Introduction

After a long period of slow growth, most economies in the Middle East and North Africa (MENA) region in which the Bank has current operations (Algeria, Egypt, Iran, Jordan, Lebanon, Morocco, Tunisia, the West Bank and Gaza, and Yemen.) recorded significant improvements in gross domestic product (GDP) for the second year in a row. Growth estimates for 1996 ranged from a high of nearly 12 percent in Morocco, nearly 7 percent in Tunisia, 4-5 percent in Egypt, Iran (government estimates) Jordan, and Lebanon, to 3-4 percent in Algeria and Yemen. Only the West Bank and Gaza, where economic performance continues to be bound up with progress on the Middle East peace process, was unable to share in the brightening picture--growth during 1996 was marginally negative.

The improvement in growth prospects reflects a payoff from the determined efforts by the countries of the region to secure and maintain macroeconomic stability and to undertake fundamental programs of economic reform. The depth and pace of progress in individual cases reflect specific country conditions, but there is now a broad consensus among the Bank's active borrowers on the need to open up economies to the outside world and create market-friendly domestic policy and operational environments in which the private sector is increasingly the engine of growth.

Rapid private sector-led growth is at the core of the Bank's strategy for the region, along with two other critical factors--support for human capital development and programs to ensure that the fruits of growth are widely shared throughout society; and support for environmentally responsible growth to ensure that development is sustainable. Both lending and nonlending services during fiscal 1997 reflect these priorities within the framework of country-specific needs. The fiscal year's operations also reflect a broadening product mix, renewed efforts to enhance responsiveness to clients, and closer partnerships with counterparts at the grassroots. Capacity building was supported by the Economic Development Institute (EDI), which organized the Mediterranean Development Forum in May 1997 in Marrakech, Morocco. Policymakers, parliamentarians, NGOs, academics, and journalists from around the world came together to participate in more than a dozen learning programs on regional development issues ranging from unleashing the economic potential of the rural poor to managing reform.

World Bank loans and International Development Association (IDA) credits (including financing on IDA terms provided from the Trust Fund for Gaza and the West Bank) approved by the executive directors in fiscal 1997 totaled $998.3 million. Table 3-16 shows the sectoral distribution of lending to the region for the 1988-97 period. Table 3-17 compares commitments, disbursements and net transfers to the region for fiscal years 1992-97, and table 3-18 shows IBRD and IDA-funded operations in the MENA region approved by the Executive Board during fiscal 1997 by country. The number of operations approved rose to a historic high of twenty-four compared with a 1994-96 average of seventeen, largely reflecting a sharp upswing in the West Bank and Gaza program (see box 3-6). In addition to Bank and IDA operations, the Bank's private sector affiliate, the International Finance Corporation (IFC), invested in twenty-five operations in MENA countries during the year. IFC financing totaled $420 million, an increase over the eighteen investments totaling $288 million in fiscal 1996. Meanwhile, the Multilateral Investment Guarantee Agency (MIGA) issued seven guarantee contracts for investments in Algeria, Bahrain, Egypt and Saudi Arabia totaling $23 million in issued coverage and facilitating more than $250 million in foreign investment. Both IFC and MIGA provided technical advice to support private sector and financial market-development and investment-promotion activities in MENA countries.