IMF urges strong growth to create adequate jobs for Arab youth

Nearly 100mn Arab youth will reach working age over the next 10 years in the entire Arab world, according to projections by the International Monetary Fund (IMF).But, IMF recently warned that growth in the Middle East is not forecast to be strong or inclusive enough to create the needed jobs for them.In its recent outlook, IMF noted growth in many economies in the Middle East and Central Asia is slowing, reflecting the combined effect of tighter policies, oil production cuts, geopolitical tensions, and other domestic challenges.In the Middle East and North Africa, IMF has lowered its real GDP growth forecast to 2% for 2023, a downgrade by 1.1 percentage point from the fund’s last projections in April. Growth will accelerate to 3.4% in 2024, as some of these factors fade. Persistent structural hurdles will constrain growth over the forecast horizon.IMF noted financing conditions in the region remain generally tight. Mena central banks have continued raising rates in 2023, albeit at a slower pace than that of last year.The monetary policy tightening cycle appears to have peaked in the Caucasus and Central Asia (CCA). A higher for longer interest rate environment could strain corporate, financial institution, and public finance in the region, with implications for banking sector profitability, credit provision, economic growth, and financial stability.Sovereign bank linkages may worsen, with implications of higher for longer. The balance of risk has improved since April as adverse global challenges have preceded, but risks remain tilted to the downside as we saw last week, and climate related threats are rising.On the upside, a faster than anticipated global decline in inflation would reduce pressure on central banks to raise interest rate further. Downside risks include reduced external demand if China were to experience a sharper than expected slowdown reignited global price pressure.On fiscal policy, fiscal consolidation efforts should focus on building buffers and safeguarding debt sustainability, especially in emerging markets and those economies with high debt levels and financing needs.Oil exporters should focus on economic diversification and boosting fiscal buffers to strengthen resilience. All countries would benefit from domestic revenue mobilisation and increase spending efficiency.Fiscal reforms that help increase budget transparency and the adoption of credible medium term fiscal frameworks will help reach domestic goals and facilitate access to international financial markets. Structural reforms can help support near-term growth and longer-term growth prospects at the same time.IMF outlook shows that sequencing and packaging reforms strategically can magnify growth dividend. A first-generation reform package that includes governance, external sector and regulatory framework could increase output by almost 10 percent over five years.The IMF said it continues to engage closely with Middle East as well as also Central Asian countries to provide policy advice, technical support, as well as financing.It has approved $34bn in financing to some 15 countries in both Middle East and Central Asia since the onset of the pandemic, and Fund has allocated $49.3bn additional financing through the SDRs, the Special Drawing Rights.