The International Monetary Fund has stated that the recovery trajectory for Arab countries dealing with the repercussions of political strife and unrest necessitates comprehensive international support. This support should extend beyond financial aid to include debt relief, institution building, and technical assistance, as outlined in the newly released report “Regional Economic Outlook” for the Middle East and Central Asia.
Debt restructuring is identified as a crucial element to enable recovering economies to achieve sustainable growth. This process must be implemented effectively and in conjunction with well-planned structural reforms that foster economic stability and enhance investor confidence, according to the Fund.
However, the recovery from conflicts in the region remains a “challenging and slow” process due to the severity and duration of the conflicts, coupled with weak periods of stability, which exacerbates economic and political uncertainty. The international organization emphasized the need for governments to focus on well-coordinated international assistance, prioritizing economic stability and governance to mitigate volatility and support consumption and investment.
Uneven Impacts on Regional Countries
For decades, the Arab region has faced consecutive wars and internal disturbances, some of which have escalated into devastating civil conflicts, in addition to unstable political situations.
The report highlighted several cases from the region. In Egypt, the economy is attempting to recover from the negative impacts of the Gaza conflict, notably a significant loss in revenue from the Suez Canal. Meanwhile, Syria is in the process of rebuilding its economy, which has suffered since the popular uprising in 2011 that quickly devolved into armed conflict, ultimately resulting in the fall of the previous regime amid stringent international sanctions. Lebanon is also looking for political consensus to facilitate the recovery of its economy, which has been struggling for years due to a severe crisis exacerbated by the recent Israeli aggression.
Last week, the Fund revised its growth forecasts for the region for this year and the next. It predicts a growth rate of 3.3% in 2025, slightly up from the previous estimate of 3.2% in July. For 2026, the Fund anticipates growth will accelerate to 3.7%, an increase from July’s forecast of 3.4%.
The updated growth projections for the Middle East and North Africa region are based on the disappearance of disruptions in oil production and shipping, coupled with a decline in the impacts of ongoing conflicts. The outlook has improved due to the recovery in oil prices compared to prior estimates, along with robust performance in Saudi Arabia’s economy, which is the largest in the region.
Two Metrics for Conflict Recovery
The IMF assesses successful recovery from conflict using two criteria: first, a return to the pre-conflict projected GDP per capita within five years, while maintaining peace during that period. The report indicated that the average post-conflict growth of GDP per capita over five years is significantly lower than both the global average and that of comparable regions, at below 1%, compared to 4.8% in similar areas. Additionally, periods of peace interspersed with geopolitical conflicts tend to be much shorter in the Middle East than in other parts of the world.
Resilience and Flexibility of Regional Economies
Jihad Azour, Director of the Middle East and Central Asia Department at the IMF, remarked that the resilience and flexibility of the region’s economies are positive factors in navigating global economic shocks. He noted that trade shifts, geopolitical dynamics, and fluctuations in oil prices are among the primary challenges, urging that ongoing uncertainty requires further adaptation to various developments.
Azour added that the diversification of regional economies evidences that the sources of this resilience are varied. In Gulf countries, this diversification is attributed to economic policies implemented in recent years that have lessened their reliance on oil sectors. Despite falling oil prices, these nations have successfully increased production levels.
For other countries, he discussed the bolstering of various sectors, particularly tourism, the increase in remittances, and the decline in oil prices, which collectively contributed to lowering energy costs.
Revised Growth Projections for Gulf Economies
The IMF has raised its growth forecasts for Gulf nations for 2025 and 2026, driven by a rebound in oil production and continued momentum in non-oil sectors, supported by strong domestic demand arising from economic diversification programs adopted by these countries.
According to the updated version of the “Regional Economic Outlook” report presented today, the Fund anticipates that Gulf economies will expand by 3.9% in 2025, representing an increase of 0.9 percentage points from previous assessments made in May. Growth is expected to reach 4.3% in 2026, up by 0.2 percentage points.
The Fund also predicts that the average oil price will stand at $69 per barrel in 2025, decreasing to $66 starting in 2026 and stabilizing around this level through 2030, a decline from the average prices of $79 last year.
The AI Race
The UAE, Saudi Arabia, and Qatar are identified as highly positioned to leverage artificial intelligence and technology, benefiting from existing infrastructure and investments in these sectors, according to Azour. He noted that other nations need to accelerate their pace of readiness to capitalize on these advancements through supporting innovative startups. He emphasized, “These sectors will transform the global economic landscape, and regional countries must keep pace rather than wait for these changes to materialize.” He added that the global economic transformation opens avenues for emerging markets to play a larger role, asserting that Gulf states have the potential to act as a nexus between significant global economies. Achieving this role requires further market expansion within the Gulf Cooperation Council through accelerated economic integration, deepening financial markets to attract more capital, diversifying funding sources, and continuing to build capacity beyond the oil sector to reduce reliance on oil.