MIDDLE EAST - The International Monetary Fund (IMF) projects the economies of the Middle East, North Africa, Afghanistan and Pakistan (MENAP) region to contract by 1.3% in 2026, as conflict-related disruptions weigh on oil production, trade, tourism and investor confidence.
In its October 2026 Regional Economic Outlook, the IMF said the economic shock has affected countries unevenly, with oil exporters facing sharp contractions while most oil-importing economies demonstrate greater resilience. The report calls for stronger economic buffers and policies that help countries withstand external shocks.
Regional Economic Outlook
The IMF projects MENAP oil exporters to contract by 5.1% in 2026, compared with 4.2% growth among oil-importing economies. Overall regional GDP is expected to rebound by 6.6% in 2027, supported by an anticipated recovery in oil-exporting countries.
Economic buffers, including foreign-exchange reserves, fiscal savings, remittances, tourism receipts and access to financing, help countries maintain essential spending, support households and businesses, and manage disruptions. However, the IMF warned that these protections are weakening as fiscal deficits widen.
Oil Production and Baseline Outlook
Oil production in directly affected MENAP exporters fell from 33 million barrels per day in February to nearly 19 million in May. Qatar’s oil and gas output declined by as much as 86%, while Saudi Arabia and the United Arab Emirates benefited from alternative pipelines.
The IMF’s baseline scenario assumes disruptions through the Strait of Hormuz continue until the first quarter of 2027, with conditions normalizing by the end of that year. Oil prices are projected to average $96 per barrel in 2026 and $87 in 2027.
For economies with floating exchange rates, the report emphasizes the importance of allowing exchange rates to adjust to external shocks, supported by credible monetary policies and fiscal measures that protect vulnerable groups without undermining economic stability.
Lebanon Faces a Marked Contraction
Lebanon is expected to experience a marked economic contraction in 2026, reflecting extensive conflict-related damage and regional tensions affecting key economic drivers, the IMF said.
Lebanon’s inflation stood at approximately 17%, the highest among MENAP oil importers. By comparison, inflation reached 14.5% in Egypt and 11.1% in Pakistan in August.
The country also faces one of the region’s highest public debt burdens. The IMF’s debt chart places Lebanon second only to Sudan, while the report does not list Lebanon among countries with IMF-supported programs or a precautionary credit line.
Recovery challenges include conflict-related destruction, reconstruction financing needs and the country’s fragile economic position. Banking-sector restructuring and fiscal reforms remain important to restoring confidence and supporting recovery.
Non-Oil Economies Show Mixed Resilience
Egypt, Jordan, Lebanon, Morocco and Tunisia face different economic pressures. The IMF projects Egypt’s economy to grow by 5.1% in 2026, compared with 2.7% in Jordan, 4.5% in Morocco and 2.4% in Tunisia. No numerical forecast is provided for Lebanon.
Remittances, tourism and supportive financial conditions have helped Egypt, Jordan, Morocco and Tunisia sustain economic activity. However, weaker external balances and fiscal pressures remain concerns as imports rise and governments support households and businesses.
Egypt faces high public debt and substantial financing needs, while Jordan remains vulnerable to debt pressures and regional conflict. Morocco faces weaker growth and exposure to external demand, while Tunisia faces high debt and weak growth. Lebanon’s challenges are more severe, reflecting conflict damage, high inflation and its debt burden.
Gulf Economies and Diversification
The Gulf Cooperation Council (GCC) economies are projected to contract by 4.8% in 2026 before rebounding by 9.1% in 2027. However, the contraction in non-oil GDP is expected to be smaller, at 0.8%, highlighting the relative resilience of some non-energy economic activities.
Although non-oil activity has held up better than expected in several countries, tourism and trade have suffered. Oman is an exception, with relatively limited exposure to disruptions in the Strait of Hormuz and increased production.
The IMF also highlighted progress in economic diversification across the Gulf, with export diversification improving over the past two decades. However, maritime transport still carries 81% of GCC goods exports, leaving the region vulnerable to disruptions along key shipping routes.
Key Takeaways
The IMF highlights five key findings: the economic shock is concentrated in the GCC and Iraq, while most non-oil economies and the Caucasus and Central Asia continue to grow. Resilience supported by remittances, tourism, subsidies and inventories is weakening as fiscal deficits widen. Lebanon is among the most vulnerable non-oil economies, facing a conflict-driven contraction, the region’s highest inflation among oil importers and a heavy debt burden, with its recovery outlook uncertain. High debt and financing needs also leave countries such as Egypt, Tunisia, Jordan, Algeria and Pakistan exposed to economic pressures. Finally, although GCC economies have made progress in diversifying their exports, their reliance on maritime trade routes leaves them vulnerable to disruptions at key chokepoints.
