MANAMA: Economic prospects for the countries of the Middle East and North Africa (Mena) have improved with the resumption of capital inflows and rising crude oil prices.
But stress in the banking and financial sectors along with slow credit activity are weighing on the rebound, the International Monetary Fund (IMF) said in its latest Regional Economic Outlook report.
"The outlook for the region has improved considerably from last year," said IMF Middle East and Central Asia director Masood Ahmed.
"Growth is gathering momentum this year, helped by the pickup in capital inflows and resurgence in domestic consumption.
"However, this positive perspective is clouded by some stress in the banking system and lethargic credit activity across the region," he added.
Oil exporters in the Middle East, North Africa, Afghanistan and Pakistan (Menap) were hit hard last year. Their combined current account surplus fell to $53 billion last year, after having reached $362bn the previous year.
Oil-GDP for these countries contracted by 4.7 per cent, triggered by plummeting oil prices.
However, massive stimulus measures helped mitigate the impact of the crisis, and non-oil economic activity still managed to expand by 3.6pc last year.
The report sees a strong recovery in the coming year, aided by an increase in capital inflows and crude oil prices.
Higher oil prices and output are projected to boost the current account surplus to $140bn and oil-GDP growth to 4.3pc.
Non-oil sector activity, supported by sustained fiscal stimulus in some countries, is also forecast to grow by 4.1pc.
"Over the medium-term, policy-makers also face a delicate balancing act in unwinding official support to the financial sector and in phasing out the fiscal stimulus, which is projected to last through this year but should be discontinued once a solid recovery is achieved," Mr Ahmed added.
"It is important that the stimulus is kept for as long as needed to help domestic demand. But beyond this year, the measures should be gradually unwound to avoid additional fiscal pressures, in particular for countries that already have high levels of debt," he added.
The impact of the Dubai debt crisis and the unfolding debt crisis in Greece and the euro zone "has been limited so far," but it could impact sovereign debt "adding an element of uncertainty to the outlook," IMF said.
GCC states' GDP rose by just 0.8pc last year and is projected to grow by 4.9pc this year and 5.2pc next year, mainly due to gas-rich Qatar's projected growth of 18.5pc and 14.3pc, respectively.
The economies of Opec members Kuwait and the UAE contracted by 2.7pc and 0.7pc, respectively, last year.
Nominal GDP in GCC states plummeted to $868.4bn last year from $1.076 trillion previous year, but is forecast to rise to $1.021trn this year and to $1.118trn next year, IMF said.
Although Mena's non-oil members are recovering from last year's slowdown, growth remains below the levels needed to reduce high unemployment rates, the report said.
These countries, which include Jordan, Egypt, Lebanon, Syria and Morocco among others, were less impacted by the economic downturn due to limited financial and trade ties, it said.
Their GDP inched up 3.8pc last year down from 5pc the previous year. It is forecast to grow by 4.1pc this year and 4.8pc next year.