The economies of the Middle East face a daunting near-term challenge of containing the impact of rising food and energy prices without busting their budgets or setting off another round of unrest, the International Monetary Fund (IMF) warned in a report on the region.
With turmoil besetting so much of the region, the IMF conceded that the fiscal restraint it usually urges on governments might not be practical for now and gave its backing to the subsidies and make-work programs initiated in the face of mass protests. But it warned that policy would have to transition quickly to measures that spur economic growth and create productive employment.
“Many countries in the region have increased subsidies for food and fuel because increasing prices of food and fuel affect households, some of whom spend 50% of their incomes on these products,” Masood Ahmed, director of the Middle East and Central Asia Department, said in a podcast released Wednesday. “This is perfectly understandable in the short run to preserve social cohesion. But over the longer term the answer lies in moving away from generalized subsidies.”
Economic growth across the Middle East and North Africa, including Afghanistan and Pakistan, will reach 3.9% this year, the IMF forecast – the same pace as in 2010 but among the lowest in more than a decade. Increasing oil prices have helped divide the region into winners and losers, with the price of benchmark Brent crude rising 22% since unrest broke out in Libya on February 15.
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