Courcy’s Intelligence Brief

The International Monetary Fund (IMF) has just released its Regional Economic Outlook for the Middle East and Central Asia.  At a time when the Middle East continues to be wracked by violence and strategic instability, the section covering the Middle East and North Africa (Mena) provides little comfort to those concerned about Mideast stability.  The political and strategic tensions that we highlight on a week-by-week basis are unlikely to find their solution in rapid economic progress or in diminishing inequality.

The most important structural point about the Middle East is that of the 617.3m population living in the arc stretching from Mauritania to Pakistan, nearly three-quarters (73.3%) live in the 12 countries with per capita incomes of below $5,000 per annum.

A further 19.7% live in the four countries with per capita incomes of between $5,000 and $10,000.  Then, at the top of the pyramid, there is the 7% of the region’s population which lives in six countries with a per capita income of over $20,000.

The six countries with per capita incomes above $20,000, with a combined population of 43.3m (7.0%), are:

- Qatar - $98,144 (1.8m)

- UAE - $63,626 (5.4m)

- Kuwait - $43,723 (3.7m)

- Oman - $23,572 (3.1m)

- Bahrain - $22,918 (1.1m)

- Saudi Arabia - $21,196 (28.2m).

The four countries with per capita incomes of $5,000-$10,000, with a combined population of 121.7m (19.7%), are:

- Lebanon - $9,862 (4.0m)

- Iran - $6,420 (75.2m)

- Libya - $5,510 (6.5m)

- Algeria - $5,503 (36.0m).

The remaining 12 countries, all with per capita incomes below $5,000, and with a combined population of 452.3m (73.3%), are:

- Jordan - $4,618 (6.3m)

- Tunisia - $4,317 (10.7m)

- Iraq - $3,478 (32.8m)

- Morocco - $3,084 (32.2m)

- Egypt - $2,932 (80.4m)

- Syria - $2,803 (21.4m)

- Sudan - $1,959 (32.7m)

- Djibouti - $1,467 (0.8m)

- Yemen - $1,343 (25.1m)

- Pakistan - $1,199 (175.3m)

- Mauritania - $1,185 (3.5m)

- Afghanistan - $589 (31.1m).

These inequalities are set to worsen.  Growth for the oil-exporting countries is expected to be 6.5% for 2012, with their combined current-account surplus set to remain near the historic high of $400bn recorded in 2012.  The oil-importing countries, on the other hand, are expected to record growth of just 2% in 2012.  Even with a recovery to 3.25% in 2013, the IMF notes that this is “a rate far below what is required to address chronic and growing unemployment”.

The social pressures in these countries have led to an increase in spending on fuel and food subsidies, and so fiscal balances have deteriorated and “fiscal vulnerabilities remain high”, with average public debt at over 70%.  At the same time, notes the IMF, “external current account deficits have widened from already high levels.  Together with weak capital inflows, these have resulted in a sharp decline in official international reserves, raising concerns about reserve adequacy and leaving diminished buffers and limited policy space for addressing a downturn.”

The IMF has also done some interesting work on countries that have gone through the sort of intense political instability (PI) now being experienced in much of the Middle East.  The research shows that in 11 comparable events in low- and middle-income countries unemployment rates rose by about 1–1½ percentage points on average during the first two years after the start of PI, and then took between four and five years to recover.  Public and private investment declined by about 20% on average during the event year, and remained low in subsequent years.  And, of course, fiscal positions worsened sharply during PI, continued to worsen for two years, and only recovered slowly.

The research also found that episodes of PI and conflict often recur, as countries with a past history of domestic conflict have a high risk of subsequent conflict.