MENA Quarterly: Q2 2022

The outlook for the GCC economies is constructive. Growth will be driven by increased investment and production in the hydrocarbon sectors, while the non-oil sectors will continue to recover from the pandemic contraction as restrictions have been eased, Covid-19 vaccination rates are high and international travel rebounds. However higher inflation, slower global growth and rising interest rates are likely to prove headwinds to growth in the non-oil sectors.

Improved fiscal dynamics for GCC oil exporters will allow governments to cushion some of the impact of higher global energy and food prices on their consumers, if they choose to do so, as well as provide support to other MENA countries that are more vulnerable to global supply shocks.

By contrast, most of the rest of the MENA region is facing a far more challenging 2022. With most of the non-GCC countries reliant on oil imports, they will be hit by the higher global prices while their FX inflows from tourism remain below pre-pandemic levels. The inflationary impact of higher energy prices will be further exacerbated by rapidly rising food prices, posing challenges to governments operating with reduced fiscal space. Support from the GCC and from multilateral bodies such as the IMF will be key for some countries this year, but not all will be able to implement the prerequisites required by the Fund in order to secure a new support package.

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