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10-06-2010, 11:14 AM
IMF: Mideast recovering well from global slump

The Associated Press October 6, 2010, 8:58AM ET


CAIRO The Middle East and North Africa's economic growth following the global financial crisis remains strong, the IMF said Wednesday, while stressing that the region's reliance on oil revenues leaves it vulnerable should crude prices again collapse.

The agency in its semiannual World Economic Outlook estimated the region's growth to be 4.1 percent this year and 5.1 percent in 2011, compared to just 2 percent in 2009.

"The strength of the recent economic recovery in the MENA region is largely underpinned by the rebound in oil prices from their trough in 2009," the IMF said.

Mideast oil exporters, such as OPEC kingpin Saudi Arabia, were largely able to weather the worst of the global meltdown by tapping oil revenues to spend on infrastructure development and social services. Other countries, such as Egypt and Lebanon, withstood the decline largely because their banking and financial sectors were not as exposed as those in the West to the crisis.

The rebound in oil prices played a key role in boosting the region's economies. Oil futures are currently near $83 per barrel, well above the $75 per barrel level that Saudi Arabia and others had indicated was fair for both consumers and producers.

But oil, on which many of these economies rely for as much as 95 percent of their foreign revenues, is a double-edged sword.

"The economic outlook in the region is closely linked to global developments, primarily through the impact of global economic activity on oil prices," the IMF said. It noted that increased demand from developing nations, especially in Asia, was likely to be offset by lower consumption in the West.

In individual cases, internal politics could also play a factor.
The IMF put OPEC member Iraq's growth at 2.6 percent for 2010, far lower than the 7.3 percent it projected in April.

The revision could be a reflection of how that country's inability to form a government seven months after elections, along with lingering security concerns following the withdrawal of U.S. combat forces, has undercut its appeal to international investors.

Economic growth, however, is forecast at 11.5 percent in 2011 in Iraq, amid expectations of a rise in oil production.

The IMF also warned about sluggish credit growth in the region.
In particular, highly publicized financial woes in rich Gulf states such as Dubai, Kuwait and Saudi Arabia have raised concerns. State conglomerate Dubai World's inability to make good on the terms of its debt payments late last year spooked regional lenders, making credit far harder to get.

Dubai World has since won over the bulk of its creditors to its $24.9 billion restructuring plan, but bankers remain far more reluctant to provide financing than they did before the financial slump -- in part because of concerns about their own balance sheets.

An immediate challenge for authorities, according to the IMF, is to "revive the financial intermediation process." In other words, they need to convince banks to start lending again to get business moving.