The International Monetary Fund (IMF) has revised downwards its growth projections for the Middle East and Central Asia as economies were hurt worse than expected by the double blow of lower oil prices and the coronavirus crisis.
The region, which includes around 30 countries spanning from Mauritania to Kazakhstan, will see real, or inflation-adjusted, gross domestic product (GDP) fall by 4.7 percent this year, 2 percentage points lower than IMF forecasts in April, the fund said in a report on Monday.
The pandemic has hit sectors such as tourism and trade, while low oil prices and crude production cuts have strained the finances of regional oil exporters and impacted remittances.
"These factors have led to a stronger-than-anticipated impact on activity in the first half of 2020, and the recovery is expected to be more gradual than previously forecast, in line with a weaker global recovery," the IMF said.
After portfolio outflows estimated at between $6 billion and $8 billion in March alone, uncertainty around the length of the pandemic could expose the region to further market volatility and curb governments' ability to refinance some $21 billion in debt due in the second half of this year, said the fund.
Worsening inequality and rising unemployment could trigger social unrest and political instability, while a potential decline in expatriate workers - often the large majority of the workforce in oil-exporting countries - could dampen recovery.
The overall growth revision was led by subdued activity among oil exporters in the Middle East, North Africa, Pakistan, and Afghanistan region, with oil export receipts expected to decline by over $270 billion this year compared with 2019.
Growth in the Caucasus and Central Asia was revised to a smaller extent, partly because of lower oil production cuts.
Energy producers in the Gulf will see real GDP fall by 7.1 percent this year, down from April forecasts of a drop of nearly 3 percent, the fund estimates, but slightly less than the 7.6 percent contraction the IMF had predicted at the end of June.
"Some of the high-frequency indicators that came showed a better second quarter for certain countries and therefore we have adjusted upward our projections. This is because of some improvement in the non-oil sector," Jihad Azour, director of the IMF's Middle East and Central Asia Department, told Reuters.