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Middle East and North Africa Overview

    Context

    A snapshot of the Middle East and North Africa (MENA) region today reveals an extremely diverse picture.  Syria, Iraq, Gaza and Libya 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. The “Arab-Spring” countries of Tunisia, Egypt and Yemen 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 and Yemen. Third, on a positive note, the political consensus around the constitution in Tunisia, the successful completion of the National Dialogue in Yemen, 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 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 SITUATION

    The economic outlook for the MENA region in 2015 is slightly more favorable than in 2013-2014, when the region grew at 3% a year.  The optimistic scenario is that growth will pick up to 5.2% in 2015 based on an increase in public and private consumption from expansionary fiscal policies, easing political tensions in Egypt and Tunisia, subsidy reforms in Egypt, and Jordan, and a resumption of oil production in Libya. The more likely outcome will be a more modest improvement (to 4.2%), as the region grapples with a civil war in Syria, the Islamic State’s (ISIS) control of large swathes of Syria and Iraq, a devastating war in Gaza, ongoing insurgencies in Libya and Yemen; largely unfinished transitions in Egypt and Tunisia (that have kept output well below potential), and uncertainty about world oil prices and shrinking surpluses in the GCC countries.  Budget surpluses are expected to disappear in Saudi Arabia and shrink by half in Qatar in 2015, thanks to lower oil revenues and markedly expansionary fiscal policies.  

    Egypt and Tunisia will see a slight pickup in their 2015 growth rates, to 3.1 and 2.7% respectively. However, macroeconomic imbalances and a huge and unfinished reform agenda—including subsidy reform, business climate improvement, public sector reform and greater inter-regional equity—stand in the way of attracting domestic and foreign investment to trigger sustainable growth. Tunisia’s budget is skewed in favor of current spending (large wage bill and subsidies) at the expense of investment spending. As for the other countries, including Morocco, Algeria, Iran and the GCC, a combination of macroeconomic imbalances, political uncertainty, potential weaknesses in the world oil market, and a comparable set of policy distortions limit their ability to register high growth rates that could then bring the rest of the region along. In Iran, current spending is set to rise by 11% in the new budget and Kuwait is foreseeing a large increase in the housing subsidy, and an upward standardization of the public sector pay scale.

    MENA’s medium term prospects are particularly grim considering the impact of the crises across the region affecting more than ten million people. A World Bank impact analysis estimated that the regional conflicts in Egypt, Tunisia, Syria, Yemen and Libya, with their spillovers into Lebanon and Jordan have cost the region roughly US$168 billion during 2011-13, the equivalent of 19% of their combined GDP. Syria’s real output is 40% lower than its pre-crisis level in 2010. It is estimated that around 75% of Syria’s population have fallen into poverty, with 54% in extreme poverty. Since the start of the war in 2011, unemployment has increased more than four-fold reaching 35% in 2013. In Gaza, a large number of people have fallen into poverty as food prices have increased sharply due to a halt in local food production and lower food imports in an economy where half of the population were already living in poverty. The unemployment rate in Gaza has jumped to 45%, with youth unemployment rate at 63% as of June 2014. 

    It is estimated that the Syrian war has cost Lebanon about US$7 billion in 2011-13 (about 23% of its GDP in 2010), lowering growth by 2.9 percentage points annually and worsening public finances in a country suffering from double-digit fiscal deficits. The spread of ISIS crisis has blocked trade between Iraq, Jordan and Lebanon. Iraq is the destination for about 20% of total Jordanian exports, and the closing of the cross-border has severely affected Jordan’s exports to Iraq. For Lebanon, Iraq is both a trading partner and a transit route to the Gulf, and the ongoing Iraqi crisis has blocked Lebanese exporters’ access to Gulf markets. Oil production recovery in Libya could take a long time due to the extensive repairs and maintenance that would be needed. Finally, in Yemen, crude oil production and export revenues continue to decline due to sabotage in the oil fields.

    Last Updated: Sep 30, 2014

    Strategy

    In response to the changing political climate in the region, the World Bank Group developed a new framework for engagement in 2012. Building on the demands of the Arab Spring and the reforms underway, the new framework is 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. Given the challenges facing MENA, the Bank is emphasizing scaling up its support – be it in the form of finance, knowledge, or its power for convening – to be done in partnership with Arab Funds, traditional donors, the UN, and the IMF. Given the development imperative to create more and better jobs in the region, the Bank (including IFC and MIGA) will invest in transformational engagements that unlock the investment climate and private sector potential. The Bank has also committed to mainstreaming citizen engagement and collaboration with civil society.  Finally, given the fragility in MENA, the Bank will step up its efforts to not only support reconstruction efforts, but establish mechanisms to foster resilience at both the local level (e.g. by creating efficient service delivery) and national level (e.g. by building effective and accountable institutions) in countries affected by conflict in the region.

    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 despite challenges in the region, with a current projection of a further increase to $3.7 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.  More Jobs, Better Jobs: A Priority for Egypt highlights short and long term policy interventions needed to unleash the potential of the private sector to create a large and diverse set of jobs. 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. Area C and the Future of the Palestinian Economy, the first comprehensive study of the potential impact of ‘restricted land’ sets the loss to the Palestinian economy at about US$3.4 billion.

    Last Updated: Sep 30, 2014

    Results

    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. 
    • Education: In Yemen, over 6,000 classrooms were built and 1,000 teachers and educational professionals were trained, serving 175,000 children throughout the country. 
    • 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 Gaza 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. 
    • Transport: Over 2.6 million rural Moroccans have benefited from enhanced access to all-weather roads, and 425,000 people have gained year-round access to centers of economic activity and public services in Yemen
    • 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: Sep 30, 2014

    Partners

    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: Sep 30, 2014

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