After decent growth, the International Monetary Fund has predicted a slowdown of the Middle East and North Africa (MENA) economy owing to factors like continued high inflation and interest rates.

Last year with real GDP growth of 5.3%, despite several global setbacks, the IMF has predicted a slowdown, with regional growth falling to 3.1% this year.

During the launch of the IMF’s May 2023 Regional Economic Outlook for the Middle East and North Africa on Wednesday, Jihad Azour, Middle East and Central Asia Department of the IMF, said that the slowdown was a result of a number of factors, including a surge in inflation last year. The report also held rising energy costs and high food prices responsible for furthering the slowdown.

Inflation has been forecast at around 15% this year, almost unchanged from 2022, before declining modestly in 2024, said Jihad Azour, Middle East and Central Asia Department of the IMF. He added that the regional growth will increase to 3.4% in 2024.

The growth for oil exporters will decrease from 5.7% in 2022 to 3.1% in 2023 due to the increasing shift from oil to non-hydrocarbon activities. For emerging markets, it will fall from 5.1% in 2022 to 3.4% this year due to tighter monetary and fiscal policies.

Addressing the media at the Dubai International Financial Centre, Azour said, “Low-income countries will continue to lag the region with growth of 1.3 percent this year as they struggle with heightened instability, food insecurity, persistently high inflation, and country-specific fragilities.”

Highlighting key risks, he added that further financial sector instability in advanced economies could lead to contagion and more adverse credit conditions, depressing global growth and exacerbating financial market volatility and debt sustainability concerns for many emerging markets.

Countries in the region struggling with debt may be pushed to the brink as investors reassess debt sustainability.

“An escalation of the war in Ukraine could lead to high volatility in commodity markets, fueling additional inflationary pressures across the Middle East and North Africa and amplifying the risks of social unrest,” he said. Azour also acknowledged that the conflict in Sudan had worsened the debt crisis in the country.

The report warned that financial conditions will worsen across the world due to the failure of two banks in the US and the collapse of Credit Suisse before being bought-off by UBS also contributed to market strains.