Economic growth in the Middle East and Central Asia could slow by more than half this year, but the region should still fare better than most others thanks to government intervention and stockpiles of oil wealth, the International Monetary Fund said Sunday. The assessment highlights the challenges facing some of the region's biggest oil exporters, which are grappling with a steep slide in energy profits. It also underlines the risk for countries like Egypt, Morocco and Pakistan, which do not have the benefit of large oil reserves and are particularly vulnerable to a decline in global trade. Masood Ahmed, the IMF's Mideast and Central Asia department director, said the region as a whole was likely to weather the financial crisis better than other parts of the world because of “prudent financial and economic management” and the ability of oil-exporting countries to draw upon hefty cash stockpiles accumulated during boom times. Oil exporters, he said, can use their reserves “to cushion the impact of the global slowdown on their own economies and the economies of their neighboring countries with whom they have growing economic links.” Non-exporting countries are at greater risk, particularly if the recession dragging on the economies of trading partners in the West and elsewhere proves lengthy. A drawn-out global downturn could lead to significantly higher levels of unemployment and poverty, Ahmed added. In the report released Sunday, the IMF forecast the economy of the 22-country region stretching from the northwest edge of Africa through volatile Afghanistan and Pakistan would slow to 2.6 percent this year, down from 5.7 percent in 2008. The latest forecast is a full percentage point lower than a similar one that Ahmed made in February, when he predicted region-wide growth of 3.6 percent. He acknowledged in a speech to bankers in Dubai that the rapid shrinking of the global economy is making forecasting more difficult. “This is quite an unprecedented time,” he said. OPEC powerhouse Saudi Arabia and Gulf Arab neighbors such as the United Arab Emirates have helped stimulate the world economy by pumping billions of dollars into ambitious real estate and infrastructure projects in recent years. But a prolonged global recession and weak demand for oil could strain those spending plans, as is already happening in the regional financial hub of Dubai. Faced with this possibility, these nations “need to enhance oversight of the financial system and support economic activity while preserving fiscal sustainability,” the IMF said. The region's oil exporters have faced a tough time with crude prices now about 60 percent below their mid-2008 peak of $147 per barrel. Together, these nations account for 65 percent of global oil reserves and 45 percent of natural gas reserves. Surging oil prices in the past couple of years translated into stuffed treasuries. But as oil prices fell, so too did Mideast oil exporters' surpluses which, between 2004 and 2008, amounted to about $1.3 trillion, according to the IMF. Now, those countries are projected to run a cumulative deficit this year of $10 billion. That compares with a $400 billion surplus in 2008, the report said. Other factors are also weighing on the region, including the impact of declining global trade, a drop in key revenue sources like tourism, reduced foreign direct investment and tightening credit markets. For the region's oil exporters, gross domestic product growth is expected to fall from 5.4 percent last year to about 2.3 percent in 2009. Meanwhile, oil GDP growth is seen dropping from 2.4 percent to negative 3.5 percent, while non-oil GDP growth is projected to fall from 6.1 percent to 3.7 percent, the report said. The report said that despite the global challenges, many of the oil producers had embraced a variety of measures to boost investor confidence and stimulate growth, such as injecting liquidity, offering bailouts and tapping sovereign wealth funds for domestic policy efforts.
