IMF expects economies of Middle East, North Africa, Afghanistan and Pakistan to contract 1.3%
Key Facts
The International Monetary Fund expects the economies of the Middle East, North Africa, Afghanistan and Pakistan to contract by 1.3% in 2026 amid the fallout from the war and disruptions to energy production and trade, Asharq Al-Awsat reported. The expected contraction follows growth of 3.3% across the regional group in 2025, marking a shift from expansion to a decline in real output. The severity of the shock varies across the region, with oil-exporting economies whose production and trade have been directly disrupted among those affected. In an IMF briefing, Jihad Azour identified a prolonged conflict as the biggest risk to the regional economic outlook. Azour said: "The biggest risk is a prolonged conflict."
In a more pessimistic assessment, the World Bank expects output to contract by an average of 2.1% in 2026 in its regional report. The bank puts the decline after an expansion of 3.3% in 2025, the same prior growth rate cited by Asharq Al-Awsat in its account of the IMF forecasts. Gulf Cooperation Council economies feature among those hit in the World Bank's estimates. In its statement, the bank forecast that GCC economies would contract by an average of 4.3% during 2026. It attributed the pressure on these economies to the closure of the Strait of Hormuz and the resulting damage to exports and government revenue.
By contrast, the World Bank expects growth in the region's oil-importing countries to rise to 4.3% in 2026 from 3.9% in 2025. The acceleration highlights the uneven impact of the shock on oil-importing economies and Gulf economies facing an expected contraction. In its regional briefing, the IMF said remittances and tourism revenue had helped cushion the shock for oil importers. Accommodative financial conditions also helped these economies absorb the pressure. The fund added that government support was among the factors that softened the impact, alongside remittance and tourism flows and financial conditions.
On energy, the IMF said pre-war surpluses had cushioned the shock. Production by suppliers outside the Gulf and alternative transport routes helped limit the fallout from supply disruptions. Adjustments in demand and substantial inventory drawdowns also helped absorb part of the impact, according to the fund's briefing. In the context of limiting economic losses linked to transport disruptions, the fund stressed the importance of completing regional connectivity projects. It said completing the GCC railway and the Saudi Landbridge would significantly reduce the economic losses caused by the closure of the Strait of Hormuz.
The IMF expects inflation to rise moderately in 2026 before beginning to ease gradually thereafter. In its recommendations for tackling price pressures, the fund assigned the leading role to monetary policy. It called for monetary policy to serve as the "first line of defense" when inflationary pressures emerge, according to the regional briefing. On public finances, it recommended a prudent fiscal policy in response to the shock. It also called for rebuilding fiscal buffers, combining a monetary response to inflationary pressures with cautious budget management.
On protecting those most affected, the IMF called for avoiding broad-based subsidies. It recommended cash transfers as a way to support those affected by the shock. It specified that these transfers should be temporary and targeted, limiting assistance to the intended groups for as long as they need it. It also stipulated that they should be budget-neutral, as part of its recommendations on the form of the fiscal response. Its call to protect those most affected was thus accompanied by specifications on the nature and duration of assistance and its budgetary impact, alongside its general recommendation to rebuild fiscal buffers.
Looking ahead, Azour said the economic outlook would depend on how quickly energy production and trade return to normal. He added that countries' ability to maintain macroeconomic stability was another factor determining that trajectory. The fund expects growth among directly affected exporters to rebound as production and trade recover. However, it expects their output levels to remain below the path projected before the war, even as growth rates improve. Across the regional group comprising the Middle East, North Africa, Afghanistan and Pakistan, the fund expects growth to return to 6.6% in 2027, according to Asharq Al-Awsat.