The Israel-Gaza conflict and reduced oil production were to blame for the Middle East economies’ underperformance, according to the International Monetary Fund, even though the forecast for the world economy remained optimistic.

“The global economy has been surprisingly resilient,” IMF managing director Kristalina Georgieva said to the Arab Fiscal Forum in Dubai, despite the ongoing crisis in Gaza. However, she cautioned about the possible larger impact of this resilience on regional economies.

The IMF reduced its GDP growth forecast for the Middle East and North Africa down to 2.9% this year in a regional economic assessment last month. This is because the region has lagged behind October projections, partly because of short-term oil output constraints and the Gaza conflict.

Last month, the IMF revised up its prediction for the growth of the world economy, citing faster-than-expected deflation and improving the prognosis for China and the United States.

According to Georgieva, the conflict had a negative impact on tourism earnings in the economies that border Israel and the Palestinian territories, while the attacks in the Red Sea had an impact on freight costs worldwide.

Speaking at the event on the fringes of the World Governments Summit in Dubai, she said that these elements made “the challenges of economies that are still recovering from previous shocks” more difficult.

Since mid-November, the Houthis, who support Iran, have been using drones and missiles to target commercial vessels in the Red Sea. They claim that their actions are in sympathy with the Palestinian people, as Israel continues to strike Hamas militants in Gaza.

However, the United States and its allies describe them as indiscriminate and a threat to international trade.

A number of international shippers have begun rerouting business to the Cape of Good Hope, which is a more extensive route than via the Suez Canal in Egypt.

On the fringes of the summit, Egypt’s Finance Minister Mohamed Maait told Reuters that strong growth in “the period before the events” may help offset some of the impact of the diversion on Suez Canal income.

According to Georgieva, the IMF will release a report on Monday that demonstrates how eliminating energy subsidies could save $336 billion across the Middle East—amounts equal to the combined GDP of Libya and Iraq.

Removing regressive energy subsidies, according to Georgieva, “discourages pollution, and helps improve social spending.”

The IMF has stated that fossil fuel subsidies accounted for 19% of GDP in the Middle East and North Africa (MENA) area in 2022.

As an alternative, it has advised targeted support and the progressive unwinding of energy subsidies for the economies of the area, especially oil exporters.

The World Governments Summit is centred around advanced technology, which includes artificial intelligence. Notable speakers from big international tech companies include OpenAI CEO Sam Altman.

According to Georgieva, 40% of occupations worldwide could include AI, therefore nations without the infrastructure or trained labour force to make the necessary investments risk falling behind.

AI investment has expanded dramatically in regional economies like Saudi Arabia and the United Arab Emirates as a means of diversifying revenue streams.

(Adapted from ThePrint.in)

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