IMF Warns of Sluggish Growth in West Asia Economies

In a recent address at the Arab Fiscal Forum in Dubai, International Monetary Fund (IMF) Managing Director Kristalina Georgieva raised concerns about the sluggish growth of economies in West Asia. Georgieva cited factors such as oil production cuts and the Israel-Gaza conflict as major contributors to the region’s economic challenges, according to Reuters.

Georgieva underscored the resilience of the global economy amidst uncertainties but cautioned about the potential wider impact on regional economies due to continued conflict in Gaza. She emphasised the need for vigilance amid ongoing conflicts, highlighting the adverse effects of the Israel-Gaza conflict on tourism revenues in neighbouring economies and the impact of Red Sea attacks on global freight costs.

The IMF’s regional economic report for West Asia and North Africa last month downgraded GDP growth forecasts to 2.9 percent for the year, citing short-term oil production cuts and the conflict in Gaza as significant factors. This revision lagged below previous projections made in October, reflecting persistent challenges faced by economies in the region.

Georgieva further noted that ongoing conflicts, particularly attacks by Iran-aligned Houthis in Yemen targeting commercial vessels in the Red Sea, have disrupted global trade routes. Major shippers have opted to divert traffic to the Cape of Good Hope, bypassing the Suez Canal, potentially impacting Suez Canal revenues.

Egypt’s Finance Minister Mohamed Maait acknowledged the potential impact but expressed confidence in the region’s resilience. Meanwhile, Georgieva highlighted the economic benefits of phasing out energy subsidies in West Asia. According to an upcoming IMF paper, eliminating these subsidies could result in significant savings, equivalent to the economies of Iraq and Libya combined. Redirecting these resources towards social spending and addressing environmental concerns is crucial, she emphasised.

The IMF’s recommendations include the gradual unwinding of energy subsidies, particularly for oil-exporting economies, with targeted support as an alternative. Additionally, Georgieva stressed the importance of investing in advanced technologies like Artificial Intelligence (AI) to drive economic growth and ensure competitiveness on a global scale. Countries in the Middle East, including the UAE and Saudi Arabia, have significantly ramped up investment in AI as part of broader strategies to diversify their income sources. However, Georgieva cautioned that countries lacking the necessary infrastructure and skilled workforce to embrace AI technology risk falling behind in the global economic landscape.