IMF Expects Direct Impact of US Tariffs on MENA Region to Be Limited

The direct impact of US tariffs on countries in the Middle East and North Africa region is expected to be limited, given their limited trade exposure to Washington and the exemptions granted for energy products, according to Jihad Azour, Director of the Middle East and Central Asia Department at the International Monetary Fund.

In response to a question from Asharq Al-Awsat on Thursday during a press conference in Washington on the sidelines of the annual meetings of the International Monetary Fund and the World Bank, Azour stated that the indirect impacts will be greater through weaker global growth, noting that oil-exporting countries may experience a weakening financial situation due to the decline in oil prices.

The IMF has lowered its global growth forecast for the current and next years due to the United States' tariff hike and countermeasures by its trading partners.

Azour noted that some countries in the region may benefit from trade diversion, but he explained that the gains in this regard may be short-lived.

The indirect impacts of the trade war could take several different forms for the region, most notably affecting financial stability and capital flows, according to the official at the lending institution.

He added: "We have seen a widening of yield spreads over the past few years, a problem that could impact the resilience of emerging economies and middle-income countries with high debt levels."

The Middle East and North Africa region grew by about 1.8% last year, 0.2% lower than the IMF's October forecast.

The IMF affirmed its commitment to supporting the region's conflict-affected economies, announcing the establishment of an informal coordination group to support recovery in conflict-affected countries in the Middle East, in coordination with the World Bank and its regional partners. The group's work focuses on capacity building, policy guidance, and financial assistance.

Azour believes that "the region is a link between East and West, which presents it with numerous opportunities," but taking advantage of these opportunities "requires seeking to strengthen economic relations and trade ties with neighboring regions, as well as within the region itself."

Despite these challenges and high uncertainty, growth in the region is expected to rebound in 2025 and 2026, assuming a recovery in oil prices, the stabilization of conflict-related impacts, and progress in implementing structural reforms. However, forecasts for the region's economies have been lowered compared to the October 2024 forecast, reflecting the impact of weak global growth, according to the International Monetary Fund.

The International Monetary Fund expects growth in the region of 2.6% this year and 3.4% next year, a reduction of 0.9 percentage points and 0.5 percentage points, respectively, from its estimates issued at the beginning of the year.

In the face of exceptional global uncertainty, Azour urged countries in the region to focus on managing short-term instability and seize the opportunity to advance long-term structural reforms. He stressed the need for countries to adapt to the new environment, protect their economies from the effects of worst-case scenarios, and prioritize preserving macroeconomic and financial stability.

Countries in the region face several major risks. The first is a decline in global demand due to the escalation of the trade war, which could delay the recovery of oil prices. The second risk is geopolitical conflict, while the third is driven by climate shocks. The fourth is a decline in official development assistance, according to Azour, who noted that "these risks could exacerbate food insecurity and humanitarian conditions in low-income and conflict-affected economies."

Exposure to external uncertainty in the region could be mitigated by establishing strategic trade and investment corridors with other regions, such as sub-Saharan Africa and Asia, as well as within the region, including between the Gulf Cooperation Council (GCC) countries and Central Asia or the GCC and North Africa, according to the Director of the IMF's Middle East and Central Asia Department.