Washington  - The global credit crisis has had relatively little impact in Middle Eastern countries, where economic growth is being sustained by non-oil sectors, the International Monetary Fund said Wednesday.

The IMF's semi-annual World Economic Outlook noted that there are high inflationary pressures in the oil-exporting nations, but projected that gross domestic product (GDP) growth in the region will weaken only modestly from its current 6.5 per cent to 6 per cent in 2009.

The impact of declining demand in partner economies and rising supply constraints in the oil sector will be mitigated by a spurt in domestic demand for oil as well as increased activity in the non-oil sector.

In oil-exporting economies, growth is expected to be driven by retail trade, construction, transportation and financial services. While this increased economic activity is an indirect effect of high oil revenues, it also reflects an improved business environment where public-private partnerships in infrastructure and housing are tackling rapid population growth in the region.

Substantial foreign direct investment flows are boosting the economies of Egypt and Jordan, while Lebanon is continuing to recover from the 2006 conflict, the outlook said.

Despite record high oil prices, economic activity in the oil sector has been considerably less buoyant than in the non-oil sector, primarily because of rising investment costs, geological and technological constraints, and the depletion of existing fields.

The IMF said oil and natural gas production was projected to expand moderately in 2008-2009, with significant new capacity in Qatar and Saudi Arabia.

Despite the gains, inflation has hit double-digit rates even in countries with traditionally low rates, such as Saudi Arabia. It has passed 20 per cent in Egypt and Iran. Inflation in this region is driven mainly by foreign determined prices, including the depreciation of the US dollar.

Inflation will decrease only marginally in 2009, despite the fact that food and fuel prices will remain broadly unchanged and there will be no real depreciation in the exchange rate.

Several non-oil Middle Eastern economies have significantly reduced their debt in the last decade, the IMF noted, but cautioned that domestic debt remains high by global standards.

Among the oil-exporting nations, the rise in oil prices may have boosted government spending, but it has also put pressure on domestic resources, for example through increased subsidies and salaries.

The report recommends that fiscal policy in the region must address wider social challenges such as a providing a social safety net for its young and expanding population, tackling poverty and investing in education. It said that oil-exporting nations must share in a broader and more targeted manner the profits from higher oil prices. (dpa)