IMF warns of slower growth in West Asia in 2024 citing oil cuts, regional tensions

In a recent address at the Arab Fiscal Forum in Dubai, International Monetary Fund (IMF) Managing Director Kristalina Georgieva highlighted concerns over the sluggish growth of West Asia economies.

According to Reuters, Georgieva pointed to factors such as oil production cuts and the Israel-Gaza conflict as major contributors to the region's economic challenges.

Georgieva emphasised the resilience of the global economy amidst uncertainties but cautioned about the potential wider impact on regional economies due to continued conflict in Gaza.

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She stated, "Despite uncertainties, the global economy has been surprisingly resilient," underscoring the need for vigilance amid ongoing conflicts.

The IMF's regional economic report for the West Asia and North Africa last month downgraded GDP growth forecasts to 2.9 per cent for the year, citing short-term oil production cuts and the conflict in Gaza as significant factors.

This revision lagged below previous projections made in October, reflecting persistent challenges faced by economies in the region.

Georgieva highlighted the adverse effects of the Israel-Gaza conflict on tourism revenues in neighbouring economies and the impact of Red Sea attacks on global freight costs.

These challenges further exacerbate the recovery process for economies already grappling with previous shocks, she noted.

The ongoing conflict in the region, particularly the attacks by Iran-aligned Houthis in Yemen targeting commercial vessels in the Red Sea, has disrupted global trade routes.

Several major shippers have opted to divert traffic to the Cape of Good Hope, bypassing the Suez Canal, which could potentially impact Suez Canal revenues.

Egypt's Finance Minister Mohamed Maait acknowledged the potential impact but expressed confidence in the region's resilience.

Georgieva also highlighted the potential economic benefits of phasing out energy subsidies in West Asia.

According to an upcoming IMF paper, eliminating these subsidies could result in savings of $336 billion, equivalent to the economies of Iraq and Libya combined.

Georgieva underscored the importance of redirecting these resources towards social spending and addressing environmental concerns.

The IMF's recommendations include the gradual unwinding of energy subsidies in the region, particularly for oil-exporting economies, with targeted support as an alternative.

Additionally, Georgieva stressed the importance of investing in advanced technologies like Artificial Intelligence (AI) to drive economic growth and ensure competitiveness on a global scale.

Countries in the Middle East, including the UAE and Saudi Arabia, have significantly ramped up investment in AI as part of broader strategies to diversify their income sources.

However, Georgieva cautioned that countries lacking the necessary infrastructure and skilled workforce to embrace AI technology risk falling behind in the global economic landscape.

(With inputs from Reuters)