The Middle East and North Africa (MENA) region is in turmoil. Syria, 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% of its potential. The relatively stable 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, political developments in Tunisia, Morocco, and Jordan indicate that citizens are increasingly engaging in policymaking.
This year appears to be one of the toughest for the region as MENA governments face serious policy challenges. The biggest challenge for oil exporters is managing their finances and diversification strategies with oil prices below $45 a barrel. Fiscal consolidation in a difficult sociopolitical environment and spillovers from conflicts are creating challenges for oil importers as well. Persistently low oil prices, lower fiscal revenues and currency shortages have forced MENA governments to take austerity measures including cutting capital and current spending. For example, more than $20 billion of projects may be canceled in Saudi Arabia. This comes at a time when ongoing conflict and war in Syria, Libya and Yemen are ravaging these economies and the refugee crisis is draining fiscal space in neighboring countries. Furthermore, private sector growth, a source of job creation, has slowed down making it difficult to absorb the large of number of unemployed. The latest labor market data show that the unemployment rate has remained stubbornly high Egypt, Iran, Iraq, Jordan, Morocco and Tunisia in 2016. Real GDP growth in MENA is projected to stay at its lowest level for the fourth consecutive year, at around 2.7% in 2016, half a%age point less than that predicted in April 2016.
Regional growth is expected to improve slightly to 3.2 and 3.6% over the next two years, as governments across the region are consolidating their fiscal stance, undertaking reforms and trying to diversify their economies away from oil. The regional fiscal deficit is expected to stay at 9.1% of GDP in 2016, unchanged from the previous year. Nevertheless, all three sub-groups (GCC countries, developing oil exporters and oil importers) are expected to record significant deficits in 2016 and the next two years but with the prospects of reducing them going forward.
Growth in oil exporters in MENA will remain subdued due to a sharp drop in growth in the GCC countries. Growth in the Gulf countries is expected to fall to 1.8% in 2016, half the rate seen in 2015. Prolonged low oil prices are forcing governments to take austerity measures mostly through spending cuts, concentrated on capital expenditure. Spending cuts have also lowered growth in non-oil sector. Non-oil growth in Algeria and Oman is estimated to fall to 3.7% in 2016 compared to 5 and 7% respectively a year ago. The economies of developing oil exporters in the region are doubly hit by the slump in oil prices and civil wars. Growth is expected to turn positive in 2016 from negative 0.3% but this is due to expectations of Iran and Iraq producing more oil. These countries are facing major fiscal and external imbalances due to the high cost of war, low oil prices and a decline in trade.
For developing oil importers, the outlook is slightly better but remains weak. Oil importers were badly hit by terrorist attacks, spillovers from conflict in the region and lower financial outflows from the Gulf. Growth is expected to fall to 2.6% in 2016 for the subgroup as a whole, before improving slightly to an average of 3.5% for the projection period. Fiscal and external account deficits are expected to remain stubbornly high throughout the projection period.
Last Updated: Mar 31, 2017