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IMF: Mideast Turmoil May Have Wide Economic Impact

A guide looks for clients in front of the Sphinx and Giza Pyramids, Egypt, February 14, 2011

A guide looks for clients in front of the Sphinx and Giza Pyramids, Egypt, February 14, 2011

The International Monetary Fund says the political turmoil in the Middle East and North Africa could have a substantial impact on the region's economies this year.

The director of the IMF's Middle East and Central Asia department, Masood Ahmed, said in the agency's Survey magazine that the unrest has led to tighter credit restrictions for Middle East governments and corporations operating in the region, and bank lending is likely to remain slow.

Bloomberg News reported Thursday that the cost of insuring Middle East sovereign debt is increasing. The cost of such financial transactions increased for the fourth consecutive day for Bahrain, where riot police stormed the main square in the capital Manama early Thursday to drive out demonstrators.

A central bank official in Bahrain, however, said the demonstrations would not affect its economy, which is the world's 108th largest. Abdulrahman Mohammed al-Baker described the protests in his country as "a democratic way of doing things" and said that "investors are not worried."

The political turmoil in Egypt leading to the resignation of President Hosni Mubarak has exacted a heavy toll on that country's economy. Egypt's banks and the stock exchange are closed and thousands of workers are staging walkouts. The IMF's Ahmed said that in the near term, tourism and foreign direct investment in Egypt would decline.

A more open Egyptian government could lead to a "broader ownership of national economic reform" and a "sustainable improvement in living standards," according to Ahmed. He said such changes would allow the country to take advantage of a large domestic market and its strong financial sector.