I N T E R N AT I O N A L M O N E TA R Y F U N DMiddle East and Central Asia Department

THE ECONOMIC IMPACT OF CONFLICTS AND THE REFUGEE CRISIS IN THE MIDDLE EAST AND NORTH AFRICA

Gaëlle Pierre

March 9, 2017

March 9, 2017 2

Conflict and spillover countries in the region

Conflict countries

Spillover countries

MRT

DZA

MAR

LBY EGY

SDN

TUN

SYR

IRQ

SAU

YMN

SOM

OMN

IRNAFG

PAK

KWT

BHR

QAT

DJI UAE

LBN

WGB JOR

March 9, 2017 3

Conflicts are a major economic challenge for the Middle East, with massive costs

Macroeconomic policies can mitigate the fallout

External partners should scale-up and better coordinate their support

Key takeaways

March 9, 2017

Conflicts have become a dominant feature of the MENA region

4

Sources: Center for Systemic Peace; and IMF staff calculations.

External partners

Economic impact

Policy response

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1946

1950

1960

1970

1980

1990

2000

2010

2015

MENA Rest of the World

Average Intensity of Conflicts

(0=no conflict, 14=extreme conflict)

0%

10%

20%

30%

40%

50%

60%

1946

1950

1960

1970

1980

1990

2000

2010

2015

MENA Rest of the World

Frequency of Conflicts

(Share of countries in conflict, by year)

March 9, 2017 5

Macroeconomic impacts are often sizeable for MENA countries External partners

Economic impact

Policy response

Sources: Center for Systemic Peace; and IMF staff estimates.

Note: Staff estimates of GDP loss due to conflict account for country fixed effects and conflict intensity.

The sample period is 1970-2014.

Change in GDP Associated with Conflicts

(Percent, cumulative)

Change in Inflation Associated with Conflicts

(Percentage points, cumulative)

-16

-14

-12

-10

-8

-6

-4

-2

0

1 2 3

Conflict Year

0

1

2

3

4

5

6

7

1 2 3

Conflict Year

March 9, 2017

Deaths,

internal

displacement

and refugees

Damage to

physical

capital and

infrastructure

Weakening

confidence

and security

Weakening

social

cohesion and

institutional

quality

In conflict

Neighbors

Rest of the

World

Conflicts have multiple economic transmission channels

6

External partners

Economic impact

Policy response

March 9, 2017

The most dramatic impact has been humanitarian

7

Refugees Hosted in MENA Countries

0

2

4

6

8

10

12

0

500

1,000

1,500

2,000

2,500

3,000

PA

K

LB

N

IRN

JOR

SD

N

IRQ

YEM

AFG

EG

Y

DZ

A

MR

T

SY

R

DJI

TU

R

EU

-28

Registered refugees (LHS)

As a share of population (RHS)

0

10

20

30

40

50

60

'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15

World

MENA Region

Refugees

IDPs

Displaced Persons: Refugees Plus IDPs

(In millions)

Sources: UNHCR and IMF staff calculations.

The approximately 5 million Palestinians living in Jordan, Lebanon,

Syria, and West Bank/Gaza fall under the mandate of UNRWA

and are not included.

External partners

Economic impact

Policy response

Sources: UNHCR and IMF staff calculations.

Note: Country labels follow the International Organization for

Standardization. EU-28 refers to the 28 nations of the European Union.

Estimates of inhabitants (including refugees) are from the UN

Population Division.

20

In t

ho

usa

nd

s In p

erce

nt

March 9, 2017

Physical capital has been destroyed and damaged

8

Homs, Syria Sanaa, Yemen

March 9, 2017 9

Confidence and security have been negatively affected

FDI and Political Stability in MENA

(Percent of GDP, 2000-2015)

Sources: FDI: WEO, excluding GCC and Sudan; Political

Stability: World Bank World Governance Indicators; and IMF

staff calculations.

-15

-10

-5

0

5

10

15

20

25

30

35

40

-3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0

Net

FD

I In

flo

w →

Political Stability/Absence of Violence

(More Stability →)

Not in Conflict

Conflict

Spillover

External partners

Economic impact

Policy response

Business Costs of Terrorism

(Average, on a 1 to 7 scale)

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

2007 2010 2013 2016Lo

wer

rati

ng

= g

reate

r co

sts

MENA LAC EDE EDA CIS

Sources: World Economic Forum; and IMF staff calculations.

March 9, 2017 10

Macroeconomic policy response involves two perspectives

Short term: limit the immediate impact

of conflictsLonger term: implement economic

agenda for sustainable recovery

Address

needs of

refugees

Foster

inclusive

growth

Rebuild after

conflict

External partners

Economic impact

Policy response

Prioritize

spending

Stabilize

economy

Protect

institutions

March 9, 2017 11

Macroeconomic policy can help limit immediate impacts

Short term: limit the immediate impact

of conflictsLonger term: implement economic

agenda for sustainable recovery

Address

needs of

refugees

Foster

inclusive

growth

Rebuild after

conflict

External partners

Economic impact

Policy response

Prioritize

spending

Stabilize

economy

Protect

institutions

March 9, 2017

0

20

40

60

80

100

120

140

160

1984 1988 1992 1996 2000 2004 2008 2012 t t+5 t+10 t+15

Peak 2010

Estimated 55–60 percent

decline by 2015

7 percent growth

4.5 percent growth

2 percent growth

12

Recovery takes a long time

Estimated Economic Recovery Path for Post-Conflict Syria

(Real GDP index, 2010=100)

External partners

Economic impact

Policy response

Sources: National authorities, staff estimates, Center for Systemic Peace; and IMF staff calculations.

Post-conflict period

March 9, 2017 13

Macroeconomic policy can help sustain recovery

Short term: limit the immediate impact

of conflictsLonger term: implement economic

agenda for sustainable recovery

Address

needs of

refugees

Foster

inclusive

growth

Rebuild after

conflict

External partners

Economic impact

Policy response

Prioritize

spending

Stabilize

economy

Protect

institutions

March 9, 2017

External partner engagement can use four instruments

14

Financial

support to

facilitate

adjustment

Policy advice

Capacity

building

assistance

Trade access

External partners

Economic impact

Policy response

March 9, 2017 15

IMF engagement

Key objectives of

Fund engagement

• Help prevent economic collapse amid conflict

External partners

Economic impact

Policy response

• Help strengthen economic resilience

• Help rebuild once conditions allow

• Help with inclusive growth reforms to prevent conflict

March 9, 2017

IMF has continued to engage with conflict-affected countries

16

Policy advice

Financing

arrangements

Capacity building

Article IVs: Exhaustive look at

the state of the economies and

relevant economic policies

Current arrangements:

Afghanistan, Egypt, Iraq,

Jordan, Tunisia, Pakistan

Technical assistance

and training

Over $35

billion

since 2010

About 2

missions a

year

Over 20,000 staff

days delivering TA

since 2010

External partners

Economic impact

Policy response

March 9, 2017 17

IMF has continued to engage with conflict-affected countries

Article IV Programs

TA Delivered: FY2010-16

(# person-years)

Egypt 2010, 2014 EFF (2016-19) 4.8

Jordan 2010, 2012, 2014 SBA (2012-15), EFF (2016-19) 6.6

Lebanon 2010, 2011, 2014, 2015,

20166.9

Pakistan 2011, 2013, 2015 SBA (2008-11), EFF (2013-16) 1.4

Tunisia 2010, 2012, 2015 SBA (2013-15), EFF (2016-20) 7.1

Afghanistan 2011, 2014, 2015 ECF(2011-14; 2016-19), SMP(2015) 10.1

Iraq 2013, 2015SBA (2010-13; 2016-19)

SMP(2015-16), RFI (2015)3.8

Libya 2010, 2013 11.6

Somalia 2015 SMP (2016-17) 3.0

Sudan2010, 2012, 2013, 2014,

2016SMP (2009-10; 2014) 11.2

Syria 2009 3.8

Yemen 2013, 2014 ECF (2010-12; 2014-16), RCF (2012) 4.3

West Bank/Gaza Missions in 2011-2016 8.2

External partners

Economic impact

Policy response

Countries that are being exposed to spilloversCountries that have experienced recent conflicts

Note: An effective person-year of technical assistance is defined as 260-262 working days of Fund staff or experts.

March 9, 2017

Crisis calls for continued need for large-scale financial support

18

Funding For Coordinated Syrian Response in 2015

(In Millions)

External partners

Economic impact

Policy response

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Jordan Lebanon

Food Security

Education

Health and Sanitation

Protection

Other

Unfunded

Sources: 3RP FY2015 Annual Report; and IMF staff calculations.

Note: The bars represent total funding requested in the 3RP plan,

including received funding allocation and unfunded request.

• Integrate developmental and

humanitarian assistance

• Raise financing to deal with

refugee needs

• Prepare for support with post-

conflict reconstruction

• Prioritize and effectively sequence

projects, reforms efforts, and

capacity building assistance

• Enhance cooperation among

international donors and IFIs

• Maintain debt sustainability

March 9, 2017

THANK YOU

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