The growth rate of Arab economies in 2023 is projected to be 3.4 percent.
The recovery of global growth, lower interest rates, and the continued implementation of development plans will likely enhance economic growth in Arab countries in 2024 to approximately 4 percent.
The Inflation rate is projected to decline to 6.8 percent in 2023 and 6.3 percent in 2024 for Arab countries (excluding countries with substantial inflationary pressures).
In the next two years, policymakers in Arab countries’ priorities in the area of fiscal policy are: adjusting tax rates, rationalizing tax exemptions, revisiting subsidy policies, and strengthening social safety nets.
Central banks and Arab monetary authorities’ priorities over the next two years include: developing the monetary policy framework, strengthening the target range of the exchange rate, digital transformation, and macroprudential policy reforms.
As part of its efforts to assist policy-makers in Arab countries, the Arab Monetary Fund has released the 18th edition of its "Arab Economic Outlook" report, which contains projections of the overall economic performance of Arab countries on multiple levels for the years 2023 and 2024.
This edition of the Arab Economic Outlook Report focused on the most significant global economic developments expected to shape the global economy during the horizon of the report (2023-2024), including the inflationary wave and the subsequent tightening of monetary policies by central banks worldwide. The report also monitors the most recent forecasts of international organizations (such as the International Monetary Fund, the World Bank, and the United Nations) regarding economic development prospects and the drivers of global economic trends. In 2023, international organizations predicted that the global economy would grow between 1.7% and 2.9% in 2023 and between 2.7% and 3.1% in 2024. The report examines the anticipated effects of global economic developments on the Arab region, particularly emphasizing the impact of tightening monetary policies, turmoil in international financial markets, and volatility in commodity pricing. According to the report, the anticipated slowdown in global economic growth in 2023 will impact the external demand in many Arab countries. Thus, it will contribute to the decline in growth, highlighting the significance of adopting reforms that would increase the diversity and flexibility of the structures of Arab countries’ economies and address the structural problems that impede the attainment of high, sustainable growth rates.
The report analyses the results of experts' forecasts survey for the Arab countries, which anticipated moderate economic growth over the next two years, in line with the global trend. However, the growth trajectories of Arab countries during the years 2023 and 2024 will be influenced by several factors, including those relating to global conditions characterized by increasing uncertainty, as well as the effects of tightening monetary policy that lasted nearly the entirety of 2022 and the first quarter of 2023, and the extent to which these measures can exert control over the inflation.
The outlook for economic growth over the next two years varies among Arab economies based on some factors, as the net impact of global economic developments on the Arab countries is determined by the nature of their effects on economic growth in the oil-exporting Arab countries (which account for approximately 70% of the Arab countries' GDP), which are generally considered to benefit from moderate oil prices, while some Arab countries (particularly oil-importing countries) face challenges associated with high levels of internal and external deficits and their limited ability to increase growth-supporting spending.
The position of fiscal and monetary policies will also be reflected in the expected growth prospects for 2023 and 2024. In oil-exporting Arab countries, which benefitted from the global developments that support the position of their internal and external balances due to the rise in the quantities of oil and gas production and the rise in their prices on international markets, fiscal policy can play an important role in supporting growth. Meanwhile, oil-importing Arab countries have, in general, limited fiscal space due to unfavorable developments they have seen over the past two years and have to balance supporting growth with preserving macroeconomic stability.
The report also indicated that the impact on the Arab financial sector of the financial turmoil, bankruptcies, and mergers of banks in some developed countries was limited due to the limited exposure of the Arab financial sector to these markets and the high level of solvency indicators achieved through the significant efforts made by central banks and supervisory authorities over the past few years to strengthen the resilience of Arab financial sector.
According to the report, the decline in commodity prices over the past few months is a positive development for some Arab countries that were affected by their rise during the previous period, as the surge led to an increase in their import bill, which negatively impacted their balance of payments and contributed to pressure on their reserves and the exchange rate. In addition, some countries were unable to completely pass through the rise in commodity prices (mainly energy and food) on their citizens to protect vulnerable groups and control inflation, which caused the public budget to bear significant subsidy costs that affected the size of the fiscal deficit, the level of debt, the cost of borrowing, and debt service. Many Arab countries are reviewing their food and energy security policies to lessen the impact of any future shocks. They also continue developing social safety nets to protect vulnerable groups and facilitate the transition to a targeted subsidy system.
The Arab Monetary Fund anticipates that the GDP growth rate of Arab economies will decline by approximately 2.2 percentage points between 2022 and 2023, falling to around 3.4% in 2023. However, growth is expected to recover in 2024 to 4.0 percent. This improvement can be attributed to expectations of stability in oil and commodity prices, a recovery in external demand due to higher global growth, and lower interest rates.
Inflation rates in Arab countries are projected to decline in 2023 along with the rest of the world while remaining relatively high due to inflationary pressures resulting from global economic developments, particularly energy prices (oil and gas), and the impact of the pressures on the local exchange rate in several countries. The proactive measures taken by many Arab countries have contributed to limiting the effect of inflationary pressures. Nevertheless, because of the developments mentioned, the inflation rate in Arab countries (excluding countries facing significant inflationary pressures) is projected to reach 6.8% in 2023 and 6.3% in 2024.
The report addressed several Arab countries' top challenges, including food security and climate change. Food security challenges include the lack of adequate water, rapid population growth, unfavorable internal conditions in some countries, and economic challenges. Arab countries are making ceaseless efforts to address these issues, including using modern technologies in agriculture, strengthening regional cooperation and sustainable practices, diversifying food sources and supply chains, and enhancing social safety nets. To confront climate change challenges, the Arab countries are shifting towards a circular economy and renewable and sustainable energy sources, improving water management and conservation techniques, adopting climate-resistant agricultural practices, and strengthening regional cooperation between Arab countries.
The full version of the report is available at:
https://www.amf.org.ae/ar/publications/tqryr-afaq-alaqtsad-alrby/tqryr-afaq-alaqtsad-alrby-mayw-2023