Wednesday, May 22, 2013

(This story was originally published Tuesday.)

DUBAI (Zawya Dow Jones)--The economies of Arab countries in transition could deteriorate further should their political and security situations worsen, the International Monetary Fund said on Tuesday.

In an update to its Regional Economic Outlook, the fund said political transformations underway in Egypt, Jordan, Libya, Morocco, Tunisia and Yemen are complex: many of the countries have yet to adopt new constitutions and elect governments with terms exceeding a year. Socio-economic problems like unemployment and rising living costs are adding to the challenges already facing these economies.

"Despite the complex political situations facing the Arab countries in transition, decisive policy action will be crucial, given diminished fiscal and foreign exchange buffers," the IMF said. More fiscal consolidation, as well as exchange rate flexibility, will be needed to bolster confidence, competitiveness, and growth, it added.

Reiterating previous warnings, the IMF said oil exporters in the Middle East and North Africa region, especially Arab gulf countries, remain vulnerable to a weak global economic recovery and could run down reserve buffers that result in fiscal deficits should the global outlook worsen and oil prices decline further.

Oil-rich Gulf Cooperation Council states, among other MENA oil exporters, should diversify their economies and strengthen their fiscal and external positions to reduce their vulnerability to the potential for a material oil price decline, the IMF said. The fund expects combined GCC area real gross domestic product growth of 4% this year, down from 6% last year.

In terms of the region's oil importers, social, political, and economic conditions remain impaired, the IMF said, adding the economic environment is characterized by modest global growth, high commodity prices, and weak domestic confidence. It pegged the combined economies of the MENA oil importers to expand by 2.7% this year, up from 1.9% last year, due mostly to a gradual rebound in tourism.

The IMF maintained its 3.1% growth forecast for the whole MENA region this year, down from versus a 4.8% in 2012.

Write to Leila Hatoum at Leila.hatoum@dowjones.com

Copyright (c) 2013 Dow Jones & Co.

(END) Dow Jones Newswires

22-05-13 0344GMT