Overview

A snapshot of the Middle East and North Africa (MENA) region today reveals an extremely diverse picture.  Syria, Iraq, Libya and Yemen are suffering from violent conflict that has devastated people’s lives, infrastructure and national economies, with spillovers to neighboring countries such as Jordan and Lebanon. Some of the “Arab-Spring” countries like Tunisia and Egypt are in the midst of challenging political transitions that have slowed economic growth and worsened macroeconomic imbalances. The rest, oil-rich or monarchies (or both), are experiencing reasonable growth and macroeconomic stability, although they too face problems of unemployment, skills mismatches and undiversified economies.

From a development perspective, four features of the current regional context are important to emphasize. Almost all the developing MENA countries are running large fiscal and external deficits.  These deficits are largely financed by transfers from the Gulf countries, with only a small amount coming from the region’s long-standing partners in Europe and North America.  Secondly, the region’s structural problems, such as high civil service wage bills and distorting, regressive and costly fuel subsidies, even though they exacerbate fiscal deficits, remain largely unaddressed, although some movement on this front has been seen in countries like Egypt. Third, 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.  Finally, the war in Syria, now in its fourth year, and intensifying  violence in Iraq and Libya and more recently in Yemen, and the ISIS threat have not only caused untold damage to life and property, but risk spreading to neighboring countries and regions and compromising the medium term development outlook for the region as a whole.

ECONOMIC OUTLOOK

The global economy is set for a gradual pick up but economic prospects in the Middle East and North Africa (MENA) region remain flat. Growth in MENA is expected to slow down in 2015 and range between 3.1 and 3.3% estimated by the World Bank and the consensus forecasts respectively, below the already low growth of last year and continue on the same path in 2016. If the security situation in Libya improves and oil exports increase, the regional average could surge to 4 to 5% in 2016.  The main reasons for the continued, sluggish growth are: prolonged conflict and political instability in Syria, Iraq, Libya and Yemen; low oil prices that are dragging down growth in oil exporters; and the slow pace of reforms that is standing in the way of a resumption of investment. The continuation of this situation will significantly hurt the overall unemployment rate, now standing at 12%, and poverty in the region. In the meantime, low oil prices have significantly hurt the oil-rich countries in the region. 

The group of oil exporters are estimated to grow by around 2.9% in 2015 with growth stagnating in developing oil exporters, at 1%. The Gulf countries could lose about US$215 billion in oil revenues, equivalent to 14% of their combined GDP, in 2015.  Growth for this sub-group is estimated to range between 3.2 to 3.8% in 2015, predicted by the World Bank and consensus forecasts respectively, lower than last year.  World Bank estimates that growth in developing oil exporters in MENA, pinched by cheap oil, is expected to drop to 1% compared to 6% prior to the oil collapse. Fiscal deficits are mounting, leaving the region with a deficit of 8% of GDP in 2015, after 4 years of surpluses.

Growth in developing MENA countries will stay at 2% in 2015. While still low, this figure is about half a percentage point higher than the previous year, owing to better-than-expected growth in oil importers-- estimated at 3.7 and 4.1% in 2015 and 2016, respectively, about one and a half percentage points higher than the previous year.

If oil prices remain low for a sustained period of time and the fiscal situation in the Gulf States deteriorate, it may slow growth in remittances outflows from GCC countries to the rest of the region, mainly Egypt, Yemen and Jordan (a major source of income). The World Bank estimates that while remittances are expected to grow at positive rates, there may be a small deceleration in the growth rates. Aid flows from GCC to the rest of MENA may also decline as a result of low oil prices.

Among developing oil exporters, Iran’s economic prospects are contingent on the timing of lifting of sanctions following a nuclear agreement framework that was reached early April, as well as on fluctuations in oil prices. Under this agreement which is expected to lead to a deal by end of June, a comprehensive lifting of sanctions is envisaged. This could significantly boost economic activity and accelerate growth to an estimated 5% in 2016 [1], and improve Iranians’ living conditions. In this case, however, the Iranian economy will face a massive oil windfall, which if not managed carefully, could lead to an oil boom, an overvalued real exchange rate and a loss of competitiveness of the non-oil tradable sector, a major source of foreign revenues. It could also lead to an increase in unemployment, as the oil sector does not create many jobs.

For those countries already in conflict, Iraq, Libya, Yemen, and Syria, economic prospects are grim. The ISIS insurgency and large military expenditures have hit the Iraqi’s economy hard. Growth is expected to turn negative in 2015 following a contraction of 0.5% in 2014 due to the decline in economic activity in the areas occupied by ISIS.  Libya is in recession, as severe disruptions in the oil sector have interrupted oil exports, a major source of government and external revenues, in addition to the impact of cheap oil. The economy is estimated to have contracted by 24% in 2014, following a contraction of about 14% in 2013.

 

[1] The P5+1 and Iran issued a joint statement on general points of agreement on April 2nd. All parties will continue negotiations aimed at achieving a comprehensive accord in June.

Last Updated: Mar 31, 2015

In response to the changing political climate in the region, the World Bank Group developed a strategic framework for engagement in 2012. Building on the demands of the Arab Spring and the reforms underway, this strategic framework was based on four main pillars: Creating Jobs; Strengthening Governance; Increasing Social and Economic Inclusion; and Accelerating Sustainable Growth. These are complemented by cross-cutting themes of Gender, Regional Integration, and fostering a Competitive Private Sector.

In implementing this strategy, the WBG has been following a two-pronged approach – focusing (i) on addressing the immediate needs arising from humanitarian crises throughout the region, such as Syria’s refugee crisis and Gaza’s reconstruction, while at the same time (ii) keeping a sustained focus on the investments that are needed for medium and long term development, inclusive growth and enhanced service delivery. The WBG has significantly scaled up its support – be it in the form of finance, knowledge, or its power for convening – and done so increasingly in partnership with Arab Funds, traditional donors, the UN, and the IMF. There has also been an increased focus on transformational engagements that unlock the investment climate and private sector potential, and on mainstreaming citizen engagement and collaboration with civil society in all our work. Looking ahead, however, given the changed ground realities of the region (which is quite different from the months following the Arab Spring), the World Bank Group is rethinking its regional strategy in order to maximize its impact in MENA. This new strategy, which is currently under preparation, will aim to step up the World Bank Group’s engagement in the region in order to achieve shared growth and prosperity, as well as work with partners to convene change. Through this approach, the World Bank Group can better mobilize the international community and pave the way for lasting economic and social development in MENA, which is a global public good.

RECENT LENDING AND ANALYTICAL WORK

IBRD/IDA lending increased from US$2 billion in fiscal year (FY) 2013 to US$2.8 billion in FY14, with a current projection of a further increase to US$3.5 billion in FY15. The World Bank Group has also mobilized extensive resources to support countries neighboring Syria. On the topic of analytical work, a number of reports 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 which lower competition in MENA also constrain private sector development and job creation. Investment Climate Assessment: Fragmentation and Uncertainty, provides empirical evidence that political instability resulting from conflict, military rule, violence, political division, and lack of free movement and access to resources and markets remains the key obstacle to economic growth in the Palestinian Territories. Over the Horizon: A New Levant identifies areas of economic complementarities among seven Levant countries and assesses untapped potentials in investment and trade in goods and services. The Unfinished Revolution: Bringing Opportunity, Good Jobs, and Greater Wealth to all Tunisians is the Bank’s first comprehensive analysis of the Tunisian economy since the 2011 revolution. It concludes that reforms in the country’s investment and competition policies, financial system, labor laws, and agricultural policy could increase growth and bring quality jobs. 

 

Last Updated: Mar 31, 2015

The World Bank has a diverse loan portfolio and range of projects across the MENA region:

  • Social Inclusion: US$100 million in support of Morocco’s Human Development program made progress in improving inclusiveness, accountability and transparency of decision making at the local level, boosting the percentage of both women and youth in local governance bodies. 
  • Access to Finance for Micro and Small Enterprises (MSEs) Project: In Egypt, more than 75,000 loans have been disbursed to MSEs, leading to the creation of over 100,000 job opportunities targeting youth
  • Governance: US$500 million helped accelerate Tunisia’s economic recovery. An online open budget platform was created to promote transparency of public finances. 
  • Energy: In Cairo and Giza, more than 365,000 households received a gas connection and more than 3,000 jobs were created. 
  • Water and Sanitation: A US$31 million project in Gaz improved water quality and services for the entire population, and the Bank is leading the process to bring normality back to Gazans following the most recent conflict
  • Health: Medically-assisted deliveries in Djibouti reached 87 percent in 2012, compared to 40 percent in 2002, and the proportion of children vaccinated before 12 months, increased from 45 percent in 2002 to 93 percent in 2012.  About 4.3 million Yemenis were vaccinated against polio and 9.6 million were treated for Schistosomiasis.

 

Last Updated: Mar 31, 2015

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.

Last Updated: Mar 31, 2015