In a speech at the World Governments Summit in Dubai on February 11, IMF managing director Kristina Georgieva discussed the resilience of the global economy despite various challenges, including short-term oil production cuts, the Israel-Gaza conflict, and tight monetary policies in the Middle East. Georgieva was surprised to note that the global economy had exceeded expectations and grown in 2023.
However, Georgieva also pointed out that the Israel-Gaza conflict and subsequent rise in freight costs have impacted neighboring economies. Additionally, there has been a nearly 50% drop in Red Sea transit volumes due to other factors. Georgieva warned that any further widening of the conflict could worsen the economic situation for countries still recovering from previous shocks.
The decline in oil demand is an increasingly challenging issue for net energy importers, who are already limited by historically high debt and borrowing needs, and limited access to external financing. Georgieva noted that growth in 2024 is expected to surpass the previous year’s growth but still remains anemic. The IMF expects 2024 GDP growth for the Middle East and North Africa (MENA) region to reach 2.9%, down from 3.4% previously.
To address these challenges, Georgieva recommended gradual energy subsidy reforms for the Middle East through a paper published on February 12. This could save $336bn in the region, equivalent to the economies of Iraq and Libya combined. Georgieva suggested that eliminating regressive energy subsidies would discourage pollution and help improve social spending.
Overall, Georgieva’s speech emphasized the importance of addressing both short-term challenges and long-term prospects for sustainable economic growth globally and regionally.