US sanctions on Iran, rising unrest in the Middle East and North Africa, and oil price volatility are dragging regional economic growth, the IMF said yesterday.
Prospects for the region are “clouded by elevated levels of uncertainty,” the IMF said in a biannual economic outlook report.
“Such uncertainty may increase investors’ perception of risk for the whole region, leading to capital outflows and exchange-rate pressure,” the global lender said.
The IMF forecasts that the Iranian economy, the second-largest in the region behind Saudi Arabia, would shrink by 6.0 percent this year, after contracting by 3.9 percent last year.
The bad news for Tehran comes after the US reimposed sanctions last year following its withdrawal from a 2015 nuclear accord.
The dire projection was made before the US tightened up measures targeting Iran’s oil industry last week, meaning that the pain could get even worse, IMF Middle East and Central Asia director Jihad Azour said.
Sanctions have already pushed inflation in Iran to about 50 percent, Azour said.
Iran’s woes have a knock-on effect on regional figures.
Overall regional economic growth was expected to remain subdued at 1.3 percent this year from 1.4 percent last year.
For oil exporters, growth was down at 0.4 percent for this year, while importing countries were expected to increase at 3.6 percent this year, from 4.2 percent last year.
Gulf Cooperation Council countries — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates — were forecast to slightly buck the trend, improving to 2.1 percent growth from 2 percent last year.
The IMF said that economic growth in the broader region was negatively affected by rising conflict, corruption, slow reforms, high levels of debt and continued oil price fluctuations.
After the first wave of Arab Spring uprisings in 2011, the region is witnessing fresh upheavals in Algeria and Sudan, as fighting intensifies in Libya and Yemen.
As a result, reforms in the region have become more urgent to decrease dependence on oil and create millions of jobs, especially for the young.
It is important for oil exporters to be less dependent on volatile oil prices and to diversify their economies, Azour said.
Reforms are also vital, as oil importers need to face a rising level of debt that has reached more than 80 percent of GDP on average, he said.
The region, in addition to Pakistan and Afghanistan, needs to create about 25 million jobs over the next five years to maintain unemployment rates, he said.
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