WASHINGTON, Oct. 29 (Xinhua) -- The Middle East and Central Asia region, driven by rapid GDP growth, will outpace global growth for the eighth year in a row despite challenges, said a report released by the International Monetary Fund (IMF) on Monday.
"Helped by continuing high oil and non-oil commodity prices, and despite increased uncertainties in global financial markets, growth in the region is projected to stay in the 6 - 7 percent range in 2008," said the report.
All parts of the region are doing well, with growth in the Caucasus and Central Asia projected to be especially strong at 11 percent, the fourth year of double-digit growth.
Unemployment remains a big concern, however, especially in the Maghreb countries, where more moderate growth of 5 - 6 percent is expected.
The Maghreb countries comprise Algeria, Libya, Mauritania, Morocco, and Tunisia.
But inflation is on the rise in many countries, the report warned.
Fueled by strong demand growth, large external inflows, and generally accommodative monetary policies, average inflation in the region has picked up to 8 - 9 percent.
For oil exporters, the increase has been particularly sharp, to nearly 10 percent in 2007, from 7 percent in 2006. In the context of pegged or heavily managed exchange rates, higher inflation is resulting in significant real exchange rate appreciation in many countries, as would be expected in response to rising oil prices.
Mohsin Khan, director of the IMF's Middle East and Central Asia Department, said the recent global credit market turmoil has so far left the region's capital markets largely unscathed.
Signs of stress have, however, been evident in a tightening of liquidity and a widening of bond spreads of banks that have borrowed heavily from abroad, notably in Kazakhstan.
While the outlook remains positive, downside risks from the global economy have increased. If the credit crunch continues, growth in developed economies could slow sharply, with substantial spillovers to other parts of the world.
"Further spikes in oil or food prices would add to inflationary pressures and pose a dilemma for policymakers attempting to forestall an economic slowdown," said Khan.
"Such a scenario would test the region's resilience, which has been strengthened in recent years by sound macroeconomic policies, huge increases in official reserves and other foreign assets, and reductions in debt," he added.
Among oil exporters, Qatar is expected to increase 14.2 percent in 2007 and 14.1 percent in 2008, while Turkmenistan is projected to expand 10.0 percent this year and the next, according to the IMF report.
Among low-income countries, Afghanistan is set to increase 13.0percent in 2007 and moderate to a still-brisk 8.4 percent next year. And Egypt, as an emerging market, will expand 7.1 percent in2007 and 7.3 percent in 2008.
The region as a whole will grow robustly at 6.6 percent this year and continue its rapid 6.7 percent growth next year.
The IMF urged the region to continue its reforms, saying financial sector reforms are a priority for all countries in the region.
"Diversification is particularly important for countries facing rapidly declining oil reserves, and those that are vulnerable to fluctuating commodity prices," said the report.
"It will require further progress on a wide range of structural reforms to improve the business environment, boost productivity in the non-commodity sector, and encourage a dynamic private sector," said the IMF.
"The current strong macroeconomic environment provides an excellent opportunity to address these issues," it added.