The article was first published on IMF on October 15th, 2026.

Remarks by Jihad Azour, Director, Middle East and Central Asia Department.

Good morning and thank you for joining us at the 2026 Annual Meetings.

Before we begin the Q&A session, allow me to share the latest economic outlook for both the MENAP and the CCA regions.

The War in the Middle East is imposing a highly uneven economic shock on the region. Economies directly affected by the conflict are under severe pressure, while other MENAP economies and much of the Caucasus and Central Asia (CCA) have shown greater resilience. The outlook depends critically on how quickly energy production and trade normalize, and on countries’ ability to preserve macroeconomic stability.

The context

Oil output among almost all directly affected exporters fell sharply, while disruptions to shipping and refining sent fuel prices sharply higher. Yet, the impact was more contained than the scale initially suggested. Prewar surpluses, output from non-Gulf producers, alternative transport routes, adjustment in demand, and substantial inventory drawdowns all helped cushion the blow. These buffers bought time, but they are finite. Inventories are lower, spare capacity is tighter, and renewed disruption could generate much larger price adjustments.

Let me start with outlook for the Middle East and North Africa and Pakistan. 

The MENAP outlook is diverging sharply. We are projecting deep contraction in the MENAP region in 2026 followed by a strong but uneven rebound in 2027, with growth expected to fall from 3.3 percent in 2025 to -1.3 percent in 2026, before rising to 6.6 percent in 2027.

This projection, however, masks substantial differences across the region. Oil-exporting economies directly affected by disruptions to energy and trade will experience a significant contraction in 2026, although higher oil prices will provide some support to their fiscal and external positions. The expected gradual normalization of energy production and trade will drive a sharp rebound of GDP growth in 2027, but output will remain below the medium-term path projected before the conflict.

By contrast, economic activity in MENAP oil-importing economies has remained relatively resilient in 2026 and is expected to stay so. Remittances and tourism inflows, accommodative financial conditions, and government support have helped limit the immediate impact. This resilience has helped cushion the shock, but policy buffers are narrowing. Inflation is projected to rise moderately in 2026, before gradually easing thereafter.

Let me now turn to the outlook for the Caucasus and Central Asia.

The CCA region has weathered the shock relatively well, supported by strong remittances and buoyant investment. Growth is projected to moderate from 6.2 percent in 2025 to a more sustainable 5.2 percent in 2026 and 5.0 percent in 2027. Higher imported energy and food prices have renewed inflationary pressures, with the impact varying significantly across countries. Inflation is expected to continue declining from elevated levels, albeit at different speeds across the region depending also on the policy stances in individual countries.

This outlook remains subject to exceptionally high uncertainty.

The most important risk is a more prolonged conflict. Further disruptions to energy production, shipping routes, or critical infrastructure would weaken activity in Gulf oil exporters, while increasing inflationary pressures and placing additional strain on fiscal and external positions across the region.

Tighter global financial conditions could weaken demand, raise borrowing costs, spur currency pressures, and deepen vulnerabilities in economies with large sovereign financing needs or reliance on external funding.

Low-income and fragile economies remain particularly vulnerable. High dependence on food imports and limited fiscal space amid declining official development assistance leave many of these countries with limited capacity to absorb shocks.

So how should policymakers address these challenges?

Our recommendations are focused on three key directions:

First, policymakers should continue to prioritize price stability while preserving fiscal sustainability. Where inflationary pressures emerge, monetary policy should remain the first line of defense. A tighter monetary stance and restraining liquidity needs to be complemented by prudent fiscal policy, particularly in countries with limited fiscal space.

Second, rebuilding fiscal buffers remains essential across the region, given persistent downside risks, Policy options include stronger domestic revenue mobilization, more efficient spending, and robust fiscal frameworks. Policymakers should refrain from introducing broad-based subsidies and instead aim to support those most affected through targeted, temporary, and budget-neutral cash transfers.

Third, countries should continue building their capacity to withstand future shocks.

Recent experience underscores the importance of robust policy frameworks. Countries with strong institutions, credible monetary frameworks backed by independent central banks, and greater fiscal space are generally better positioned to absorb shocks.

Trade diversification, deeper regional integration, and stronger capacity to adopt new technologies, including artificial intelligence, can boost productivity and long-term growth. This is particularly true when these measures are backed by reforms that enhance competitiveness.

Before opening the floor to questions, I’d like to underscore the IMF’s continued commitment to supporting MENAP and CCA economies.

Since 2020, the Fund has approved about $48 billion in financing for countries across the region.

Beyond financing, the IMF delivered 437 technical assistance and capacity development projects across 31 countries in these regions during FY2026.

The full Regional Economic Outlook will be published on October 22, in Dubai, where we will provide a more detailed assessment of economic developments, and policy priorities across the region.

Thank you. I look forward to your questions.