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Middle East and North Africa Overview

    Context

    With a population of 355 million and the vast majority of people living in middle-income countries, the MENA region came into the Arab Spring with multiple strengths, including a young and educated population, strong resource base, and economic resilience that helped it weather the 2008/9 global financial crisis. There has also been some progress on the political front in the Arab world. In Tunisia, genuine compromise produced a new, inclusive constitution that protects basic freedoms. Morocco and Jordan modified their constitutions to allow for greater political participation and openness. Yemen’s National Dialogue, a two-year-long process, reached a historical agreement on the country’s future path. Egypt’s new constitution, although adopted in a period of polarization and unrest, offers some safeguards of women’s rights and freedom of religion. Reflecting a popular trend for the rejection of dictatorships, the Arab League in 2011 suspended Syria from its membership. 

    Absolute poverty was at approximately 2.4% of the population living under US$1.25 a day, but vulnerability was high and the benefits of growth were not shared equally. Economic opportunities were monopolized by the privileged few, leading to the overthrow of several governments between 2010 and 2012.

    ECONOMIC SITUATION

    Compared with the previous three years, 2014 seems hopeful and 2015 could be a turning point for the countries in the Middle East and North Africa (MENA) region. Many countries in MENA will start to benefit from stronger external demand in the high-income economies, as the global economy is set for a rebound in 2014. In the MENA region, higher global demand is expected to boost exports of energy and manufactured products in those countries that have trade linkages with high- income countries. Most oil-importing countries in MENA are likely to see a slight boost in tourism, Foreign Direct Investment and remittances as a result of the recovery in the global economy. Domestic security and social tension remain a constraint to the prospect of improvement for some countries. The global recovery, however, is still fragile and uncertainty or conflict in Ukraine could increase associated risks.

    Growth in MENA is expected to reach 3.3 percent in 2014 and further accelerate to 4.6 percent in 2015. The oil exporters in MENA[1] are expected to lead the regional recovery with growth reaching 4.8% in 2015. Large stimulus packages in the GCC countries, together with flows of funds to the rest of the region, will continue to boost regional growth rates. The economies of oil importers,[2] including all those in transition after the Arab Spring, remain fragile, but a modest recovery is expected over this period. Nevertheless, the prospects for growth in MENA could be threatened if structural problems remain unresolved. The regional unemployment rate is about 11% and the rate is much higher for those under 24, exceeding 50% in Yemen and Libya. While the region has historically created about 3.5 million jobs per year with an average GDP growth rate of 5%, the slowdown in growth since the Arab Spring has resulted in growth averaging about 2-3%. Under a continued slowdown, the average unemployment rate in the region will increase substantially with youth and women affected the most. 

    The lack of economic diversification has largely contributed to growth volatility. Oil exporters rely primarily on one export commodity (oil) and oil importer countries lack multiple trading partners. Fiscal spending in almost all of the countries in MENA is dominated by a large wage bill and ballooning general subsidies, both of which have been on the rise after the Arab Spring to prevent further social discontent. This has reduced the fiscal space available for capital spending and investment in infrastructure, lowering the prospects of higher growth. General food and fuel subsidies benefit the rich more than the poor. A recent study by the World Bank shows that low-income households in Tunisia receive only 2% of the energy subsidy, while high-income households receive about 67% of the subsidy on petrol and 60% of the subsidy on diesel. In Egypt, where the economy is still suffering from subsidies that amount to 9% of GDP, spending on petroleum subsidies is set to increase by 10% in the fiscal year ending June 2014. In Iran, where universal subsidies were replaced by cash transfers in 2012, fiscal savings amounted to less than initially projected, forcing the government to increase borrowing from the Central Bank.

    [1] MENA oil exporters include Algeria, Iran, Iraq, Libya, Yemen Bahrain, Kuwait, Qatar, Saudi Arabia, Oman and UAE.

    [2] MENA oil importers include Egypt, Tunisia, Morocco, Jordan, Lebanon, Djibouti and West Bank & Gaza.

    Last Updated: Mar 15, 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. This will involve a focus on partnership with Arab partners, traditional donors, the UN, and the IMF. The Bank has also committed to mainstreaming citizen engagement and collaboration with civil society. The Bank will be harnessing its knowledge and finances to allow more transformational engagements that foster greater resilience and more inclusive growth.

    RECENT LENDING AND ANALYTICAL WORK

    IBRD/IDA lending increased from US$1.5 billion in fiscal year (FY) 2012 to US$2.1 billion in FY13 despite challenges in the region, with a current projection of a further increase to $3 billion in FY14. 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. Broadband and Networks in MENA: Accelerating High-Speed Internet Access highlights how open competition and policy and regulatory changes could transform the region into a global leader in high speed internet. 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. Lebanon: Economic and Social Impact Assessment identifies and quantifies the effects of the conflict in Syria. Fairness and Accountability: Engaging in Health Systems in MENA is a regional strategy for building health systems that are inclusive and accountable. Jobs for Shared Prosperity: Time for Action in MENA focuses on reforms needed to stimulate growth and the jobs that come with it, as well as creating a clear path from school to work. Opening Doors: Gender Equality and Development in MENA provides policy proposals for removing the obstacles that have produced the world’s lowest rate of female participation in the labor force.

    Results

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

    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.

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