Credit activity curbing region’s growth – IMF

Slow credit activity and pressures in the financial and banking industries are hampering the Middle East’s economic recovery, the IMF said on Tuesday.

“Growth is gathering momentum in 2010, helped by the pickup in capital inflows and resurgence in domestic consumption. However, this positive perspective is clouded by some stress in the banking system and lethargic credit activity across the region,” said Masood Ahmed, the director of the IMF’s Middle East and Central Asia department.

While striking a cautionary note in IMF’s latest economic report on the region, Ahmed added that the outlook had improved considerably since 2009.

Oil exporters are expected to rake in US$140bn collectively this year as prices rise and crude output increases – a significant upswing from $53bn in 2009.

A 4.3 per cent contribution from oil-related activities to the region’s GDP was also forecast. Last year, the figure fell 4.7 per cent as oil prices dropped.

“The region’s oil exporters still face challenges in their banking systems, however, where credit to the private sector remains sluggish and losses on non-performing loans have yet to be fully recognised,” Ahmed said.

Elsewhere, activity in the region’s non-oil sector is set to grow 4.1 per cent in 2010, according to the IMF report.

And the Central Bank is expected to advise UAE banks on the levels of provisions they will have to provide following the $23.5bn debt restructuring deal that government-owned Dubai World struck with its creditors last week.

Their exposure to Dubai World’s debts has prompted UAE banks to cut credit lines and restrict lending to businesses.