1.2
0 1 2 3 4 5 0 1 2 3 4 5

Source: IMF staff calculations.

Note: Dynamic responses estimated using local linear projections. Bands show the 90 percent confidence interval around the point estimates. The
shocks occur in year 1. The conflict shock is equivalent to the occurrence of a severe conflict in the country (at the 75th percentile of the world
distribution of conflict intensities). The climate shock is equivalent to 1 percent of GDP loss because of material damages arising from extreme
climate events. MENA = Middle East and North Africa (including Pakistan); ROW = rest of the world.

2.7 Fostering Stronger and More Sustainable Growth

Similar to global trends, growth expectations and outturns for countries in the MENA and CCA regions have
been declining over the recent decades. Moreover, while changes to demographic factors have been relatively
more favorable than in the rest of the world, capital accumulation has been subdued, while contributions from
TFP have varied markedly. To change the trend and lift economic growth, policymakers in the MENA and CCA
regions should aim to leverage changing demographics to support job creation, raise the level of capital per
worker, and undertake reforms to boost TFP growth. That said, the appropriate mix of policies would require
careful calibration to country-specific circumstances amid differences in the factors that most constrain growth.

Given the gaps identified in this chapter, policies to boost employment and labor productivity are likely to be key
and should target multiple dimensions:

ƒ Improving female employment. Female labor force participation rates can be increased by enhancing the
quality of education and training programs for women, ensuring access to childcare, and creating supportive
institutions (Olivetti and Petrongolo 2017). Importantly, these will need to be complemented with measures
to level the playing field, such as policies aimed to improve job opportunities for women (Klasen and
Lamanna 2009), including incentives to hire and retain female workers, encourage part-time work (Goldin 2014),
and active labor market measures targeting women. Additional policies could include tax incentives and
subsidies to businesses that hire and retain female employees, especially in sectors where women are under-
represented, and implementing training and apprenticeship programs in collaboration with industries can
help match women’s skills with market demands (Gomes and Rijal 2024).
ƒ Increasing youth engagement. Enhancing education and skill development to align more closely with the
needs of the labor market is essential to get more young people into the workforce (Hanushek and Woessmann
2020). This could include partnerships with the private sector and on-the-job training. Improving access to
finance for young entrepreneurs and supporting business incubators and accelerators that focus on entrepre-
neurship could also increase youth engagement (Beck and Demirguc-Kunt 2006; World Bank 2021).

INTERNATIONAL MONETARY FUND • October 2024

 2. Reversing the Trend: Enhancing Medium-Term Growth Prospects 33

ƒ Investing in education. Policy should focus on improving educational outcomes, particularly in the fields of
science, technology, and engineering and mathematics, while ensuring that skills taught match the future
demands of the labor market (Hanushek and Woessmann 2015). Vocational training would also be key to
better match skills to job requirements.

In addition, raising the ratio of capital to labor to at least the levels seen elsewhere will be needed to strengthen
and sustain growth. This will require implementing reforms designed to reduce the role of the state in financial
sectors and boost private investment. In this respect, enhancing the development of the financial sector would
help expand access to finance and encourage investment by the private sector (see Chapter 3).

Lifting TFP growth can also play a key role. The historical analysis suggests that policies across multiple
dimensions have helped lift TFP growth in the region, with countries benefiting most from strengthening macro-
economic stability, improving digitalization, and reducing the state footprint.17 These are likely to remain key
drivers of TFP growth. However, it is important to note that other factors that were not explored in the analysis
could also boost TFP growth. Some of these, such as the adoption and automation of artificial intelligence,
are without historical precedent. For example, artificial intelligence is expanding the set of tasks that can be
automated, thereby raising labor productivity. Although the productivity gains from artificial intelligence have
not been studied extensively, their potential for future gains could be considerable (OECD 2022). Furthermore,
despite the well-established benefits of research and development in fostering innovation, the MENA and CCA
regions lag in such activities, with research and development expenditure as a share of GDP below 2 percent on
average, compared to about 3 percent in advanced economies. This indicates that there are likely opportunities
for increasing research and development, which could in turn boost TFP.

Finally, analysis points to large negative impacts on TFP growth in the MENA region from conflict and climate
shocks—both highly relevant challenges. Policies that strengthen macroeconomic fundamentals are vital for
limiting the economic impacts of conflict, while climate change preparedness can be enhanced through adap-
tation and mitigation efforts (see Chapter 1).

References
Abidi, Nordine, Mehdi El Herradi, and Sahra Sakha. 2022. “Digitalization and Resilience: Firm-level
Evidence during the COVID-19 Pandemic.” IMF Working Paper 2022/034, International Monetary Fund,
Washington, DC.

Acemoglu, Daron, Simon Johnson, and James A. Robinson. 2004. “Institutions as the Fundamental Cause of
Long-Run Growth.” In Handbook of Economic Growth, edited by Philippe Aghion and Steven N. Durlauf.
Providence, Rhode Island: Brown University.

Acemoglu, Daron, and James A. Robinson. 2015. “The Rise and Decline of General Laws of Capitalism.” Journal
of Economic Perspectives 29 (1): 3–28.

Acevedo, Sebastian, Mico Mrkaic, Natalija Novta, Evgenia Pugacheva, and Petia Topalova. 2020. “The Effects of
Weather Shocks on Economic Activity: What are the Channels of Impact?” Journal of Macroeconomics 65
(1): 103207.

Ball, Laurence. 2014. “Long-term Damage from the Great Recession in OECD Countries.” European Journal of
Economics and Economic Policies: Intervention 11 (2): 149–60.

17
Chapter 3 of the October 2023 Regional Economic Outlook: Middle East and Central Asia, Budina and others (2023), and Gigineishvili
and others (2023) also show that structural reforms are important to boost growth

October 2024 • INTERNATIONAL MONETARY FUND

34 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Barro, Robert J. 1991. “Economic Growth in a Cross Section of Countries.” The Quarterly Journal of
Economics 106 (2): 407–43.

Barro, Robert J. 1995. “Inflation and Economic Growth.” Bank of England Quarterly Bulletin 35: 166–76.

Beck, Thorsten, and Asli Demirguc-Kunt. 2006. “Small and Medium-Size Enterprises: Access to Finance as a
Growth Constraint.” Journal of Banking and Finance 30 (11): 2931–43.

Borensztein, Eduardo, Jose De Gregorio, and Jong-Wha Lee. 1998. “How Does Foreign Direct Investment
Affect Economic Growth?” Journal of International Economics 45 (1): 115–35.

Brynjolfsson, Erik, and Lorin M. Hitt. 2000. “Beyond Computation: Information Technology, Organizational
Transformation and Business Performance.” Journal of Economic Perspectives 14 (4): 23–48.

Budina, Nina, Christian H. Ebeke, Florence Jaumotte, Andrea Medici, Augustus J. Panton, Marina Mendes
Tavares, and Bella Yao. 2023. “Structural Reforms to Accelerate Growth, Ease Policy Trade-offs, and
Support the Green Transition in Emerging Market and Developing Economies.” IMF Departmental Paper
2023/07, International Monetary Fund, Washington, DC.

Dabla-Norris, Era, Tidiane Kinda, Kaustubh Chahande, Hua Chai, Yadian Chen, Alessia De Stefani, Yosuke
Kido, and others. 2023. “Accelerating Innovation and Digitalization in Asia to Boost Productivity.” IMF
Departmental Paper 2023/001, International Monetary Fund, Washington, DC.

Dar, Atul A., and Sal Amir Khalkhali. 2002. “Government Size, Factor Accumulation, and Economic Growth:
Evidence from OECD Countries.” Journal of Policy Modeling 24 (7–8): 679–92.

Fernald, John G. 2015. “Productivity and Potential Output Before, During, and After the Great Recession.”
NBER Macroeconomics Annual 29 (1): 1–51. National Bureau of Economic Research.

Fischer, Stanley. 1993. “The Role of Macroeconomic Factors in Growth.” Journal of Monetary Economics 32 (3):
485–512.

Ghali, Khalifa H. 1999. “Government Size and Economic Growth: Evidence from a Multivariate Cointegration
Analysis.” Applied Economics 31 (8): 975–87.

Gigineishvili, Nikoloz, Iulia Ruxandra Teodoru, Narek Karapetyan, Yulia Ustyugova, Jean van Houtte, Jiri
Jonas, Wei Shi, and others. 2023. “Paving the Way to More Resilient, Inclusive, and Greener Economies
in the Caucasus and Central Asia.” IMF Departmental Paper 2023/004, International Monetary Fund,
Washington, DC.

Goldin, Claudia. 2014. “A Grand Gender Convergence: Its Last Chapter.” American Economic Review 104 (4):
1091–119.

Gomes, Diego, and Dharana Rijal. 2024. “Global Employment Gender Gaps.” Gender Note 24/07, International
Monetary Fund, Washington, DC.

Grossman, Gene M., and Elhanan Helpman. 1991. Innovation and Growth in the Global Economy. Cambridge,
MA: MIT Press.

Hall, Robert E., and Charles I. Jones. 1999. “Why Do Some Countries Produce So Much More Output per
Worker than Others?” The Quarterly Journal of Economics 114 (1): 83–116.

Hanushek, Eric A., and Ludger Woessmann. 2015. The Knowledge Capital of Nations: Education and the
Economics of Growth. Cambridge, MA: MIT Press.

INTERNATIONAL MONETARY FUND • October 2024

 2. Reversing the Trend: Enhancing Medium-Term Growth Prospects 35

Hanushek, Eric A., and Ludger Woessmann. 2020. “The Economic Impacts of Learning Losses.” OECD
Education Working Paper No. 225. Paris.

Hausmann, Ricardo, Jason Hwang, and Dani Rodrik. 2007. “What You Export Matters.” Journal of Economic
Growth 12: 1–25.

International Labour Organization (ILO). 2015. Global Employment Trends for Youth 2015: Scaling up
Investments in Decent Jobs for Youth. Geneva, Switzerland: International Labour Office.

International Monetary Fund (IMF). 2015. “Where Are We Headed? Perspectives on Potential Output.” In World
Economic Outlook. Washington, DC: International Monetary Fund. IMF World Economic Outlook.

International Monetary Fund (IMF). 2018. The IMF’s Institutional View on Capital Flows in Practice. International
Monetary Fund: Washington, DC.

Klasen, Stephan, and Francesca Lamanna. 2009. “The Impact of Gender Inequality in Education and
Employment on Economic Growth: New Evidence for a Panel of Countries.” Feminist Economics 15 (3):
91–132.

Lane, Philip R., and Gian M. Milesi-Ferretti. 2017. “International Financial Integration in the Aftermath of the
Global Financial Crisis.” IMF Working Paper 17/115, International Monetary Fund, Washington, DC.

Levine, Ross. 2005. “Finance and Growth: Theory and Evidence.” In Handbook of Economic Growth, edited by
Philippe Aghion and Steven N. Durlauf. Providence, Rhode Island: Brown University.

Loko, Boileau, and Mame Astou Diouf. 2009. “Revisiting the Determinants of Productivity Growth: What’s
New?” IMF Working Paper 09/225, International Monetary Fund, Washington, DC.

McGuckin, Robert, and Bart van Ark. 2005. “Productivity and Participation: An International Comparison.”
GGDC Research Memorandum 200578, Groningen Growth and Development Centre, University
of Groningen.

Olivetti, Claudia, and Barbara Petrongolo. 2017. “The Economic Consequences of Family Policies: Lessons from
a Century of Legislation in High-Income Countries.” Journal of Economic Perspectives 31 (1): 205–30.

Organisation for Economic Co-operation and Development (OECD). 2022. Identifying the Main Drivers of
Productivity Growth: A Literature Review. Paris: OECD.

Ramey, Garey, and Valerie A. Ramey. 1995. “Cross-Country Evidence on the Link Between Volatility and
Growth.” American Economic Review 85 (5): 1138–51.

Sterck, Olivier. 2019. “Beyond the Stars: Measuring Economic Importance in Regression Analysis.” Journal of
Economic Surveys 33 (5): 1409–36.

World Bank. 2021. Global Productivity: Trends, Drivers, and Policies. Washington, DC: World Bank.

October 2024 • INTERNATIONAL MONETARY FUND

36 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

3. Strengthening Growth through

Financial Development1
Countries in the MENA and CCA regions face the pressing yet challenging task of fostering private sector
investment and diversification to strengthen and sustain growth. To this effect, diversifying economies and
achieving economic transformation will require robust and dynamic financial sectors to ensure the avail-
ability of adequate funding for the private sector. However, financial development remains incomplete in
many of these countries. Notably, in countries outside the Gulf Cooperation Council (GCC), financial markets
are underdeveloped, and financial development has been hindered by a history of monetary instability and
long-standing weaknesses in legal frameworks. Among GCC member economies, financial market efficiency
has declined over the past decade. Across most countries in the MENA and CCA regions, the sizable role
that governments play in the financial sector stands out as a key barrier to financial development, because of
the prevalence of state-owned banks and the growing share of credit used to finance public sector debt. In
this respect, reforms to facilitate competition in banking systems by reducing the role of the state, lowering
barriers to entry, and relaxing capital account restrictions are estimated to raise real private sector credit
by more than 5 percent and real GDP per capita by almost 2 percent after five years. In addition, reforms
should seek to expand the role of financial markets by encouraging stronger participation of institutional
investors, establishing robust government bond markets, and increasing financial integration by fostering
nonresident participation. More broadly, strengthening macroeconomic and institutional frameworks is an
essential precondition for advancing financial development and growth, and financial sector policies should
aim to expand financing channels available to the private sector.

3.1 Financial Development Remains Incomplete

Over the past two decades, countries in the MENA and CCA regions have seen improvements in financial devel-
opment.2 These improvements have gone hand in hand with economic development and have played a crucial
role in enhancing inclusive growth (Box 3.1). During the 1990s, there was a notable increase in the pace of
financial reforms, broadly in line with progress seen in large emerging markets elsewhere (Figure 3.1, panel 1).
However, progress on financial development has varied across regions, with the CCA seeing modest gains while
MENA stagnated, particularly in the wake of the global financial crisis and Arab uprisings (Figure 3.1, panel 2).3
Moreover, the pace of reform has slowed, and there remains room for improvement, including in liberalizing
interest rates (Egypt, Morocco, Oman, Pakistan), expanding private sector ownership in the banking sector
(Algeria, Egypt, GCC countries, Morocco, Tunisia), and developing capital markets.4

1
This chapter was prepared by Will Abel, Apostolos Apostolou, Vizhdan Boranova, Seyed Vahid Hassani, Troy Matheson (co-lead), Hela
Mrabet, Salem Nechi, Thomas Piontek (co-lead), Bilal Tabti, and Subi Suvetha Velkumar.
2
For presentational purposes, references to the Middle East and North Africa (MENA) in the main text also include Pakistan.
3
Details on the IMF’s financial development indexes used in this chapter can be found at https://data.imf.org/?sk=f8032e80-b36c-
43b1-ac26-493c5b1cd33b. Each country’s overall financial development index comprises indexes relating to financial institutions and
financial markets. Financial institutions include banks, insurance companies, pension funds, mutual funds, and other nonbank financial
institutions. Financial markets include stock and bond markets. Each subcomponent is composed of three sub-indexes covering depth,
access, and efficiency of institutions and markets.
4
Based on Omori (2022), the updated database covers seven dimensions of financial reforms: credit controls and reserve requirements,
interest rate liberalization, banking sector entry, privatization of banks, financial account liberalization, security markets, and banking
sector supervision.

INTERNATIONAL MONETARY FUND • October 2024

 3. Strengthening Growth through Financial Development 37

Figure 3.1. MENA and CCA: Financial Reforms and Development

1. Financial Reforms Index 2. Financial Development Index

(Index level, 0–1) (Index level, simple averages)
CCA 1.0 1.0 MENA and Pakistan excluding GCC BRICS
MENA and Pakistan 0.9 0.9 GCC CCA
G7 G7
BRICS 0.8 0.8
0.7 0.7
0.6 0.6
0.5 0.5
0.4 0.4
0.3 0.3
0.2 0.2
0.1 0.1
0 0
1973 77 81 85 89 93 97 2001 05 09 13 1998 2002 06 10 14 18 21

Sources: Financial Reforms Database (Omori 2022); IMF, Financial Development Index; and IMF staff calculations.
Note: For panel 1, only two GCC countries (Saudi Arabia, United Arab Emirates) are covered in the Financial Reforms Database and included in
the MENA and Pakistan aggregate. BRICS = Brazil, Russia, India, China, South Africa; CCA = Caucasus and Central Asia; G7 = Group of Seven;
GCC = Gulf Cooperation Council; MENA = Middle East and North Africa.

Looking across the MENA and CCA regions, key features that stand out are the strong presence of the state in
banking systems and shallower capital markets compared to other parts of the world.5 The MENA region also
exhibits a strong sovereign-bank and sovereign-capital markets nexus, where the public sector accounts for a
relatively large share of banking sector credit, which may crowd out lending to the private sector. State-owned
enterprises also account for a sizable share of market capitalization and trading in capital markets. These features
partly explain the regions’ relatively high scores in the efficiency of their financial institutions and low scores in
capital markets (Figure 3.2, panel 4). Notably, while high levels of bank profitability contribute to the strong
efficiency scores for financial institutions, this could be partly because of higher lending spreads reflecting low
levels of competition across the MENA and CCA regions (Figure 3.2, panel 1). In addition, low liquidity in debt
and equity markets is likely because of a lack of listing diversification and underdeveloped institutional investors.
These factors have limited participation to a concentrated set of investors.6

Some aspects of financial development show more heterogeneity across regions:

ƒ Financial development in GCC countries compares favorably to most other countries in the MENA and
CCA regions. However, when compared to economies with similar GDP per capita levels elsewhere in the
world, GCC countries often lag, especially in financial institution development (Figure 3.2, panels 2 and 3).
Moreover, although GCC countries exhibit strong financial market depth and access on average, their market
efficiency has declined over the past decade as lower stock market turnover and elevated bid-ask spreads
have hampered secondary equity market trading in some countries (Figure 3.2, panel 4). This lower market

5
State-owned banks are particularly prevalent in MENA. State ownership is defined as a majority share (more than 50 percent) of assets held
by shareholders classified as “government, including government agencies, municipalities, and Sovereign Wealth Funds” as documented
by Fitch Ratings Pro dataset. Although banks owned by Sovereign Wealth Funds, particularly in the GCC, might operate with greater
market-oriented principles and are subject to less political interference than those directly controlled by the central government, “the
very nature of ownership structure differentiates these institutions from private companies, as they may not necessarily pursue the goal
of profit maximization while the backing from government may give a unique position in the market” as noted in Box 3 of IMF (2024).
6
For financial institutions, the depth indicators include the size of private sector credit, pension, and mutual fund assets in relation to GDP
and life and nonlife insurance premiums in relation to GDP; access includes bank branches and ATMs per 1,000 adults; and efficiency
includes net interest margin, spread between lending and deposit rates, non-interest income in relation to total income, overhead
costs to total assets, and measures of profitability (return on assets and return on equity). For financial markets, the depth indicators
include the size of the stock market, the volume of stocks traded, the size of international debt securities of government, financial, and
nonfinancial corporations relative to GDP, access includes percent of market capitalization outside of 10 largest companies, and total
number of debt issuers; and efficiency includes stock market turnover (stocks traded to capitalization).

October 2024 • INTERNATIONAL MONETARY FUND

38 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Figure 3.2. Banking Sector Structure and Financial Development

1. Banks’ State Ownership Prevalence, Sovereign-Bank Nexus, and Profitability

(Percent; medians; 2022)
70 MENA and Pakistan excluding GCC 21
GCC
60 CCA 18

50 G7
15
BRICS
40 12

30 9
20 6
10 3
0 0
State-owned bank prevalence Sovereign bank nexus (right scale) Lending-deposit rate spread (right scale)

2. Financial Development and GDP per Capita, 2021 3. Financial Institutions and Markets Development, 2021
(Index, 0–1, and ratio) (Index, 0–1)
1.0 G7 GCC BRICS G7 GCC BRICS 1.0
MENA and Pakistan excluding GCC MENA and Pakistan excluding GCC
Financial development index

CCA LICs and FCS CCA LICs and FCS

Financial markets index

0.8 G7 0.8
G7
UAE QAT
0.6 BRICS IRN 0.6
BHR UAE QAT BHR
JOR OMN SAU BRICS
MAR
0.4 EGY GEO SAU OMN IRN 0.4
UZB KWT MAR
PAK AZE KAZ EGY KWT
DJI
0.2 LBN ARM AZE JOR 0.2
YEM KGZ PAK
TJK TUN LBY TJK KGZ TUN KAZ
ARM UZB GEO
0 SDN MRT ALG TKM TKM ALG
0
3.0 3.5 4.0 4.5 5.0 5.5 0 0.2 0.4 0.6 0.8 1.0
Log of GDP per capita (PPP, constant prices) Financial institutions index

4. Financial Institutions and Markets Development by Region

(Index, 0–1)
1.0 2021 2001 BRICS 2021 G7 2021

0.8

0.6

0.4

0.2

0
GCC

MENA and PAK

excluding GCC

CCA

GCC

MENA and PAK

excluding GCC

CCA

GCC

MENA and PAK

excluding GCC

CCA

GCC

MENA and PAK

excluding GCC

CCA

GCC

MENA and PAK

excluding GCC

CCA

GCC

MENA and PAK

excluding GCC

CCA

Depth Access Institutions Efficiency Depth Access Markets Efficiency

Sources: Fitch Connect; IMF, Financial Development Index; IMF, World Economic Outlook database; World Bank, World Development Indicators;
and IMF staff calculations.
Note: For panels 1 and 4, CCA and MENA (excluding GCC) include LICs and FCS. State-owned banks’ prevalence is defined as assets held by
state-owned banks as a share of total banking assets. Sovereign-bank nexus is defined as credit to the public sector (central and local
governments as well as state-owned enterprises; claims on the central bank are excluded) as a share of total banking assets. The lending-deposit
rate spread, used as a proxy for bank profitability, is defined as the five-year average spread between lending and deposit interest rates; for the
G7, it is proxied as the spread between short-term interest rates and long-term bond yields. Data labels in the figure use International
Organization for Standardization (ISO) country codes. BRICS = Brazil, Russia, India, China, South Africa; CCA = Caucasus and Central Asia; FCS =
fragile and conflict-affected states; G7 = Group of Seven; GCC = Gulf Cooperation Council; LICs = low-income countries; MENA = Middle East
and North Africa; PPP = purchasing power parity.

INTERNATIONAL MONETARY FUND • October 2024

 3. Strengthening Growth through Financial Development 39

efficiency, coupled with slower progress on measures of financial institutions access, has driven a stagna-
tion in financial development in GCC countries since the global financial crisis. Nevertheless, although not
measured directly in the financial access indicators, technological advancements, including mobile payments,
crowdfunding platforms, and fintech, have opened new avenues for lending and saving and boosted financial
inclusion in GCC countries, particularly for women and youth.7
ƒ In non-GCC MENA countries, financial systems remain heavily reliant on banks. Overall, the development
of financial institutions in these countries is significantly ahead of market development, yet it remains below
levels in large global emerging markets (Figure 3.2, panel 3). This aligns with the observation that relation-
ship-based systems (that is, via financial intermediation through banks) tend to be more prevalent in the early
stages of financial development.8 Furthermore, the depth of financial institutions in non-GCC MENA countries
is relatively low, with nonbank financial institutions (pension funds, insurance companies, and mutual funds)
playing a relatively small role in the region’s financial systems (Figure 3.2, panel 4).
ƒ Banking sectors in CCA countries generally exhibit a lower prevalence of state ownership, though the state’s
influence appears to extend beyond the direct ownership of banks.9 Moreover, bank profitability is generally
higher (Figure 3.2, panel 1), and recently it has been supported by strong capital inflows from Russia.10
Overall, the levels of financial institution development are much higher than levels of financial market devel-
opment across all CCA countries, consistent with their financial systems being largely dominated by banks
(Figure 3.2, panel 3). Furthermore, over the past two decades there has been a modest yet steady improve-
ment in financial institution development, marked by the improved availability of banking services (Figure 3.2,
panel 4). Although not directly reflected by the indicators discussed here, it is important to note that the CCA
region also has relatively high levels of dollarization, which is likely holding back financial development (Chakir
and others 2022).

3.2 Key Structural Factors Weigh on Financial Development

A few key barriers help explain the gaps in financial development across countries in the MENA and CCA regions
over the past two decades. Past research and empirical evidence suggest that although certain factors such as
macroeconomic stability and effective governance can support financial development, others, including a rela-
tively large state footprint in the financial sector and heavy reliance on commodities, can hinder progress.11 To
this effect, many countries in the MENA and CCA regions fall short along one or more dimensions that facilitate
financial development (Table 3.1).

ƒ Across non-GCC MENA and CCA countries, a history of monetary instability, a marked state involvement
in banking sectors, and relatively weak legal systems have been key obstacles to financial development.
Moreover, the lack of robust property and creditor rights limits competition, curbs investor interest, and
increases financing costs (Teodoru and Akepanidtaworn 2022; Gigineishvili and others 2023). At the same

7
The recent expansion of fintech and mobile banking operators is changing the landscape of financial development (Sahay and others
2020). However, these are relatively new developments, and the absence of sufficiently long data and cross-country availability prevents
its inclusion in the financial development index (Svirydzenka 2016).
8
Bank-based systems can have a comparative advantage in reducing market friction associated with asymmetric information and immature
legal systems (Rajan and Zingales 2001).
9
For example, political influence on the behavior of private financial institutions could serve as an impediment to financial development
in the region. Poghosyan (2022) finds that reducing the role of the state in CCA financial systems could yield greater efficiency of
financial intermediation, which in turn would enhance financial development. Another aspect of the state footprint on the sector is the
prevalence of directed and subsidized lending, as noted in Box 1 of IMF (2023a).
10
See Chapter 3 of the October 2023 Regional Economic Outlook: Middle East and Central Asia.
11
For MENA countries, Farazi, Feyen, and Rocha (2013) find that state-owned banks have lower profitability and larger nonperforming
loans than private banks. Comparable results have been found for Pakistan (Bonaccorsi di Patti and Hardy 2005), Latin America (Micco,
Panizza, and Yanez 2007), China (Berger, Hasan, and Zhou 2009) and South and South-East Asia (Williams and Nguyen 2005; Micco,
Panizza, and Yanez 2007; Cornett and others 2010). See Online Annex 3 for a summary of the extensive literature related to financial
development.

October 2024 • INTERNATIONAL MONETARY FUND

40 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

Table 3.1. Key Factors Underpinning Financial Development

(Colors represent a combination of the extent of deviation from the full sample medians [white] and the sign of the impact
coefficient. Orange indicates a deviation from the sample median that is detrimental for financial development; teal shows
the opposite.)

Exposure of
Share of Credit Economy to Role of
Monetary to the Public Natural State-Owned
Groups Stability Rule of Law Sector Resources Banking

CCA
GCC

MENA excluding GCC

Advanced economy

Emerging market
Direction of significant
impact on financial + + − − −
development

Sources: Fraser Human Freedom Index; IMF, International Financial Statistics database; World Bank, Development Indicators; and IMF staff
calculations.
Note: The top five rows of the table show where regions stand along key factors affecting financial development. The bottom row shows the
direction of impact, where significant, on financial development for each factor estimated using a panel regression with data covering 21 MENA
and CCA countries and spanning 2004–21 (see Online Annex 3). CCA = Caucasus and Central Asia; GCC = Gulf Cooperation Council; MENA =
Middle East and North Africa.

time, banking systems in many non-GCC MENA countries have relatively high levels of exposure to sovereign
credit. This sovereign-bank nexus (where banks hold significant amounts of public sector debt) can crowd out
credit to the private sector.
ƒ In GCC countries, the public sector also strongly influences financial systems. A significant share of banking
sector assets tends to be comprised of sovereign debt, although public sector debt remains relatively low
in the region (except in Bahrain), and state-owned enterprises (including banks) generally have a significant
presence in capital markets. In addition, a sizable share of GDP reliant on the oil sector could also undermine
financial development in some countries, as profits are more likely to be invested abroad (Beck and Poelhekke
2023). Moreover, the heavy reliance on oil-related foreign exchange receipts could also increase liquidity
volatility and raise risks in domestic banking sectors.

Mobilizing broader sources of savings can help unlock more financing options for private sector investment
and further support financial development (Figure 3.3, panel 1). This requires emerging market economies
tackling key impediments to capital market development to transition from bank-dominated financial systems
toward more diversified financial systems. A critical step in this direction is establishing a local government bond
market that provides a risk-free asset and a corresponding risk-free rate (Chami, Fullenkamp, and Sharma 2010).
However, challenges such as irregular bond issuances, especially at longer maturities, the absence of secondary
market trading, and impediments to nonresident participation have hampered the development of both local
government and corporate bond markets in several MENA and CCA economies.12 Although Islamic finance is a
significant source of funding in some countries in the region, it is concentrated primarily in Islamic banking, with
the issuance of sukuk (Islamic bonds) occurring sporadically (Figure 3.3, panel 2). On the positive side, equity
financing has expanded over the past few years alongside growth in market capitalization and a pickup in initial

12
In addition, institutional investors like insurance companies and pension funds can also play an important role in providing financial
services for long-term savings and risk sharing and as steady investors in longer-term debt. Although assessing the involvement of
these investors in the region is challenging because of limited data, there is likely significant scope for fostering and expanding these
sectors (Poghosyan 2022).

INTERNATIONAL MONETARY FUND • October 2024

 3. Strengthening Growth through Financial Development 41

Figure 3.3. MENA and CCA: Private Savings, Islamic Debt, and Equity Markets

1. Gross Private Savings and Financial Development Index 2. Islamic Government Bonds
G7 GCC BRICS MENA and Pakistan (Outstanding amounts; percent of total)
CCA LICs and FCS excluding GCC Other countries GCC MENA and Pakistan excluding GCC
1.0
Financial development index (0-1)

G7
0.8

0.6 ARE QAT IRN 40.2

BRICS BHR
EGY AZE SAU 56.2 43.8
0.4 OMN
LBN UZB MAR KWT
JOR
TUN ARM TJK
0.2 PAK 3.6
SDN MRT DZA
YEM KAZ GEO
0
−10 0 10 20 30 40 50
Gross national private savings, percent of GDP

3. Market Capitalization and Turnover

(Percent of GDP; simple averages)
90
Market capitalization
80 Turnover ratio
70
60
50
40
30
20
10
0
2000 03 06 09 12 15 18 21 23

Sources: Bloomberg Finance L.P.; IMF, Financial Development Index; IMF, World Economic Outlook database; World Bank, World Development
Indicators; and IMF staff calculations.
Note: Panel 3 includes available data for MENA and CCA countries. BRICS = Brazil, Russia, India, China, South Africa; CCA = Caucasus and
Central Asia; FCS = fragile and conflict-affected states; G7 = Group of Seven; GCC = Gulf Cooperation Council; LICs = low-income countries;
MENA = Middle East and North Africa.

public offerings, primarily in GCC countries. That said, investor participation has been held back by persistently
low liquidity and trading, which has been focused primarily on shares of financial companies and state-owned
enterprises (Figure 3.3, panel 3).

3.3 Reforms Can Spur Financial Development and Growth

Financial development in most MENA and CCA countries has been limited by past monetary instability,
long-standing weaknesses in legal frameworks, and a large state footprint in financial sectors. Improving macro-
economic stability and the rule of law are well established as key priorities to increase growth for MENA and
CCA countries (see Chapter 2 and October 2023 Regional Economic Outlook: Middle East and Central Asia).
Empirical estimates suggest that improving macroeconomic and legal frameworks are also critical preconditions
for advancing financial development, with gains potentially more pronounced in MENA and CCA countries than
elsewhere in the world (Figure 3.4). Moreover, such gains could be further amplified by the implementation of a
package of financial sector reforms aimed at alleviating other key hurdles to financial development.

October 2024 • INTERNATIONAL MONETARY FUND

42 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

The financial sector reforms examined in this

Figure 3.4. Impact of Rule of Law and Monetary
chapter are designed to reduce the state’s
Stability on Financial Development
(Panel coefficient estimates) dominance in the banking sector and encourage
new entrants to foster competition, alongside the
0.5
Standard deviations of financial development

Full sample removal of remaining capital account restrictions

MENA, Pakistan, CCA
to broaden the investor base.13 The results show
0.4 that these financial reforms are associated with a
lasting impact on both private sector credit and
0.3 output per capita in the MENA and CCA regions.
Specifically, real private sector credit increases by
0.2 more than 5 percent and GDP per capita increases
by about 2 percent five years after reform imple-
0.1
mentation (Figure 3.5).

Examining individual reforms across the MENA

0
Rule of law Monetary stability
and CCA regions, those aimed at reducing the
state footprint and fostering competition are
Sources: Economic Freedom Index; Fraser Institute; IMF, Financial
associated with the most significant positive
Development Index; and World Bank, World Governance Indicators.
Note: Variables are standardized prior to estimation. All coefficient impacts. Five years after implementation, these
estimates are statistically significant at the 1 percent level. Rule of law reforms boost real private sector credit by
is from the World Bank’s World Governance Indicators and measures
perceptions of an agent’s confidence in the rules of society. Monetary almost 10 percent and GDP per capita by close
stability is a combination of the Fraser Economic Freedom Indices to 3 percent (Figure 3.6). Lifting capital account
measuring the level and volatility of inflation. See more details in
Online Annex 3. CCA = Caucasus and Central Asia; MENA = Middle restrictions is also associated with notable
East and North Africa.

Figure 3.5. Impact of Financial Sector Reform Package

(Percent)

1. Real Private Sector Credit 2. Real GDP per Capita

20 4
MENA, Pakistan, CCA: 90 percent confidence interval MENA, Pakistan, CCA: 90 percent confidence interval
World: 90 percent confidence interval World: 90 percent confidence interval
15 MENA, Pakistan, CCA MENA, Pakistan, CCA
World World 3

10
2
5
1
0

0
−5

−10 −1
0 1 2 3 4 5 6 0 1 2 3 4 5 6
Years Years

Sources: Banking Crisis database (Laeven and Valencia 2020); Brookings, External Wealth of Nations database (Lane and Milesi-Ferretti 2018);
Financial Reforms Database (Omori 2022); IMF, International Financial Statistics database; IMF, World Economic Outlook database; and IMF staff
calculations.
Note: A local projections approach is used to assess the impact of financial reforms. It is assumed that a financial reform package is introduced in
year 1. This reform package is defined as the sum of financial sector policy changes between two years along the following dimensions:
(1) privatization of banks, (2) banking sector entry, and (3) financial account transactions, based on the Financial Reforms Database (see Online
Annex 3). CCA = Caucasus and Central Asia; MENA = Middle East and North Africa.

13
The empirical estimates are based on the local projection method developed by Jordà (2005) and a financial reform database updated
by Omori (2022). Capital account restrictions are prevalent in many countries in the MENA (outside the GCC) and CCA regions (see
IMF 2023b). Removing capital account restrictions would support the efficient allocation of capital and foster the entry of new market
players.

INTERNATIONAL MONETARY FUND • October 2024

 3. Strengthening Growth through Financial Development 43

gains, with real private sector credit rising by

Figure 3.6. Five-Year Impact of Specific Financial
almost 5 percent and GDP per capita by close to
Sector Reforms
½ percent. (Percent)

3.4 Policies to Foster Sustainable Lifting capital

Private sector
account restrictions
Financial Development

credit
and Growth Fostering
competition

Despite the expansion and diversification of

Lifting capital

GDP per capita

financial systems in MENA and the CCA, there account restrictions MENA, Pakistan, CCA
is still considerable scope for further improve- World
ment. A key policy objective should be to improve Fostering
access to financing, particularly for underserved competition
segments. Specific actions to enhance financial
0 2 4 6 8 10
development include the following:
Sources: Banking Crisis database (Laeven and Valencia 2020);
� Policymakers in the MENA and CCA regions Brookings, External Wealth of Nations database (Lane and
Milesi-Ferretti 2018); Financial Reforms Database (Omori 2022); IMF,
are advised to address vulnerabilities asso-
International Financial Statistics database; IMF, World Economic
ciated with the sovereign-bank nexus while Outlook database; and IMF staff calculations.
promoting higher private sector ownership in Note: “Lifting capital account restrictions” is proxied by the annual
change in the financial account transactions index, whereas “Fostering
banking systems. Short-term measures could competition” is captured by the sum of changes between two years in
include (1) conducting bank stress tests to the privatization and banking sector entry indices based on the
Financial Reforms Database (see Online Annex 3). The five-year
gauge nexus-related risks; (2) building buffers impact of financial sector reforms worldwide is statistically significant
and providing clear and well-defined mandates at the 10 percent level. For the MENA and CCA regions, the five-year
impact of the reform package and competition reforms is significant at
to state-owned banks; and (3) tailoring super- the 25 percent level. CCA = Caucasus and Central Asia; MENA =
visory tools such as stress tests to the specific Middle East and North Africa.

risk profiles of banks to enhance resilience. 14

Medium-term strategies should focus on

banking sector reforms that reduce barriers to entry, strengthen prudential norms, and promote financial
technology and digitalization solutions to enhance financial inclusion for firms outside the conventional
banking system (Vera-Martin and others 2019).
ƒ In GCC countries, financial sector policies should remain focused on mitigating macrofinancial risks, for
example related to increased participation by nonbank financial institutions and digitalization. Actions should
also aim to further develop financial markets, particularly to improve market efficiency. Notably, efficiency
could be enhanced by encouraging stronger participation by institutional investors, such as pension funds and
insurance companies, and increasing financial integration by attracting a broader investor base and fostering
nonresident participation. Furthermore, achieving a wider mix of investors can be bolstered by strengthening
corporate governance, reducing restrictions on foreign ownership in capital markets, and enhancing investor
protections. In turn, these reforms would facilitate more varied sources of project financing for diversification
needs (Catalan, Impavido, and Musalem 2000). However, authorities will need to weigh the trade-offs related
to the participation of nonresident investors, as they could be more sensitive to global market conditions and
amplify local market volatility. Financial technology (fintech), including crowdfunding, peer-to-peer business
lending, and invoice lending can complement these efforts (Lukonga 2018). GCC countries have advanced on
many digitalization and fintech initiatives, including establishing regulatory sandboxes, licensing digital banks
(Saudi Arabia and the United Arab Emirates), and creating FinTech Hubs. GCC countries are also actively
exploring central bank digital currencies. However, a cautious approach is warranted, including a careful

14
See Adams and others (2022) for more details on policy proposals related to state-owned banks.

October 2024 • INTERNATIONAL MONETARY FUND

44 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

cost-benefit analysis and the exploration of risks related to financial stability. Finally, country authorities should
continue to apply a mix of activity- and entity-based regulation proportionate to the size, complexity, and risk
profile of fintech firms.
ƒ Non-GCC MENA and CCA countries would benefit from market development to diversify their investor
bases and balance their financial system. These economies largely rely on bank-centric financial systems.
Hence, key strategies include developing government bond markets, aligning capital market regulations
with international standards, and modernizing capital market infrastructure (October 2018 Global Financial
Stability Report). Establishing robust government bond markets is crucial for setting a benchmark for private
sector borrowing rates, facilitating effective monetary policy, and aiding in liquidity management (IMF-
World Bank 2021). Aligning capital market regulations with international standards and modernizing capital
market infrastructure are vital steps to attract foreign investment and facilitate efficient trading liquidity. In
addition, fostering the growth of nonbank financial institutions through enhanced regulation and supervision
and strengthening risk management by developing credit registries are crucial for ensuring financial sector
stability (April 2023 Global Financial Stability Report).
ƒ Effective management of emerging risks and challenges is crucial to ensure financial stability amid ongoing
financial development. For example, to harness the benefits of growing cross-border flows while mitigating
associated risks, an appropriate mix of macrofinancial policies is critical and may include foreign exchange
intervention, macroprudential measures, and capital flow measures (Garcia Pascual, Singh, and Surti 2021).
Regulatory and supervisory frameworks will also require updates to align with the financial development
goals set by authorities (Sinha 2012; Zhu, Zhang, and Zhang 2023). In this context, several key guardrails are
essential, including: (1) conducting appropriately resourced and intensive supervisory oversight; (2) incen-
tivizing stronger risk management, especially as participation by nonbank financial institutions increase; (3)
implementing adequate and comprehensive prudential regulations (such as capital and liquidity management
tools); and (4) closing data gaps to facilitate appropriate and timely risk assessment by market participants and
supervisory authorities. Moreover, the application of macroprudential policy tools must evolve in tandem with
financial development to counter potential systemic risks.

INTERNATIONAL MONETARY FUND • October 2024

 3. Strengthening Growth through Financial Development 45

Box 3.1. Bridging the Gap: How Financial Development Mitigates Inequality1
Financial development has the potential to address the pronounced income and wealth gaps observed
across MENA and CCA countries (Blancher and others 2019). Financial development plays a crucial role
in promoting growth by enhancing resource allocation, increasing investment, and fostering innova-
tion (Sahay and others 2015). In addition, financial development influences inequality in numerous ways,
mainly by improving access to finance for a broader segment of the population. For instance, microfinance
institutions in Egypt, Kazakhstan, and Morocco have helped people in underserved communities start
businesses, thereby reducing poverty and inequality. Digital financial services (including mobile banking)
in Azerbaijan, Egypt, Georgia, and Jordan have expanded access to finance, especially in rural areas.

The impact of financial development on inequality can work in two directions. On the one hand, it can
reduce inequality by providing less affluent citizens with better access to banking services, credit, and
investment opportunities, enabling them to start businesses, invest in education, and improve their liveli-
hoods, thereby narrowing the income gap (a decrease in the Gini coefficient). On the other hand, it could
increase inequality if the wealthy, who often have better access to these financial services and investment
opportunities, benefit more, thus widening the income gap (an increase in the Gini coefficient).

Empirical results suggest that enhancing

financial development, particularly in financial Box Figure 3.1.1. Inequality and
Financial Development
institutions, reduces income inequality in
Financial development: MENA, CCA, and Pakistan
MENA and CCA countries. In particular, these Financial institutions: MENA, CCA, and Pakistan
countries experience a more rapid decrease Financial development: Other economies
Financial institutions: Other economies
in inequality with advancements in financial
development compared to the rest of the 65

world (Box Figure 3.1.1), as a more developed

Predicted Gini coefficient

financial sector enhances lending capacity, 60

(no fixed effects)

disproportionately boosting the income of

poor households and more effectively reducing 55

poverty and inequality, in line with existing

literature that shows that countries with higher 50

inequality benefit more from financial develop-

ment (Beck, Demirguc-Kunt, and Levine 2004). 45
0 0.2 0.4 0.6 0.8 1.0
These findings underscore the importance of Financial development and institutions indices
enhancing financial development in the MENA
Sources: IMF, Financial Development Index; IMF, World
and CCA regions. Economic Outlook database; World Inequality database;
and IMF staff calculations.
Notes: CCA = Caucasus and Central Asia; MENA = Middle
East and North Africa.

The authors of this box are Apostolos Apostolou, Seyed Vahid Hassani, Salem Nechi, and Bilal Tabti.

October 2024 • INTERNATIONAL MONETARY FUND

46 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

References
Adams, Mark, Hanife Yesim Aydin, Hee Kyong Chon, Anastasiia Morozova, and Ebru Sonbul Iskender. 2022.
“Regulating, Supervising, and Handling Distress in Public Banks.” IMF Departmental Paper 22/010,
International Monetary Fund, Washington, DC.

Beck, Thorsten, Asli Demirguc-Kunt, and Ross Levine. 2004. “Finance, Inequality, and Poverty: Cross-Country
Evidence.” Policy Research Working Paper 3338, World Bank, Washington, DC.

Beck, Thorsten, and Steven Poelhekke. 2023. “Follow the Money: Does the Financial Sector Intermediate
Natural Resource Windfalls?” Journal of International Money and Finance 130: 102769.

Berger, Allen N., Iftekhar Hasan, and Mingming Zhou. 2009. “Bank Ownership and Efficiency in China: What
Will Happen in the World’s Largest Nation?” Journal of Banking & Finance 33 (1): 113–30.

Blancher, Nicolas R., Maximiliano Appendino, Aidyn Bibolov, Armand Fouejieu, Jiawei Li, Anta Ndoye,
Alexandra Panagiotakopoulou, Wei Shi, and Tetyana Sydorenko. 2019. “Financial Inclusion of Small
and Medium-Sized Enterprises in the Middle East and Central Asia.” IMF Departmental Paper 19/02,
International Monetary Fund, Washington, DC.

Bonaccorsi di Patti, Emilia, and Daniel C. Hardy. 2005. “Financial Sector Liberalization, Bank Privatization, and
Efficiency: Evidence from Pakistan.” Journal of Banking and Finance 29 (8–9): 2381–406.

Catalan, Mario, Gregorio Impavido, and Alberto R. Musalem. 2000. “Contractual Savings or Stock Market
Development: Which Leads?” Journal of Contextual Economics–Schmollers Jahrbuch 3: 445–87.

Chakir, Selim, Maria Atamanchuk, Mazin Al Riyami, Nia Sharashidze, and Nathalie Reyes. 2022. “Reducing
Dollarization in the Caucasus and Central Asia.” IMF Working Paper 22/154, International Monetary Fund,
Washington, DC.

Chami, Ralph, Connel Fullenkamp, and Sunil Sharma. 2010. “A Framework for Financial Market
Development.” Journal of Economic Policy Reform 13 (2): 107–35.

Cornett, Marcia Millon, Lin Guo, Shahriar Khaksari, and Hassan Tehranian. 2010. “The Impact of State
Ownership on Performance Differences in Privately-owned versus State-owned Banks: An International
Comparison.” Journal of Financial Intermediation 19 (1): 74–94.

Farazi, Subika, Erik Feyen, and Roberto Rocha. 2013. “Bank Ownership and Performance in the Middle East and
North Africa Region.” Review of Middle East Economics and Finance 9 (2): 159–96.

Garcia Pascual, Antonio, Ranjit Singh, and Jay Surti. 2021. “Investment Funds and Financial Stability: Policy
Considerations.” IMF Departmental Paper 2021/018, International Monetary Fund, Washington, DC.

Gigineishvili, Nikoloz, Iulia Ruxandra Teodoru, Narek Karapetyan, Yulia Ustyugova, Jean van Houtte, Jiri
Jonas, Wei Shi, and others. 2023. “Paving the Way to More Resilient, Inclusive, and Greener Economies
in the Caucasus and Central Asia.” IMF Departmental Paper 2023/004, International Monetary Fund,
Washington, DC.

International Monetary Fund (IMF). 2023a. “Kazakhstan: 2023 Article IV Consultation—Press Release; and Staff
Report.” IMF Country Report 2024/046, International Monetary Fund, Washington, DC.

International Monetary Fund (IMF). 2023b. “Annual Report on Exchange Arrangements and Exchange
Restrictions 022.” Monetary and Capital Markets Department, International Monetary Fund,
Washington, DC.

INTERNATIONAL MONETARY FUND • October 2024

 3. Strengthening Growth through Financial Development 47

International Monetary Fund (IMF). 2024. “Saudi Arabia: 2024 Article IV Consultation—Press Release; and Staff
Report.” IMF Country Report 2024/280, International Monetary Fund, Washington, DC.

International Monetary Fund (IMF) and World Bank. 2021. “Guidance Note for Developing Government Local
Currency Bond Markets.” Analytical Notes 2021/001, International Monetary Fund, Washington, DC.

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

Laeven, Luc, and Fabian Valencia. 2020. “Systemic Banking Crises Database II.” IMF Economic Review 68:
307–61.

Lane, Philip R., and Gian Maria Milesi-Ferretti. 2018. “The External Wealth of Nations Revisited: International
Financial Integration in the Aftermath of the Global Financial Crisis.” IMF Economic Review 66: 189–222.

Lukonga, Inutu. 2018. “Fintech, Inclusive Growth and Cyber Risks: Focus on the MENAP and CCA Regions.” IMF
Working Paper 2018/201, International Monetary Fund, Washington, DC.

Micco, Alejandro, Ugo Panizza, and Monica Yanez. 2007. “Bank Ownership and Performance. Does Politics
Matter?” Journal of Banking & Finance 31 (1): 219–41.

Omori, Sawa. 2022. “Introducing the Revised and Updated Financial Reform Database.” Journal of Financial
Regulation 8 (2): 230–40.

Poghosyan, Tigran. 2022. “Financial Development and Growth in the Caucasus and Central Asia.” IMF Working
Paper 2022/134, International Monetary Fund, Washington, DC.

Rajan, Raghuram G., and Luigi Zingales. 2001. “The Influence of the Financial Revolution on the Nature of
Firms.” American Economic Review 91 (2): 206–11.

Sahay, Ratna, Martin Cihak, Papa N’Diaye, Adolfo Barajas, Diana Ayala Pena, Ran Bi, Yuan Gao, and others.
2015. “Rethinking Financial Deepening: Stability and Growth in Emerging Markets.” IMF Staff Discussion
Note 15/08, International Monetary Fund, Washington, DC.

Sahay, Ratna, Ulric Eriksson von Allmen, Amina Lahreche, Purva Khera, Sumiko Ogawa, Majid Bazarbash,
and Kimberly Beaton. 2020. “The Promise of Fintech: Financial Inclusion in the Post COVID-19 Era.” IMF
Departmental Paper 2020/009. International Monetary Fund, Washington, DC.

Sinha, Anand. 2012. “Financial Sector Regulation and Implications for Growth.” BIS Papers, No 62.

Svirydzenka, Katsiaryna. 2016. “Introducing a New Broad-Based Index of Financial Development.” IMF Working
Paper No. 2016/005, International Monetary Fund, Washington, DC.

Teodoru, Iulia Ruxandra, and Klakow Akepanidtaworn. 2022. “Managing Financial Sector Risks from the
COVID-19 Crisis in the Caucasus and Central Asia.” IMF Departmental Paper 2022/005, International
Monetary Fund, Washington, DC.

Vera-Martin, Mercedes, Dominique Fayad, Rayah Al-Farah, Sergejs Saksonovs, Wei Shi, and Fang Yang.
2019. “Promoting Inclusive Growth in the Caucasus and Central Asia.” IMF Departmental Paper 2019/008.
International Monetary Fund, Washington, DC.

Williams, Jonathan, and Nghia Nguyen. 2005. “Financial Liberalization, Crisis, and Restructuring: A
Comparative Study of Bank Performance and Bank Governance in South East Asia.” Journal of Banking &
Finance 29 (8–9): 2119–54.

Zhu, Chaowei, Fan Zhang, and Yuling Zhang. 2023. “Revisiting Financial Opening and Financial Development:
A Regulation Heterogeneity Perspective.” Economic Analysis and Policy 80: 181–97.

October 2024 • INTERNATIONAL MONETARY FUND

48 REGIONAL ECONOMIC OUTLOOK—Middle East and Central Asia

MENA: Selected Economic Indicators, 2000–25

(Percent of GDP, unless otherwise indicated)
Projections
Average
2000–20 2021 2022 2023 2024 2025
MENA 1

Real GDP (percent change, year over year) 3.9 4.2 5.5 1.9 2.1 4.0
Current Account Balance 6.2 4.2 10.1 5.1 2.5 1.5
Overall Fiscal Balance 1.0 –1.9 3.5 0.2 –1.7 –2.0
Inflation (percent change, year over year) 7.3 12.9 13.6 15.0 14.8 11.6
MENA Oil Exporters
Real GDP (percent change, year over year) 3.9 4.4 5.8 1.7 2.3 4.0
of which nonhydrocarbon growth 5.0 4.6 4.6 3.7 3.8 3.8
Current Account Balance 8.9 7.2 14.3 7.2 4.7 3.2
Overall Fiscal Balance 2.7 –0.5 5.9 1.5 –0.4 –0.9
Inflation (percent change, year over year) 6.6 10.9 12.6 11.2 8.8 8.3
Gulf Cooperation Council (GCC)
Real GDP (percent change, year over year) 4.0 4.2 7.2 0.4 1.8 4.2
of which nonhydrocarbon growth 5.5 5.4 5.6 3.6 3.7 4.0
Current Account Balance 12.4 8.7 16.2 8.6 6.1 4.4
Overall Fiscal Balance 5.5 0.2 7.7 3.2 1.8 1.4
Inflation (percent change, year over year) 2.2 2.2 3.3 2.2 1.8 1.9
MENA non-GCC Oil Exporters
Real GDP (percent change, year over year) 3.8 4.6 4.2 3.3 3.0 3.6
of which nonhydrocarbon growth 4.3 3.7 3.3 3.8 3.8 3.5
Current Account Balance 3.2 3.6 9.6 3.8 1.6 0.8
Overall Fiscal Balance –1.6 –2.3 1.7 –2.4 –5.3 –5.9
Inflation (percent change, year over year) 11.9 22.3 25.1 23.0 17.6 16.6
MENA Oil Importers1
Real GDP (percent change, year over year) 3.8 3.7 4.8 2.2 1.5 3.9
Current Account Balance –3.9 –5.3 –5.8 –3.1 –6.6 –6.3
Overall Fiscal Balance –5.7 –6.0 –5.4 –5.2 –7.3 –6.8
Inflation (percent change, year over year) 8.9 17.2 15.9 23.6 29.3 19.2
MENA Emerging Market and Middle-Income Economies
Real GDP (percent change, year over year) 4.1 4.0 5.4 3.2 2.4 3.8
Current Account Balance –3.9 –4.8 –5.1 –2.5 –6.4 –5.7
Overall Fiscal Balance –6.1 –6.7 –5.8 –5.4 –7.8 –7.3
Inflation (percent change, year over year) 7.2 6.3 10.4 22.4 26.0 16.5

INTERNATIONAL MONETARY FUND • October 2024

 Selected Economic Indicators 49

Projections
Average
2000–20 2021 2022 2023 2024 2025
MENA Low-Income Countries 1

Real GDP (percent change, year over year) 2.2 0.5 –0.1 –8.6 –8.3 5.5
Current Account Balance –4.1 –9.2 –11.9 –7.8 –9.2 –11.5
Overall Fiscal Balance –3.8 –0.3 –2.1 –3.5 –2.4 –2.9
Inflation (percent change, year over year) 19.8 161.2 77.0 36.5 73.6 53.1
MENA, Afghanistan, Pakistan1
Real GDP (percent change, year over year) 4.0 4.2 5.5 1.6 2.1 3.9
Current Account Balance 5.6 3.7 8.8 4.6 2.2 1.3
Overall Fiscal Balance 0.6 –2.3 2.5 –0.5 –2.2 –2.4
Inflation (percent change, year over year) 7.3 12.3 13.4 16.5 15.9 11.4
CCA
Real GDP (percent change, year over year) 6.1 5.2 5.2 4.9 4.3 4.5
Current Account Balance –0.4 0.5 5.3 –2.1 –1.5 –2.0

Overall Fiscal Balance 1.4 –3.1 0.4 –0.6 –1.9 –1.8

Inflation (percent change, year over year) 8.4 9.6 13.1 9.8 6.9 6.9
CCA Oil Exporters
Real GDP (percent change, year over year) 6.2 3.8 3.9 3.9 3.3 3.9
of which nonhydrocarbon growth 5.9 4.8 6.0 4.1 4.2 3.4
Current Account Balance –0.1 3.1 9.4 0.8 0.8 –0.3
Overall Fiscal Balance 2.0 –2.3 1.8 0.6 –1.2 –1.2
Inflation (percent change, year over year) 7.6 9.3 14.2 11.0 7.0 6.8
CCA Oil Importers
Real GDP (percent change, year over year) 6.1 8.1 7.7 6.8 6.1 5.5
Current Account Balance –1.8 –5.7 –4.7 –8.7 –6.7 –5.7
Overall Fiscal Balance –1.2 –5.0 –3.1 –3.5 –3.4 –3.0
Inflation (percent change, year over year) 9.9 10.3 11.0 7.6 6.9 7.1
Sources: National authorities; and IMF staff calculations and projections.
1
2011–25 data exclude Syrian Arab Republic. Afghanistan is excluded from real GDP growth, overall fiscal balance, and inflation data for
2024–25, and current account balance data for 2021–25.
Note: Data refer to the fiscal year for the following countries: Afghanistan (March 21/March 20 until 2011, and December 21/December 20
thereafter), Islamic Republic of Iran (March 21/March 20), and Egypt and Pakistan (July/June).

October 2024 • INTERNATIONAL MONETARY FUND