A Stronger Engine For Middle East And North Africa’s Growth

… The (IMF) Managing Director’s Keynote Speech at the Ninth Arab Fiscal Forum, Dubai, UAE.

Assalamu alaikum, your excellencies. I would like to thank Minister Al Hussaini for the United Arab Emirates’ continued warm hospitality in hosting this import­ant annual event, as well as his excellent leadership of the World Bank’s Development Committee.

It is a privilege to address you at the ninth Arab Fiscal Forum. Over the years, the IMF and Arab countries have always had a strong and productive partnership. Today, this partnership is more vital than ever as the world and this region undergo significant economic, technological, and geopolitical shifts—a point that I will reflect on later.

In my remarks, I will explore how Arab countries can leverage fiscal policy to transform their economies for the future, and har­ness technology and investment opportunities for the benefit of their people.

Global outlook and transformations

Let me start with an overview of the global and regional econom­ic outlook.

Global growth is projected to hold at 3.3 percent this year and the next, and then to slow over the next five years, to just above 3 percent. This is well below the historical average.

For the Middle East and North Africa, we expect growth to re­bound to about 3.6 percent in 2025, driven by a recovery in oil produc­tion and an easing of regional con­flicts. However, as with the global economy, our medium-term out­look still sees growth weaker than before the pandemic.

Policymakers have generally succeeded in taming inflation, but not everywhere, with infla­tion picking up again in some countries. This could lead to a di­vergence in interest rates across countries and higher borrowing costs for emerging market and de­veloping economies.

On the fiscal side, the legacy of the multiple shocks from the last years leaves public finances under significant strain in many coun­tries. Global public debt is project­ed to hit 100 percent of global GDP by 2030. Many countries in this re­gion face similar pressures, with debt levels exceeding 70 percent of GDP. This poses the risk of them becoming trapped in a low-growth, high-debt scenario.

Governments have the difficult task of containing high debt lev­els in the face of rising spending needs. This region faces the press­ing need to create jobs, enhance social safety nets, build resilience to more frequent natural disasters, and support economic diversifi­cation. The demands of national security and post-conflict recon­struction are also substantial.

This is all happening at a time of significant global transforma­tions, which are creating a more uncertain and challenging envi­ronment for policymaking. We know, for instance, that trade is no longer the engine of growth that is used to be—unlike the de­cades of the 1990s and 2000s when global trade grew much faster than global GDP, the two are now grow­ing at roughly the same rate. Gov­ernments around the world are shifting policy priorities: the new US administration has been clear that it intends to take action in the areas of trade, tax and spending, deregulation, and technology/dig­ital assets. And the technology revolution—especially AI—is upon us and is set to transform the way we live and work, perhaps as early as the next five years.

These rapid transformations mean the recipes of the past may no longer provide the path to pros­perity. Economies will need to be agile, adaptable and resilient— these will be the ingredients for future success.

How can the MENA region find these ingredients for success and avoid a low-growth, high-debt sce­nario?

Building adaptable and more resilient economies

First, focus on structural changes that increase economic resilience, agility, and long-term growth potential. Too often, coun­tries use fiscal stimulus to boost short-term domestic demand. While this “sugar rush” provides temporary growth, it often fuels inflation and financial turbulence. Instead of merely stepping on the gas, we need a stronger engine.

Productivity growth is essential for stronger growth and driving up economic performance. Our re­search in the Arab region shows how to do it: accelerate digitaliza­tion, reduce the state’s footprint in the economy, foster trade diver­sification, and encourage the free flow of capital to dynamic firms.

Countries in the region that are more digitalized have sub­stantially higher productivity than less-digitalization ones. Some countries are among the most developed in the world in this area. Digital innovation, with AI technologies, is expected to raise UAE’s GDP significantly by 2030. More R&D spending will further enhance productivity.

Reducing the state’s footprint in the economy and strengthening governance can yield significant benefits. For example, Saudi Ara­bia’s regulatory improvements have fostered private sector in­vestment, especially in the non-oil economy. The UAE’s National Agenda for Entrepreneurship has supported a vibrant startup com­munity, and Morocco’s New Model of Development aims to spur mar­ kets by improving public sector governance.

Encouraging employment is also a key ingredient for stronger growth. With a growing work­ing-age population, the region has to make the most of its demo­graphic advantage. Creating more private jobs, for women and youth in particular, can lead to more vi­brant and inclusive economies. This requires more-flexible labor markets, and investment in edu­cation and vocational training. We have recently seen impressive developments in this regard in Oman, Qatar, and Bahrain.

A second priority is economic diversification. Today’s trans­formations provide an excellent opportunity to stimulate and re­allocate resources toward new eco­nomic sectors and services. This could become a robust new growth engine, particularly for oil-export­ing countries. Many countries are already investing in new technolo­gies, such as batteries for electric cars; in improving connectivity and in green supply chains, for example.

Third, in a world where pat­terns of cooperation are shifting, countries need to look for opportu­nities to cooperate in new ways. In many cases, this means deepening regional cooperation. The GCC is an excellent example of the bene­fits of regional integration—one that I can imagine can be emulated elsewhere.

Building fiscal buffers and institutions

Let me turn to the fiscal side.

Prudent fiscal stance is essen­tial for macroeconomic stability — a prerequisite for a vibrant pri­vate sector and economic growth. An overarching priority today is to decisively use fiscal policy to build fiscal buffers, which is essen­tially the capacity to spend when needed – for example, to respond to shocks, manage and mitigate risks, and meet pressing develop­ment and climate-related needs.

Many countries will need to pursue fiscal consolidation. It is crucial to carefully calibrate the size, pace, and composition of fis­cal adjustments, to avoid unduly hampering growth. Tailoring bud­getary reforms to each country’s circumstances, with a helping hand for those who lose out, is vital to ensure public support.

In this context, increasing tax revenues remains a priority. Our research finds significant poten­tial in strengthening domestic tax systems. This requires expanding tax bases, especially as economies diversify. For example, as new sec­tors grow, including through dig­italization, they can become an important source of tax revenues. In addition, digitalization and AI can help modernize tax adminis­trations.

Domestic taxes will remain the primary source of funding government spending. However, private domestic and external fi­nancing will be needed to support the spending needs in the region. Addressing the impact of more frequent natural disasters will potentially require a cumulative $1 trillion in investment by 2030. The financial sector must play a larger role, while governments can enable an investment-friendly environment.

Several countries in the region require special attention, either to resolve ongoing conflicts or to advance post-conflict reconstruc­tion. I pray that peace and stabil­ity can be delivered in Sudan and Yemen. I hope that the ceasefire in Gaza, along with political changes in Syria and Lebanon, can mark new beginnings. The internation­al community’s reconstruction efforts provide a unique opportu­nity to rebuild better and lay the foundations for stronger growth.

Let me conclude

In a world of rapid transforma­tions, it is critical for countries to become more agile, adaptable, and resilient. They need to look for new engines of growth, which will also help avoid a low-growth, high-debt trap.

The private sector has to be in the lead in transforming econo­mies in the region through en­trepreneurship, job creation, and innovation.

The role of governments is to foster the right environment for this private sector-led growth: by strengthening governance, mod­ernizing public institutions, re­ducing bureaucracy, encouraging youth and female employment, and improving access to capital. And by designing and communi­cating policies that put people first and increase social support.

The IMF remains fully commit­ted to supporting the Middle East and North Africa. Since early 2020, we have approved about $33 billion in financing for the region, most recently in 2024 to help mitigate the impact of conflict. We have also recently reformed our sur­charge policy, resulting in import­ant savings for some countries. We have also expanded our capacity development and strengthened our regional presence with resi­dent representative offices, techni­cal assistance centers, and the new regional office in Riyadh.

We are now stepping up our ef­forts to support the private sector, with the creation of a new IMF Ad­visory Council on Entrepreneur­ship and Growth. I can assure you, this region will be represented on it. And we look forward to the up­coming Al-Ula conference with emerging market economies, to discuss key issues affecting your economies. Jobs, innovation, and productivity—combined with a sound fiscal approach—will mean better prospects for citizens in this region and ultimately more peace and stability.

Let’s get to work, or as you say, “linabda al-âmal”—let’s start the work together!

I wish you all many insightful discussions and meaningful out­comes today.

Shukran!

Source: International Monetary Fund (www.imf.org), February 10, 2025.