In 2023, many countries in the Middle East will suffer from high inflation, capital outflow and local currency depreciation under the adverse influence of the US Federal Reserve's interest rate hike, the Palestinian-Israeli conflict and the Ukraine crisis. In response to the challenges, many countries have adopted measures such as accelerating economic structural transformation to enhance the internal driving force and resilience of economic development. At the same time, some Middle Eastern countries have accelerated the pace of "looking East", expanded and deepened economic and trade cooperation with China, and looked forward to gaining more development opportunities and momentum.
Inflation is high in many countries and their currencies are falling
In 2023, the inflation rate in Turkey, Iran, Egypt and other countries is far beyond the normal level, and curbing inflation has become an urgent problem for these countries.
Turkey's central bank has forecast an average inflation rate of 65% in 2023. High inflation has pushed up the cost of living for ordinary people. "Poverty has become a major problem for Turkey in the face of alarming inflation and insufficient income for many households," said Turkish economist Elise Gibre.
The International Monetary Fund (IMF) had previously predicted that inflation in Iran would average 42% in 2023.
According to a report by BMI Research, a subsidiary of international rating agency Fitch, Egypt's average inflation rate is expected to be 34.1% in 2023. Mohamed Shadi, an economic expert at the Habtor Research Center, said the collapse of the Egyptian pound and soaring inflation are the most immediate and pressing problems facing Egypt.
Inflation is accompanied by currency depreciation. On February 1, 2023, Lebanon adjusted the official exchange rate to 15,000 Le pound to the dollar, and the black market exchange rate of Le pound to the dollar fell below 60,000 at one point that year. The Syrian pound has depreciated more than 300% since the beginning of 2023 and is currently trading at an official exchange rate of around 12,500 to the US dollar. The Egyptian pound will fall by about 20% in 2023, and the current official exchange rate is 30.9 pounds per dollar.
Devaluation has increased debt-servicing pressure on some countries with heavy foreign debts. The outbreak of a new round of Israeli-Palestinian conflict has added to the economic woes of these countries. Analysts believe this will further raise borrowing costs for businesses and households, hitting consumption and weakening economic growth expectations.
A combination of measures was taken to promote economic transformation
In order to get rid of economic difficulties, many countries in the Middle East have taken various measures in the past year, such as seeking assistance from the rich countries in the Gulf region, steadily promoting "de-dollarization", and accelerating economic structural transformation, so as to enhance the internal impetus and resilience of economic development.
Saudi Arabia is accelerating its economic diversification. Affected by international oil price fluctuations and other factors, Saudi Arabia's economic growth in 2023 has slowed down significantly, but non-oil economic activities have grown rapidly compared with the previous year. In the future, Saudi Arabia's development will focus on manufacturing, digital economy, renewable energy, tourism, logistics, entertainment and other industries.
The UAE is also reducing the proportion of the oil industry in the economy, focusing on the development of digital economy, shipping logistics and other industries. In the first half of 2023, the UAE's gross domestic product (GDP) grew by more than 3%, of which the non-oil sector accounted for more than 70% of GDP. "The UAE will become more reliant on knowledge-based industries and has launched a digital economy strategy, which aims to increase the digital economy's share of GDP from 9.7% in 2022 to 19.4% within a decade." Economy Minister Abdullah said.
Egypt has introduced measures to reduce taxes, improve the investment climate, encourage private sector development, support industrial development and promote localized production of imported goods.
Countries such as Iran and Turkey have begun to explore settling transactions in international trade through bilateral or multilateral currency agreements, and countries such as Israel and Egypt have promoted diversification of foreign exchange reserves to further reduce the weight of the US dollar.
The Economist Intelligence Unit predicts that cuts in oil production quotas by major oil producers, relatively strong growth in key Asian markets, and trade and investment diversification strategies are likely to drive growth in the Middle East.
"Look East" for more development opportunities
In recent years, some Middle Eastern countries have accelerated the pace of "looking East", constantly expanding and deepening economic and trade cooperation with China, with a view to increasing their economic resilience and exploring more development opportunities.
In November 2023, the People's Bank of China and the Central Bank of Saudi Arabia signed a bilateral currency swap agreement with a swap scale of 50 billion yuan /26 billion Saudi riyals. The UAE also recently renewed a five-year Rmb35bn/AED 18bn bilateral currency swap agreement with China.
China has signed Belt and Road cooperation documents with more than 20 Arab countries and the Arab League, and many Middle Eastern countries have aligned their development strategies with the Belt and Road Initiative. In 2024, Egypt, Iran, Saudi Arabia and the United Arab Emirates will become full members of BRICS, which will usher in new economic development opportunities for these countries.
Balesh Dost, a scholar at the University of Marmara in Turkey, said that China's development model provides important inspiration for developing countries. In recent years, China has developed rapidly in many industrial fields, and science and technology has provided important support for economic development, and relevant Turkish enterprises should strengthen cooperation with their Chinese counterparts.
Walid Hani, an economics professor at Cairo University in Egypt, said that China has advanced digital technology, a huge database and fruitful economic development results, and Egypt can learn from China's green transition.
