The International Monetary Fund expects the economies of the Middle East, North Africa and Pakistan to rebound to growth of 6.6 percent in 2027, following a projected contraction of 1.3 percent this year, amid the economic fallout from the regional war and disruptions to energy production and trade, which have affected countries across the region to varying degrees. Jihad Azour, the IMF's director for the Middle East and Central Asia, said economies directly affected by the conflict are facing severe pressures, while other economies in the region, along with most countries in the Caucasus and Central Asia, have shown greater resilience. He explained that the path of the recovery will depend largely on how quickly energy production and trade return to normal and on countries’ ability to maintain macroeconomic stability. The forecasts come after the economies of the Middle East, North Africa and Pakistan grew by 3.3 percent in 2025, illustrating the scale of the shock expected this year before a strong rebound next year. Azour stressed, however, that the overall projections mask significant disparities among the region’s economies and that the recovery will not be uniform across countries. Oil Exporters and Importers Azour said oil-exporting countries directly affected by disruptions to energy production and trade will experience a marked contraction in 2026, although higher oil prices will provide some support to their fiscal and external positions. A gradual recovery in production and trade is expected to drive a strong rebound in GDP growth in 2027, although output levels will remain below the trajectory projected before the outbreak of the conflict. By contrast, economic activity in the region’s oil-importing countries has remained relatively resilient during 2026 and is expected to continue doing so. Workers’ remittances, tourism revenues, favorable financial conditions and government support have helped cushion the immediate impact of the shock, although the policy space available to governments is narrowing. The IMF expects inflation in these economies to rise moderately in 2026 before gradually easing thereafter. The Chinese-flagged container shipping vessel Hui Fa transits the Gulf of Oman on October 13, 2026. (Photo by AFP) Lower Inventories, Greater Risks Azour noted that the impact of the energy shock has been less severe than initial estimates suggested, thanks to surpluses accumulated before the war, production by non-Gulf countries, alternative transportation routes, adjustments in demand and drawdowns from inventories. He cautioned, however, that these factors have provided time for adjustment but are not sustainable resources. Available inventories have declined and spare production capacity has narrowed, leaving markets more vulnerable to larger price increases should disruptions recur. Azour identified a prolonged war as the most significant risk to the outlook, warning that further disruptions to energy production, shipping routes or critical infrastructure would weaken economic activity among Gulf oil exporters, increase inflationary pressures and exacerbate fiscal and external strains across the region. He also warned that tighter global financial conditions could weaken demand, raise borrowing costs and increase pressure on currencies, particularly in economies with substantial sovereign debt-financing needs or a heavy reliance on external financing. Low-income and fragile economies remain the most vulnerable to these risks because of their dependence on food imports and limited fiscal space, at a time when official development assistance is also declining. Call for Targeted Support and Rebuilding Fiscal Buffers Azour urged policymakers to prioritize price stability and fiscal sustainability, using monetary policy as the first line of defense when inflationary pressures emerge, complemented by prudent fiscal policy, particularly in countries with limited financial resources. He stressed the importance of rebuilding fiscal buffers to withstand future shocks by strengthening domestic revenues, improving spending efficiency and developing stronger fiscal frameworks. He cautioned against broad-based subsidies, favoring instead temporary and targeted cash assistance for the groups most affected, helping keep the cost of intervention within budgetary limits. Over the longer term, Azour emphasized the importance of strong institutions, credible monetary frameworks and central bank independence, alongside greater trade diversification, deeper regional integration and a stronger capacity to adopt new technologies, including artificial intelligence, to boost productivity and support growth. Azour noted that the IMF has approved approximately $48 billion in financing for countries in the region since 2020. During fiscal year 2026, it also carried out around 437 technical assistance and capacity-building projects in 31 countries. The IMF is scheduled to release its full regional report in Dubai on October 22, providing a more detailed assessment of economic developments and policy priorities.
