1. Prospects and Challenges for the Global
Economy and the MENA Region
Ministry of Finance
Cairo
October 25, 2011
Andreas Bauer
Division Chief, Middle East and Central Asia Department
International Monetary Fund

2. Key points:
The global outlook has worsened, and downside
risks have increased
For MENA oil importers, 2012 outlook is difficult,
with strains on macroeconomic stability
For the MENA region, reforms are needed now to
support inclusive growth and job creation in the
medium term
Middle East and Central Asia Department 2 Global outlook

3. Global outlook has weakened
Revisions to GDP growth
(Percentage point change; June 2011 WEO to September 2011 WEO)
1.0
2011 2012
0.5
0.0
-0.5
-1.0
U.S. Euro area MENA Dev. Asia Latin America
Source: IMF, World Economic Outlook, September 2011.
Middle East and Central Asia Department 3 Global outlook

4. Equity markets have fallen, financial stability risks have increased
Equity markets Government bond spreads
(Index; 2007=100; national currency) (Two-year yield spreads over German bunds; basis points)
140 450
Spain July 21, 2011
400
120 Italy
350 Belgium
France
100 300
250
80
200
60 150
DJ EURO STOXX
100
40 S&P 500
Asia 50
20
Latin America 0
May 10, 2010
0 -50
2006 08 10 Oct-11 Jan-10 Jul-10 Jan-11 Jul-11 Oct-11
Source: IMF, World Economic Outlook, September 2011.
Middle East and Central Asia Department 4 Global outlook

5. Capital flows to EM have turned negative
Bond fund flows to emerging markets Equity fund flows to emerging markets
(Billions of U.S. dollars, weekly flows) (Billions of U.S. dollars, weekly flows)
2.0 EMEA 8
LatAm QE2 (Nov. 3)
QE2 (Nov. 3)
Asia excl. Japan 6
1.5 Global
Total
4
1.0
2
0.5 0
-2
0.0
-4
-0.5
Greece crisis -6
Greece crisis Ireland crisis
Ireland crisis
-1.0 -8
Jan-10 May-10 Sep-10 Jan-11 May-11 Aug-11 Jan-10 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 May-11 Aug-11
Source: EPFR Global.
Middle East and Central Asia Department 5 Global outlook

6. Commodity prices remain high
Global commodity price developments Oil price prospects
(Price indices; 2007=100) (U.S. dollars a barrel)
200
Wheat
180 Food
160 Metals
140
120
100
80
60
40
20
0
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Source: IMF, World Economic Outlook. Sources: Bloomberg; and IMF staff calculations.
Note: Derived from prices of futures options on October 17, 2011.
Middle East and Central Asia Department 6 Global outlook

7. Downside risks have increased
Prospects for world GDP growth
(Annual percent change)
8
Downside risks:
7
•Euro area crisis 90% confidence interval
(Sep 2011 WEO)
6
•Advanced economy sovereign risks
•Escalating global financial volatility 5
•Oil supply concerns (risk of higher oil 4
prices) 3
90% confidence interval 2
(Apr 2011 WEO)
1
0
-1
2008 2009 2010 2011 2012
Source: IMF, World Economic Outlook.
Middle East and Central Asia Department 7 Global outlook

8. Key points:
The global outlook has worsened, and downside
risks have increased
For MENA oil importers, 2012 outlook is
difficult, with strains on macroeconomic stability
For the MENA region, reforms are needed now to
support inclusive growth and job creation in the
medium term
Middle East and Central Asia Department 8 MENA oil importers

9. MENA oil importers
Middle East and Central Asia Department 9

10. Challenges ahead
Advancing social
cohesion with
macroeconomic
stability
Middle East and Central Asia Department 10 MENA oil importers

11. Uncertainty weighing on activity
Real GDP Growth
(Annual percent change)
8
2011 2012
7
6
5
4
3
2
1
0
-1
-2
Sources: National authorities; and IMF staff calculations.
Middle East and Central Asia Department 11 MENA oil importers

12. Growth forecasts have been revised downward
Real GDP growth
(Annual percent change)
6
5
4
3
Oct 2010 REO
2
Apr 2011 REO
Oct 2011 REO
1
0
2008 2009 2010 2011 2012
Sources: National authorities; and IMF staff calculations.
Middle East and Central Asia Department 12 MENA oil importers

13. High fuel prices and declining tourism add to external pressures
Oil imports Tourism Arrivals
(Percent of GDP, 2010–11) (Dec 2010–May 2011, percent change over same period of previous year)
20
2010 2011 Egypt -42
16
Tunisia -42
12
Syria -24
8
Lebanon -19
4
Jordan -12
0
Morocco 7
-50 -40 -30 -20 -10 0 10
Sources: National authorities; World Tourism Organization (UNWTO); and IMF staff calculations.
Middle East and Central Asia Department 13 MENA oil importers

14. External financing constrained, more costly
International issuance of bonds, equity, and loans Credit default swap spreads
(Billions of U.S. dollars) (Basis points, Jan 1 - Oct 14, 2011)
12 525
S&P downgrade of the U.S.
Bonds 475
10 Tunisia protests
Equity 425
Loans
8 375
325
6
275
4 225
175
2
125 Egypt Lebanon
Morocco MSCI EM
0
75
2010 2011-H1 Oct
Jan Apr Jul
Sources: Bloomberg; Dealogic; and Markit.
Middle East and Central Asia Department 14 MENA oil importers

15. The 2012 fiscal outlook has worsened
Overall fiscal deficit
(Percent of GDP)
8
Oct 2010 REO
Apr 2011 REO
7
Oct 2011 REO
6
5
4
2008 2009 2010 2011 2012
Sources: National authorities; and IMF staff calculations.
Middle East and Central Asia Department 15 MENA oil importers

16. Subsidies contributing to deteriorating fiscal positions
Government expenditures and fiscal balances
(Percent of GDP, 2011 versus 2010)
6
Subsidies and transfers Fiscal balance
4
2
0
-2
-6%
-4
EGY JOR LBN MAR SYR TUN
Sources: National authorities; and IMF staff calculations.
Middle East and Central Asia Department 16 MENA oil importers

17. Energy subsidies mostly benefit the wealthy
Share of benefits from energy subsidies
(Share of total)
Egypt Jordan¹ Mauritania
7% 1%
34% 13% 3%
10%
12%
41%
16%
21%
17%
65%
20% 17%
23%
Bottom quintile 2nd quintile
3rd quintile 4th quintile
5th quintile
Sources: National authorities; IMF staff calculations based on information in the 2008 household survey for Jordan and Mauritania, and World Bank PSIA
(2005) for Egypt.
¹For Jordan, the distribution of gains accounts for both the direct and indirect effect of price subsidies. The latter refers to the impact of energy price subsidies
on the price of other consumed goods and services that use energy in their production and distribution.
Middle East and Central Asia Department 17 MENA oil importers

18. The fiscal space to respond to challenges is limited
Fiscal deficit (excluding grants) Total public debt
(Percent of GDP, 2011) (Percent of GDP, 2011)
Jordan Lebanon
Syria Egypt
Egypt Jordan
Lebanon Morocco
Morocco Tunisia
Tunisia Syria
4 6 8 10 12 14 20 40 60 80 100 120 140
Sources: National authorities; and IMF staff calculations.
Middle East and Central Asia Department 18 MENA oil importers

19. Key points:
The global outlook has worsened, and downside
risks have increased
For MENA oil importers, 2012 outlook is
difficult, with strains on macroeconomic stability
For the MENA region, reforms are needed now to
support inclusive growth and job creation in the
medium term
Middle East and Central Asia Department 19 MENA region

20. Short-term policy challenges
Middle East and Central Asia Department 20 MENA region

21. Opportunity to develop a medium-term policy agenda for shared prosperity
Fiscal policy:
๏Establish a medium-term macroeconomic Socially Monetary policy:
framework Inclusive ๏ Vigilance to second-round effects
๏Better target universal subsidies Growth ๏ Expand policy toolkit in the medium term
๏Unwind tax breaks and expenditures
Access to
Access to
Labor Markets Government
Financial Services
Services
Reform
Streamline Narrow gap Improve
education Develop
product and between laws Create a level corporate
systems to financial market
labor market and their playing field governance and
enhance skill infrastructure
regulations execution disclosure
formation
Middle East and Central Asia Department 21 MENA region

22. For an online version of the presentation, please visit:
http://www.imf.org/external/np/exr/countryfacts/egy/index.htm
Middle East and Central Asia Department 22