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Middle East, North Africa Vulnerable to Rising Fiscal Risks – IMF

Countries excluding high income Gulf states face risks from volatile growth, contingent liabilities and natural and climate disasters, fund said.

Countries in the Middle East and North Africa are vulnerable to rising fiscal risks from a series of factors including volatile growth and reliance on both hydrocarbon revenue and food subsidies.

A region branded “MENAPEG” – Middle East, North Africa, Pakistan, excluding Gulf states, is especially vulnerable, the International Monetary Fund (IMF) said.

The reasons for the vulnerability include volatile economic growth and high reliance on both resource revenue from the hydrocarbon exporters such as Algeria, Iraq and Libya, as well as energy and food subsidies, which expose budgets to fluctuations in commodity prices.

Another factor is state ownership of non-financial corporations and banks which can generate sizeable government obligations or contingent liabilities that can come due when negative events occur.

Contingent liabilities may arise from public private partnerships, for example, when a private partner has to be compensated if projects fall short of projections, the IMF said.

Natural and climate disasters such as floods in Pakistan in 2022, extreme drought in North Africa or social conflict and instability can also disrupt economic activities, destroy infrastructure and create additional spending needs.

Given uncertainties, fiscal risks cannot be fully avoided, IMF said, adding: “However, better risk awareness and stronger fiscal risk management will reduce budgetary surprises and provide firm ground for long-term development policies.”

Source : Zawya