Inflationary pressures in the MENA region are expected to be more persistent than envisioned in October 2022, according to the International Monetary Fund (IMF) Regional Economic Outlook: Middle East and Central Asia “Safeguarding Macroeconomic Stability amid Continued Uncertainty,” published on Wednesday. “The upward revisions for the region are driven primarily by EM and MIs, particularly Egypt and Tunisia, where inflation is expected to accelerate at a faster pace after further exchange rate depreciation in the former and price liberalization and subsidy reform in the latter,” the report pointed out. “Inflation has continued to rise in Egypt, Pakistan, and Tunisia, with the comparison of current policy interest rates relative to natural policy rate estimates suggesting that further interest rate increases are needed to stabilise inflation,” according to the document. “Inflationary pressures in the MENA region are expected to be more persistent than envisioned in October. Headline inflation is set to remain unchanged at 14.8 percent in 2023 (14.8 percent in 2022) and to decline to about 11 percent in 2024-an upward revision of about 2.5 percentage points for both years since October,” the IMF said. “Where the policy stance is loose and inflationary pressures persist, tighter monetary policy should be considered to stabilise inflation and inflation expectations (for example, in Egypt, Pakistan, and Tunisia),” the report considered. “For some MENA EM and MIs (including Egypt and Tunisia) and Pakistan, policy interest rates stood at levels below model-based estimates of natural rates, suggesting that monetary policy stances were still loose at the end of 2022.” “MENA EM and MIs (especially Egypt, Jordan, and Tunisia) and Pakistan are expected to undertake meaningful fiscal consolidation, including subsidy reforms (Egypt, Morocco, Pakistan, Tunisia), with primary fiscal deficits projected to decline by about 3 percentage points of GDP on average between 2022 and 2025, in the context of IMF-supported programs for some countries (Egypt, Pakistan) or announced programs (Tunisia).” “Public debt-to-GDP ratios continued to rise in Pakistan and Tunisia, reflecting the combination of still-large overall fiscal deficits and the impact of exchange rate depreciations, offsetting the eroding effect of high inflation.” “Sovereign bond spreads have widened, and borrowing costs have increased sharply on net in many EM and MIs (Lebanon, Pakistan, Tunisia) relative to October 2022.” “Activity in Jordan and Tunisia is projected to remain subdued this year and next, reflecting weakening growth in their main trading partners, spillovers from the economic fallout of the war in Ukraine, tighter external and domestic financial conditions, and restrictive fiscal policies.” “Overall, public debt-to-GDP ratios should decline in the medium term in most EM and MIs, further reflecting the erosion of the real value of public debt from persistent inflation (Egypt, Pakistan, Tunisia) and growth recovery.”
Source: Agence Tunis Afrique Presse