Overview

The Middle East and North Africa (MENA) region is in turmoil. Syria, Iraq, Libya and Yemen are in civil war, causing untold damage to human lives and physical infrastructure. Fifteen million people have fled their homes, many to fragile or economically strapped countries such as Jordan, Lebanon, Djibouti and Tunisia, giving rise to the biggest refugee crisis since World War II. The current turmoil in Yemen has set that country’s development back several years. Blockades and repeated cycles of violence have made Gaza’s unemployment rate the highest in the world and with Gross Domestic Product at only 40 percent of its potential. Countries undergoing political transitions, such as Egypt, Tunisia, Morocco and Jordan, are having to address security concerns over growth-promoting policies. The relatively peaceful oil exporters, such as Algeria, Iran and the GCC, are grappling with low oil prices alongside chronic youth unemployment and undiversified economies. On a positive note, the political consensus around the constitution in Tunisia, and constitutions and legislation in Morocco, Jordan and Egypt that give greater rights to women and protect freedom of expression and information, indicate that citizens are increasingly engaging in policymaking.

ECONOMIC OUTLOOK

Alongside disappointing global growth in the fourth quarter of 2015 and the possibility that the January 2016 forecast of 2.9 percent growth for the year may have to be revised downwards, economic prospects in the Middle East and North Africa (MENA) region remains grim. A combination of civil wars and refugee inflows, terrorist attacks, cheap oil, and subdued global economic recovery is expected to keep average growth in the MENA region around 3 percent in 2016. Since 2013, MENA has not been able to escape the spiral of “slow growth” for a variety of reasons including the incidence of war and conflict. These factors are expected to dampen the short-term economic prospects in the region, unless there is some progress in the peace talks. If the recent truce in Syria and the ongoing peace talks in Yemen and Libya materialize - which could in turn reduce the spread of insecurity and conflict elsewhere in the region – economic growth in MENA could improve over the forecast period (2017 and 2018). Real GDP in the MENA region is forecast to grow close to 4 percent in 2017 and 2018, still low by historical standards. The continuation of sluggish growth will hurt the overall unemployment rate, now standing at 12 percent, and household earnings in the region.

Despite low oil prices, growth in the group of oil importers will slow down from its 2015 level by 0.8 percentage point at 2.6 percent in 2016. It will increase to 3.4 percent in 2017 and 3.8 percent in 2018. Persistent security concerns and slow activity in tourism and remittance inflows are just a few factors explaining slow growth in this group of countries. Fiscal deficits and debt in these countries remain high. Lebanon’s public debt, already high at 138 percent of GDP, is expected to increase by 7 percent of GDP in 2016.

Growth in oil exporters including the six GCC countries will be affected by persistently low oil prices. Growth in the GCC countries is expected to fall to 2.2 percent in 2016 from 3.1 percent in 2015. It is expected that growth will pick up slightly over the forecast period. However, growth in this group of countries has been halved since 2014, suggesting that GCC rich countries have been “growing by oil and slowing by oil”. Among other oil exporters, Libya and Iraq are expected to witness large deficits, of respectively 59.9 percent of GDP and 20 percent of GDP in 2016, which could barely be sustained without spending reform schemes in place. Iran on the other hand is expected to benefit from the lifting of sanctions in 2016 and beyond. The country is managing to increase oil exports to pre-sanctions levels, approximately 2.4 million barrels per day. This is projected to increase growth to above 4 percent in 2016 and 2017, although this growth remains oil driven. The World Bank estimates growth for the group of oil exporters to pick up slightly in 2016 and 2017 due to a rebound in oil production in Iran, Iraq and Libya. 

Last Updated: Mar 30, 2016

Given the ongoing fragility and conflict in the region, the World Bank Group launched a new regional strategy for the Middle East and North Africa in October 2015. Instead of taking conflict and violence as given and working around it, this new strategy, entitled - "Economic and Social Inclusion for Peace and Stability in the Middle East and North Africa: A New Strategy for the World Bank Group" - puts the goal of promoting peace and social stability in the MENA region at its center. The strategy is built around four pillars (“the 4 R’s”) that respond to both the underlying causes of conflict and violence as well as their consequences through development interventions that foster inclusion and shared prosperity. The four pillars of the strategy are as follows:

  1. Renewing the social contract – to generate a new development model that is built on greater citizen trust; more effective protection of the poor and vulnerable; inclusive and accountable service delivery; and a stronger private sector that can create jobs and opportunities for MENA’s youth;
  2. Regional cooperation – particularly around regional public goods and sectors such as education, water, and energy so as to foster greater trust and collaboration across MENA countries;
  3. Resilience - to refugee and migration shocks by promoting the welfare of refugees, internally displaced persons (IDPs), and host communities by focusing on building trust and building their assets; and
  4. Reconstruction and recovery – through a dynamic approach that brings in external partners, leverages large scale financing, and move beyond humanitarian response to longer-term development wherever and whenever conflict subsides.

In implementing this strategy, the WBG is relying heavily on both deepening and expanding partnerships with national, regional, and global actors, especially the Islamic Development Bank. With respect to financing, the WBG will continue to expand its investment in the region, but in addition to our own funds, the core focus will be on leveraging and mobilizing global resources to meet the extraordinary financing needs of the region through innovative mechanisms. Finally, our knowledge work (including our growing RAS program) will be of prime importance in informing and mobilizing the support for the strategy and will lead (rather than follow) our lending. 

RECENT LENDING AND ANALYTICAL WORK

IBRD/IDA lending for the MENA region increased from US$2.8 billion in FY14, to US$3.5 billion in FY15 and will account for US$5.2 billion in FY 2016. The increase in FY16 lending reflects a higher level of development policy financing in Iraq and Egypt, and an emergency operation for Iraq to support the reconstruction of conflict-wrecked infrastructure and restore public services in areas brought under government control. A number of analytical studies have been published recently addressing central themes in the region’s political transitions. Jobs or Privileges: Unleashing the Employment Potential of the Middle East and North Africa shows that policies that lower competition in MENA also constrain private sector development and job creation. Trust, Voice, and Incentives: Learning from Local Success Stories in Service Delivery in the Middle East and North Africa illustrates how the weak external and internal accountability relationships prevalent in the MENA political and administrative spheres undermine incentives toward policy implementation and performance, and how such a cycle of poor performance can be counteracted. Joint WB-UNHCR report “The Welfare of Syrian Refugees: Evidence from Jordan and Lebanon assesses the poverty and vulnerability status of Syrian refugees living in Jordan and Lebanon, evaluates the performance of existing policies toward refugees, and determines the potential for alternative policies.

Last Updated: Mar 30, 2016

The World Bank Group remains engaged in a wide variety of development work but is also focusing on alleviating some of the challenges arising from the crisis gripping much of the region. In Jordan, the World Bank is supporting service delivery to the communities hosting up to 40 percent of Syrian refugees. In Lebanon, 80,000 people affected by the Syrian conflict benefited from the Municipal Services Emergency Project investments in 2015, the project’s first year in operation. In Egypt, the US$300 million loan approved in 2014 to expand access to finance for micro- and small enterprises (MSEs) has reached more than 130,000 MSEs, including 37 percent owned by women, by end 2015. The US$200 million Egypt Emergency Labor Intensive Investment loan approved in 2012 has resulted in the rehabilitation of over 7,000 classrooms and 160 youth centers, the rehabilitation of over 130 km of rural roads, and the cleaning of more than 3,000 km of canals. Together with the Egypt Emergency Employment Investment project, it has created 14 million days of employment for 80,000 women and youth. In Morocco, the World Bank helped improve 12,600 km of rural roads, resulting in increased rural accessibility to the country’s lagging regions from 54 percent in 2005 to 78 percent in 2015. Tunisia has launched its fiscal transparency portal, called “Mizaniatouna” or “Our Budget”, a single point of entry for all the financial information generated by the Tunisian government since 2008, allowing to satisfy popular demand for access and accountability. In West Bank and Gaza, 1.7 million people representing 40 percent of the population have received access to improved water sources since 2013. Djibouti’s urban electricity project in Balbala brought street lamps, transformers, and 4,000 household power lines to 27,000 residents, while the social protection project signed up 10,000 women for paid community services in 2015. 

Last Updated: Mar 30, 2016

The World Bank Group has stepped up its partnerships with bilateral and multilateral donors, regional development banks, Islamic financial institutions and emerging country donors. Less traditional partnerships are just as crucial: one of the sharp lessons of the recent political awakening has been the urgent need to reach out more consistently and consult across a wide spectrum of society, including civil society, academics, NGOs, and the private sector.




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