1. Prospects and Challenges for the Global Economy and the MENA Region Ministry of Finance Cairo October 25, 2011 Andreas Bauer Division Chief, Middle East and Central Asia Department International Monetary Fund

2. Key points: The global outlook has worsened, and downside risks have increased For MENA oil importers, 2012 outlook is difficult, with strains on macroeconomic stability For the MENA region, reforms are needed now to support inclusive growth and job creation in the medium term Middle East and Central Asia Department 2 Global outlook

3. Global outlook has weakened Revisions to GDP growth (Percentage point change; June 2011 WEO to September 2011 WEO) 1.0 2011 2012 0.5 0.0 -0.5 -1.0 U.S. Euro area MENA Dev. Asia Latin America Source: IMF, World Economic Outlook, September 2011. Middle East and Central Asia Department 3 Global outlook

4. Equity markets have fallen, financial stability risks have increased Equity markets Government bond spreads (Index; 2007=100; national currency) (Two-year yield spreads over German bunds; basis points) 140 450 Spain July 21, 2011 400 120 Italy 350 Belgium France 100 300 250 80 200 60 150 DJ EURO STOXX 100 40 S&P 500 Asia 50 20 Latin America 0 May 10, 2010 0 -50 2006 08 10 Oct-11 Jan-10 Jul-10 Jan-11 Jul-11 Oct-11 Source: IMF, World Economic Outlook, September 2011. Middle East and Central Asia Department 4 Global outlook

5. Capital flows to EM have turned negative Bond fund flows to emerging markets Equity fund flows to emerging markets (Billions of U.S. dollars, weekly flows) (Billions of U.S. dollars, weekly flows) 2.0 EMEA 8 LatAm QE2 (Nov. 3) QE2 (Nov. 3) Asia excl. Japan 6 1.5 Global Total 4 1.0 2 0.5 0 -2 0.0 -4 -0.5 Greece crisis -6 Greece crisis Ireland crisis Ireland crisis -1.0 -8 Jan-10 May-10 Sep-10 Jan-11 May-11 Aug-11 Jan-10 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 May-11 Aug-11Source: EPFR Global. Middle East and Central Asia Department 5 Global outlook

6. Commodity prices remain high Global commodity price developments Oil price prospects (Price indices; 2007=100) (U.S. dollars a barrel)200 Wheat180 Food160 Metals140120100 80 60 40 20 0 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11Source: IMF, World Economic Outlook. Sources: Bloomberg; and IMF staff calculations. Note: Derived from prices of futures options on October 17, 2011. Middle East and Central Asia Department 6 Global outlook

7. Downside risks have increased Prospects for world GDP growth (Annual percent change) 8 Downside risks: 7 Euro area crisis 90% confidence interval (Sep 2011 WEO) 6 Advanced economy sovereign risks Escalating global financial volatility 5 Oil supply concerns (risk of higher oil 4 prices) 3 90% confidence interval 2 (Apr 2011 WEO) 1 0 -1 2008 2009 2010 2011 2012 Source: IMF, World Economic Outlook. Middle East and Central Asia Department 7 Global outlook

8. Key points: The global outlook has worsened, and downside risks have increased For MENA oil importers, 2012 outlook is difficult, with strains on macroeconomic stability For the MENA region, reforms are needed now to support inclusive growth and job creation in the medium term Middle East and Central Asia Department 8 MENA oil importers

9. MENA oil importers Middle East and Central Asia Department 9

10. Challenges ahead Advancing social cohesion with macroeconomic stability Middle East and Central Asia Department 10 MENA oil importers

11. Uncertainty weighing on activity Real GDP Growth (Annual percent change) 8 2011 2012 7 6 5 4 3 2 1 0 -1 -2 Sources: National authorities; and IMF staff calculations. Middle East and Central Asia Department 11 MENA oil importers

12. Growth forecasts have been revised downward Real GDP growth (Annual percent change) 6 5 4 3 Oct 2010 REO 2 Apr 2011 REO Oct 2011 REO 1 0 2008 2009 2010 2011 2012 Sources: National authorities; and IMF staff calculations. Middle East and Central Asia Department 12 MENA oil importers

13. High fuel prices and declining tourism add to external pressures Oil imports Tourism Arrivals (Percent of GDP, 201011) (Dec 2010May 2011, percent change over same period of previous year)20 2010 2011 Egypt -4216 Tunisia -4212 Syria -24 8 Lebanon -19 4 Jordan -12 0 Morocco 7 -50 -40 -30 -20 -10 0 10Sources: National authorities; World Tourism Organization (UNWTO); and IMF staff calculations. Middle East and Central Asia Department 13 MENA oil importers

14. External financing constrained, more costly International issuance of bonds, equity, and loans Credit default swap spreads (Billions of U.S. dollars) (Basis points, Jan 1 - Oct 14, 2011)12 525 S&P downgrade of the U.S. Bonds 47510 Tunisia protests Equity 425 Loans 8 375 325 6 275 4 225 175 2 125 Egypt Lebanon Morocco MSCI EM 0 75 2010 2011-H1 Oct Jan Apr JulSources: Bloomberg; Dealogic; and Markit. Middle East and Central Asia Department 14 MENA oil importers

15. The 2012 fiscal outlook has worsened Overall fiscal deficit (Percent of GDP) 8 Oct 2010 REO Apr 2011 REO 7 Oct 2011 REO 6 5 4 2008 2009 2010 2011 2012 Sources: National authorities; and IMF staff calculations. Middle East and Central Asia Department 15 MENA oil importers

16. Subsidies contributing to deteriorating fiscal positions Government expenditures and fiscal balances (Percent of GDP, 2011 versus 2010) 6 Subsidies and transfers Fiscal balance 4 2 0 -2 -6% -4 EGY JOR LBN MAR SYR TUN Sources: National authorities; and IMF staff calculations. Middle East and Central Asia Department 16 MENA oil importers

17. Energy subsidies mostly benefit the wealthy Share of benefits from energy subsidies (Share of total) Egypt Jordan Mauritania 7% 1% 34% 13% 3% 10% 12% 41% 16% 21% 17% 65% 20% 17% 23% Bottom quintile 2nd quintile 3rd quintile 4th quintile 5th quintileSources: National authorities; IMF staff calculations based on information in the 2008 household survey for Jordan and Mauritania, and World Bank PSIA(2005) for Egypt.For Jordan, the distribution of gains accounts for both the direct and indirect effect of price subsidies. The latter refers to the impact of energy price subsidieson the price of other consumed goods and services that use energy in their production and distribution. Middle East and Central Asia Department 17 MENA oil importers

18. The fiscal space to respond to challenges is limited Fiscal deficit (excluding grants) Total public debt (Percent of GDP, 2011) (Percent of GDP, 2011) Jordan Lebanon Syria Egypt Egypt Jordan Lebanon Morocco Morocco Tunisia Tunisia Syria 4 6 8 10 12 14 20 40 60 80 100 120 140Sources: National authorities; and IMF staff calculations. Middle East and Central Asia Department 18 MENA oil importers

19. Key points: The global outlook has worsened, and downside risks have increased For MENA oil importers, 2012 outlook is difficult, with strains on macroeconomic stability For the MENA region, reforms are needed now to support inclusive growth and job creation in the medium term Middle East and Central Asia Department 19 MENA region

20. Short-term policy challenges Middle East and Central Asia Department 20 MENA region

21. Opportunity to develop a medium-term policy agenda for shared prosperity Fiscal policy: Establish a medium-term macroeconomic Socially Monetary policy: framework Inclusive Vigilance to second-round effects Better target universal subsidies Growth Expand policy toolkit in the medium term Unwind tax breaks and expenditures Access to Access to Labor Markets Government Financial Services Services Reform Streamline Narrow gap Improve education Develop product and between laws Create a level corporate systems to financial market labor market and their playing field governance and enhance skill infrastructure regulations execution disclosure formation Middle East and Central Asia Department 21 MENA region

22. For an online version of the presentation, please visit: http://www.imf.org/external/np/exr/countryfacts/egy/index.htmMiddle East and Central Asia Department 22