In its World Economic Outlook update, the global lender projected economic growth for the Middle East, North Africa, Afghanistan, and Pakistan this year would be 1%, its worst since the IMF put them in one group in 2009.
The downgrade, the fifth in a year, is a half percentage point lower than its April projection.
The reduction is in large part due to a change in the IMF's forecast for Iran's growth "owing to the crippling effect of tighter US sanctions," the lender said.
"Civil strife across other economies, including Syria and Yemen, add to the difficult outlook for the region."
The price of oil, the main driver for revenues in the region, will also impact growth, the IMF added.
In 2018, the region saw 1.6% growth, down from 2.1% in the previous year.
The IMF in April projected Iran's economy will shrink by a steep 6% this year, its worst performance since it contracted by 7.7% in 2012.
The new report provided no updated figures on the Iranian economy, the second largest in the region behind Saudi Arabia, but other reports predicted a deeper recession in the Islamic republic.
One report jointly prepared by the London-based Institute of Chartered Accountants in England and Wales and Oxford Economics, released early this week, said Iran's economy is expected to shrink by 7% this year.
The report also predicted regional growth to be just 0.6% due to Iran sanctions and instability in the region.
US sanctions on Iranian oil exports were renewed in May and aim to halt Tehran's overseas crude sales, which provide key revenues to the Islamic republic.
The IMF also attributed the lower growth projections to rising US-Iran tensions centered on recent incidents in the Gulf and unrest in several Arab nations.
"Civil strife in many countries raises the risks of horrific humanitarian costs, migration strains in neighboring countries, and, together with geopolitical tensions, higher volatility in commodity markets," the IMF said.
The IMF raised its forecasts for Saudi economic growth this year by 0.1 percentage points, to 1.9%, and to 3% in 2020.
It attributed the boost to the development of the kingdom's non-oil-related sectors.
The world's largest oil exporter has substantially cut power and fuel subsidies as well as imposed fees on expatriates and a 5% value added tax as part of a reform program to decrease dependence on oil. – Rappler.com