By Rachna Uppal

DUBAI (Reuters) – Growth in the Middle East and North Africa (MENA) region is expected to rebound to 4% next year, contingent on phasing out oil production cuts and diminishing headwinds, including conflicts, according to the International Monetary Fund (IMF) on Thursday.

Growth in the region will remain "sluggish" at 2.1% in 2024, as stated in the IMF's latest Regional Economic Outlook, released in Dubai. This projection is lower than previously anticipated, affected by geopolitical and macroeconomic factors.

The IMF warned that risks to the outlook for the entire region, including the Caucasus and Central Asia, "remain tilted to the downside," advocating for accelerated structural reforms in governance and labor markets to enhance medium-term growth prospects.

The MENA growth estimate for 2024 has been revised downwards by 0.6% from April's report, primarily due to the ongoing Israel-Hamas conflict and extended OPEC+ voluntary oil production cuts, according to Jihad Azour, the IMF's director for the Middle East and Central Asia.

Azour mentioned the "good news" that inflation is being gradually controlled across the region, expected to average the 3% target rate in 2024, except for Egypt, Iran, and Sudan.

However, the outlook vastly varies across the region, with oil-exporting countries likely to handle potential risks better, backed by strong non-oil sector growth.

In the face of lower oil prices and production this year, non-oil growth in the Gulf Cooperation Council (GCC)—including Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman—has outperformed overall growth, driven by government-led investment programs stimulating domestic demand.

Conversely, MENA oil importers remain more susceptible to ongoing conflicts and high financing requirements.

The IMF report stated, "Even as these issues gradually abate, uncertainty remains high and structural gaps will likely hold back productivity growth in many economies over the forecast horizon."

Since January 2024, the IMF has approved $13.4 billion in new funding for Middle Eastern and Central Asian countries, including programs in Egypt, Jordan, and Pakistan.