But the Washington-based Institute for International Finance (IIF) said the outlook for 2013 remains challenging as investors are still wary of the security situation because of the political turmoil sweeping some regional countries.
In its December report, IIF said the combined GDP of the Arab oil importers, excluding conflict-battered Syria, is projected to have grown by around 2.2 per cent in 2012 compared with 2.3 per cent in 2011 and as high as 4.7 per cent in 2010.
It said tourism and foreign direct investment (FDI) appeared to have recovered from the 2011 disruptions but were still far below pre-revolution levels.
“The prospects in 2013 remain challenging, although some recovery in growth from a lower base is foreseen. Monetary and fiscal policy buffers have diminished.
Private investors are still in a wait-and-see mode. Improvement in the security situation and the agreements with the IMF should to some degree help the tourism sector to restore business confidence,” the report said.
“We expect real GDP growth to recover to about three pent in 2013, underpinned by a modest recovery in investment and exports.”
IIF said inflation pressures are projected to remain significant as cutbacks in subsidies cause consumer prices to rise temporarily.
Tourist arrivals are recovering slowly in Egypt, Jordan, and Tunisia, but such activity could reverse, and FDI remains subdued, it added.
The report noted that current account deficits in the region have widened and capital inflows have weakened further.
It said the authorities have maintained what it described as an accommodative monetary policy, in addition to the expansionary fiscal stance. Official foreign exchange reserves declined (excluding Lebanon) and policy buffers were eroded, it added.
The report referred to recent packages approved by the IMF for Morocco, Jordan, and Egypt valued at about $6.2 billion, $two billion, and $4.8 billion, respectively.
“We estimate external financing needs to total $40 billion in 2013 to finance the deficits, stabilize exchange rates, and help restore some of the losses in official reserves.”
IIF said there are significant downside risks emanating from ideological tensions, potential social unrest, populist policies, and fiscal slippages.
Foreign investors, it said, still need more clarity on the political direction of the Islamist governments in Egypt and Tunisia while a prolonged crisis in Syria and the deterioration in security would prevent any recovery in tourism and private investment in neighboring Jordan and Lebanon as well, it added.
“The new leaderships’ preoccupation with stabilization has sidelined the equally urgent issue of structural economic reforms,” IIF said.
“Fiscal adjustments are becoming more difficult to implement in the current political environment, aggravating pressures on spending. In the absence of adequate external financial support, the deficits are being financed mostly from the domestic banking system….this has raised the banks’ concentration risk, crowded out credit to the private sector and put further upward pressure on domestic interest rates.”