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									Regional Economic Outlook

 Middle East and Central Asia Department



        International Monetary Fund
                 October 2009



                                           1
     MENAP Oil Exporters
     MENAP Oil Importers




INTERNATIONAL MONETARY FUND
                              2   October 2009
                              Outline
            World Economic Outlook

            MENAP Economic Outlook




INTERNATIONAL MONETARY FUND
                                 3      October 2009
World Economic Outlook: Key Messages
 The global economy is beginning to grow again, but recovery is likely
  to be sluggish. The slow recovery calls for sustained policy support
  until the expansion is firmly entrenched.

 Financial market conditions continue to improve but remain tight, with
  the global financial system remaining far from normal.

 Expansionary monetary and fiscal policy will continue to underpin the
  global recovery, but to safeguard price and financial stability and the
  soundness of public finances, credible exit strategies will be needed.

 Two key factors for the medium-term: private demand replacing public
  demand; and demand in external surplus economies rising to make
  up for shrinking demand in external deficit economies.

 INTERNATIONAL MONETARY FUND
                                    4                                October 2009
         Exports and manufacturing helped by a turn
                   in the inventory cycle
          Merchandise Exports                                 Industrial Production
 (Percent change; 3mma; annualized)                      (Percent change; 3mma; annualized)
   60                                                                                      20


   40
                                                                                           10


   20
                                                                                           0

    0
                                                                                           -10
   -20

                Advanced                                       Advanced
                                                                                           -20
   -40          World                                          Emerging
                                                               World
                Emerging
                                                                                           -30
   -60


   -80                                                                                     -40
     Jan-07         Jan-08    Jan-09   Jul-09       Jan-07        Jan-08     Jan-09   Jul-09



INTERNATIONAL MONETARY FUND
                                                5                                        October 2009
               Consumer confidence slowly recovering,
                   but unemployment still rising
           Consumer Confidence                                                  Unemployment
              (January 2005=100)                                         (Percent; weighted by labor force)
200                                                               8.5

180                                                                           Advanced
                                                                  8.0         World
160
                                                                              Emerging
140                                                               7.5

120
                                                                  7.0
100
                                                                  6.5
 80

 60            U.S. (Conf. Board)                                 6.0
               Japan (Econ. Soc. Res. Inst.)
 40
               U.K. (Building Society)                            5.5
 20
               Germany (Eur. Comm.)
  0                                                               5.0
      05       06          07            08    09   Aug. 09             05     06        07   08      09   Jul. 09


      INTERNATIONAL MONETARY FUND
                                                              6                                               October 2009
Policy has taken risk of another Great Depression off
   the table, but financial conditions remain tight
                                                    Corporate Spreads                         Equity Markets
       Interbank Spreads                    (Basis points; averages of                      (March 2000 = 100;
           (Basis points)                   Europe and United States)                        national currency)
500                                                                           1800                                         130

             U.S. dollar                               BB                                     DJ Euro Stoxx
                                                                              1600                                         120
             Yen                                                                              Wilshire 5000
                                                       AAA
400                                                                                           Topix
             Euro                                                                                                          110
                                                                              1400

                                                                                                                           100
300                                                                           1200

                                                                                                                           90
                                                                              1000
200                                                                                                                        80
                                                                              800
                                                                                                                           70
100                                                                           600
                                                                                                                           60

                                                                              400
                                                                                                                           50
  0

                                                                              200                                          40


-100                                                                          0                                            30
                                     Sep.
    2000     02      04    06   08    09     2000     02     04   06   08   Sep.     2000     02       04     06   08    Sep.
                                                                             09                                           09


      INTERNATIONAL MONETARY FUND
                                                                  7                                                     October 2009
      Expansionary monetary policy has been key,
          but will not forestall a credit crunch
       Credit Growth in Private                                            Bank Lending
        Nonfinancial Sectors                                                Conditions
(q/q changes; billions of local currency)
250                                           2500       100                                         -15
                                                                      United States (LHS)
                                                                      Euro Area (LHS)
                                                                      Japan (inverted; RHS)
                                                         80                                          -10
200                                           2000

                                                         60                                          -5
150                                           1500
                                                         40                                          0

100                                           1000
                                                         20                                          5


50                                            500
                                                          0                                          10



  0                                           0          -20                                         15
                  United States (RHS)
                  Euro area (LHS)
                                                         -40                                         20
-50                                           -500
      2000   02     04    06     08     09:                                                    09:
                                                               2000   02      04   06     08   Q3
                                        Q2
INTERNATIONAL MONETARY FUND
                                                     8                                               October 2009
             Fiscal policy too has played a major role,
                  but fiscal support will diminish
             Fiscal Balance                                             Public Debt
             (Percent of GDP)                                           (Percent of GDP)
                                                                                                             120
  2
                    Advanced                                            Advanced
                    Emerging and developing                             Emerging and developing
  0                                                                                                          100
                    World                                               World


 -2                                                                                                          80



 -4                                                                                                          60



 -6                                                                                                          40



 -8                                                                                                          20



-10                                                                                                          0
      1970     80           90    2000        10   14       1970   80           90    2000        10    14


INTERNATIONAL MONETARY FUND
                                                        9                                              October 2009
         Rebalancing will be a drawn-out process,
               implying slow global growth
                                                Global Imbalances1
                                                (Percent of world GDP)
                                                                                                                                  4
                       U.S.             Oil exporters               OCADC                CHN+EMA                  ROW
                                                                                                                                  3


                                                                                                                                  2


                                                                                                                                  1


                                                                                                                                  0


                                                                                                                                  -1


                                                                                                                                  -2
         Discrepancy

                                                                                                                                  -3
       1996          98          2000          02           04             06          08          10           12           14

       1 OCADC: Bulgaria, Croatia, Czech Republic, Estonia, Greece, Hungary, Ireland, Latvia, Lithuania, Poland, Portugal,
       Romania, Slovak Republic, Slovenia, Spain, Turkey, and United Kingdom.

INTERNATIONAL MONETARY FUND
                                                                      10                                                               October 2009
 Global growth is expected to pick up in 2010,
      but the recovery will be sluggish
                   Real GDP Growth1                                           Prospects for World GDP Growth
(Percent change from a year earlier)                                                          (Percent change)
12                                                                                                                       6

10

 8                                                                                                                       4


 6
                                                                                                                         2
 4

 2
                                                                                                                         0
 0

-2                                                                                                                       -2
                         World                                                       90% Confidence interval
-4                       Advanced                                                    70% Confidence interval
                         Emerging and developing                                     50% Confidence interval
-6                                                                                                                       -4
      2000         02        04      06      08      10        12   14        2006       07           08       09   10
     1 Quarterly   data through 2010 and annual data afterwards.


INTERNATIONAL MONETARY FUND
                                                                         11                                              October 2009
        Key risks, mainly on the downside
• Premature withdrawal of public support, because
  recovery seemingly self-sustaining—public’s appetite for
  fiscal support seems low.

• New financial disaster, geopolitical issues/oil price surge,
  swine flue: economy’s capacity to absorb new shocks is
  very low.

• Fiscal credibility loss or questions about continued
  independence of central banks.

• Upside: we may underestimate effects of reduced
  uncertainty/greater confidence.

INTERNATIONAL MONETARY FUND
                              12                          October 2009
           MCD Economic Outlook
                         MENAP

                              ►Oil Exporters

                              ►Oil Importers



INTERNATIONAL MONETARY FUND
                                    13         October 2009
            Oil Exporters: Key Messages
 Oil sector was hit hard during the crisis.

 Authorities responded quickly and decisively.

 Early signs of recovery, and future prospects are brightening.

 Financial sector vulnerabilities need addressing.




  INTERNATIONAL MONETARY FUND
                                14                        October 2009
         Global crisis strikes the oil sector
                                 Real GDP Growth
                                (Annual change; percent)
               8
                                                   World
                                                   Advanced economies
               6                                   MENAP oil exporters oil GDP


               4

               2

               0

              -2

              -4
                      2005    2006     2007        2008       2009        2010
                                                              proj.       proj.

INTERNATIONAL MONETARY FUND
                                              15                                  October 2009
In response, countercyclical policies were pursued,
    dampening the downturn in the non-oil sector

Change in the Non-Oil Primary Fiscal Deficit, 2009                                          Real GDP Growth
                  (Percent of non-oil GDP)                                               (Annual change; percent)
 10
                                    Fiscal impulse                           10
                                    Automatic stabilizers                                                               Real GDP
                                    Change in non-oil primary deficit                                                   Oil GDP
                                                                              8
  8                                                                                                                     Non-oil GDP

                                                                              6
  6
                                                                              4

  4                                                                           2

                                                                              0
  2
                                                                             -2

  0                                                                          -4
                  SAU                           UAE                               2005    2006   2007    2008   2009          2010
                                                                                                                proj.         proj.




      INTERNATIONAL MONETARY FUND
                                                                        16                                                   October 2009
 As oil prices fell and government spending rose,
      current account surpluses fell sharply
                                 Current Account Balance
                                     (Billions of U.S. Dollars)
                300
                                                                    GCC
                                                                    Other
                250

                200

                150

                100

                  50

                   0

                 -50
                              2007                  2008          2009
                                                                  proj.
INTERNATIONAL MONETARY FUND
                                               17                           October 2009
Liquidity and funding problems also hurt the banking
         sector, hampering its ability to lend
                          Growth in Credit to the Private Sector
                                     (Annualized percent)
                 60
                                                            Dec. 2004–Jun 2008
                                                            June 2008–latest
                 50

                 40

                 30

                 20

                 10

                   0

                -10
                         DZA   BHR     KWT     QAT    SAU         SDN      YMN

 INTERNATIONAL MONETARY FUND
                                              18                                 October 2009
Authorities also responded quickly to stabilize
              the financial sector
                Central Bank Net Credit to the Banking System
                          (Change as a percentage of base money)
              12

              10

                8

                6

                4

                2

                0
                         BHR          KWT           SAU            SDN

INTERNATIONAL MONETARY FUND
                                             19                          October 2009
             Local stock markets are recovering…
                          Percentage Change in Stock Market Indices

                   Jan 1, 2008 – Mar 3, 2009                                                         Mar 3, 2009 – Sept 21, 2009

       -75                                                    Dubai                 Dubai                                     43

                    -60                               Saudi Arabia          Saudi Arabia                                 38

                      -56                                      Qatar                Qatar                                                    72

                           -52                              S&P 500               S&P 500                                          53

                            -49                               Kuwait               Kuwait                      22

                            -49                               Oman                  Oman                                 39

                            -48                            Abu Dhabi            Abu Dhabi                           29

                                   -43                       Bahrain              Bahrain       -2

-90   -80    -70     -60         -50     -40   -30   -20     -10       0    -20             0             20             40             60        80




 INTERNATIONAL MONETARY FUND
                                                                           20                                                                October 2009
  External financing conditions are improving
                                                        CDS Spreads
                                                            (Basis points)
               1000
                                                                                                          Bahrain
                 900                                                                                      Oman
                                                                                                          Qatar
                 800                                                                                      Saudi Arabia
                 700                                                                                      Abu Dhabi
                                                                                                          Dubai
                 600
                 500
                 400
                 300
                 200
                 100
                    0                                                                 -09
                                                        9




                                                                                                 9
                                                                               9
                      8

                               8




                                                                                                         9

                                                                                                                 9

                                                                                                                          9
                                               8




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                                                   n-0




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INTERNATIONAL MONETARY FUND
                                                                     21                                                        October 2009
Despite a boost to domestic demand, no signs of
          inflationary pressures so far
                                 Consumer Price Index
                               (Percent change; year-on-year)
                30
                                                                DZA
                                                                IRN
                                                                KWT
                25                                              LBY
                                                                OMN
                                                                SAU
                20                                              SDN
                                                                YMN
                15

                10

                  5

                  0
                      Ju 8




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 INTERNATIONAL MONETARY FUND
                                              22                      October 2009
      Looking forward, external and fiscal balances
     should improve: scope for continued spending

                   External Current Account and Fiscal Balances
                                                     (Percent of GDP)
               GCC Countries                                                Non-GCC Countries
30                                                              20
                                    Current account balance                           Current account balance
                                    Government fiscal balance                         Government fiscal balance
25
                                                                15

20
                                                                10
15
                                                                 5
10

                                                                 0
 5

 0                                                              -5
        2007         2008          2009              2010            2007      2008   2009              2010
                                   proj.             proj.                            proj.             proj.




     INTERNATIONAL MONETARY FUND
                                                                23                                              October 2009
                               Policy Priorities
 Maintain public spending in countries with fiscal space

 Orderly workout of financial/corporate balance sheet
  effects of asset price falls

 Promote broad-based financial development




 INTERNATIONAL MONETARY FUND
                                       24            October 2009
          Oil Importers: Key Messages
 Impact of global crisis has been limited, with growth
  slowing modestly to 3.6 percent in 2009.
 Low integration in international financial markets and
  manufacturing have contained the fallout. Proactive
  policy responses and positive spillovers from regional oil
  exporters have helped.
 Limited fiscal space, currency appreciation, and
  sluggish external receipts imply recovery will be muted.
 As the rebound takes hold, policy focus will need to shift
  towards private sector development.

INTERNATIONAL MONETARY FUND
                              25                          October 2009
                            Lower external receipts,
                        but even greater drop in imports
              MENAP Oil Importers:                                                    MENAP Oil Importers:
               External Receipts                                                  Saving and Investment Balance
                     (Billions of U.S. dollars)                                              (Percent of GDP)
120                                                                          27                                                              0
                                                          2008                                       Domestic savings (left axis)
                                                          2009 proj.
                                                          2010 proj.                                 Gross national investment (left axis)
100                                                                                                  Current account balance (right axis)
                                                                             25                                                              -2

 80
                                                                             23                                                              -4
 60
                                                                             21                                                              -6
 40

 20                                                                          19                                                              -8


  0                                                                          17                                                              -10
         Export of        Tourism      Remittances          FDI                       2008          2009                   2010
          goods           receipts                                                                  proj.                  proj.


       Note: Excludes Afghanistan and Djibouti. Tourism receipts also
       excludes Pakistan.

      INTERNATIONAL MONETARY FUND
                                                                        26                                                            October 2009
   Economic indicators are now picking up

              Merchandise Exports                             Stock Market Performance
   (Annualized percent change of 3-month moving                 (Index, January 1, 2008 = 100)
   average over previous 3-month moving average)
                                                        160
 150
                                 EGY
 125                             PAK                    140
                                 MAR
 100                             MENAP oil importers
                                 World                  120
  75
  50                                                    100
  25
                                                         80
   0                                                           EGY
                                                               JOR
  -25                                                    60    LBN
                                                               MAR
  -50                                                          PAK
                                                         40    TUN
  -75                                                          MSCI emerging markets
                                                         20
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INTERNATIONAL MONETARY FUND
                                                   27                                              October 2009
    Growth improvement will remain muted
                                  Real GDP Growth
                                  (Annual percent change)
                8
                                                 MENAP oil importers
                                                 Emerging and developing economies
                                                 World
                6


                4


                2


                0


               -2
                        2005–07     2008              2009              2010
                        average                       proj.             proj.

INTERNATIONAL MONETARY FUND
                                            28                                       October 2009
Limited reliance on international capital flows...

     Emerging Market Bond Issuance                                                                                  Cross-Border Loans
                          (Billions of U.S. dollars)                                                                      (Billions of U.S. dollars)
                                                                                                    4
     80                                                                              20                           EGY
           Emerging markets (left axis)                                                                           PAK
           Lebanon (right axis)                                                                                   TUN
           Other MENAP oil importers (right axis)                                                                 Other
                                                                                                    3
     60                                                                              15


                                                                                                    2
     40                                                                              10


                                                                                                    1
     20                                                                              5


                                                                                                    0
      0                                                                              0
                                                                                                     1

                                                                                                              3

                                                                                                                       1

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                                                                                                                                                  3

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     INTERNATIONAL MONETARY FUND
                                                                                          29                                                                                               October 2009
... contained the disruption of local credit markets

                                                            MENAP Oil Importers: Private
            Sovereign Bond Spreads                               Credit Growth
                   (Basis points)                                    (Annual percentage change)
  2500                                            25
                                     EGY
                                     LBN
  2000                               MAR
                                     PAK
                                     TUN
                                                  20
                                     EMBIG
  1500

                                                  15
  1000

      500                                         10

        0
                                                   5
    17 8
   4/ 008

    21 8
   7/ 008

    23 8

     /9 8
   /2 08

    11 8

    27 9

    15 9
   6/ 009

    18 9
   9/ 009
            09
  2/ 200



  5/ 200



  8/ 200

  10 200



  1/ 200

  2/ 200

  4/ 200



  7/ 200
 11 /20




         20
       /2



       /2




       /2



       /2




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  INTERNATIONAL MONETARY FUND
                                             30                                                                                 October 2009
                                     Policy responses constrained by
                                            limited fiscal space
                                 Real T-Bill Rates and                                                         Change in Non-oil
                              Total Public Debt/GDP, 2009                                                  Primary Fiscal Deficit, 2010
                                                 (Percent)                                                             (Percent of non-oil GDP)
                        160                                                                      1
                                                           Lebanon
                                                                        Less fiscal space
                        120                                                                      0
Total Public Debt/GDP




                                                                            Mauritania
                         80                                                                      -1
                                       Egypt
                                                               Jordan

                                   Pakistan    Tunisia
                                                         Morocco
                         40                                                                      -2
                                                                                                                                                           Automatic stabilizer
                                                                                                                                                           Fiscal impulse
                                                                                                                                                           Change in primary deficit
                          0                                                                      -3
                              -5                  0                     5                   10            JOR             LBN              MAR              SYR              TUN
                                                  Real T-Bill Rates
                                                                                                 Note: Excludes countries where fiscal years differ from calendar years.



                        INTERNATIONAL MONETARY FUND
                                                                                            31                                                                              October 2009
          Inflation has receded, but real effective
              exchange rates have appreciated
           MENAP Oil Importers:
          Consumer Price Inflation                     Effective Exchange Rates
             (Annual percentage change)                (Percent change, year to July 2009)
21                                             15
                                                    Nominal
19                                                  Real
                                               10
17

15                                              5
13
                                                0
11

 9
                                               -5
 7
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                                                    DJI   EGY   JOR   LBN   MRT MAR   PAK   SYR   TUN




     INTERNATIONAL MONETARY FUND
                                          32                                                      October 2009
With tight budgets, and exports under pressure,
    growth hinges on private consumption
            MENAP Oil Importers: Contribution to Real GDP Growth
                                                         (Percent)
               10
                                                                      Net exports
                                                                      Investment
                 8
                                                                      Consumption
                                                                      Real GDP Growth
                 6

                 4

                 2

                 0

                -2

                -4
                                 2008                         2009        2010
                     Note: Excludes Afghanistan and Jordan.   proj.       proj.

INTERNATIONAL MONETARY FUND
                                                              33                        October 2009
      Banks are generally well capitalized, but NPLs
               remain high in some cases

             Capital Adequacy Ratio                                  Nonperforming Ratio to Total Loans
                          (Percent)                                                     (Percent)
35                                                              20
                                                 2007                                               2007
                                                 Latest
30                                                                                                  Latest

                                                                15
25

20
                                                                10
15

10
                                                                 5
 5

 0                                                               0
       DJI    EGY   JOR     LBN    MRT   MAR   PAK   TUN              AFG   DJI   EGY   JOR   LBN   MAR      PAK    TUN




     INTERNATIONAL MONETARY FUND
                                                           34                                                      October 2009
                              Policy Priorities
  As recovery takes hold, focus will need to shift
   toward raising countries’ productive capacity.
  Addressing unemployment calls for greater private
   sector-led growth.
  Low integration with global economy means losing
   out on the upside potential.



INTERNATIONAL MONETARY FUND
                                      36              October 2009
         Please visit the IMF’s website

        Full report and copy of the presentation:
              http://www.imf.org/external/pubs/
           ft/reo/2009/MCD/eng/mreo1009.htm

                     What do you think?
             Make your point on the related blog:
                  http://blog-imfdirect.imf.org


INTERNATIONAL MONETARY FUND
                              37                    October 2009

								
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