Introduction

Following exceptionally rapid gross domestic product (GDP) expansion in 1996, growth in 1997 eased somewhat in most of the economies of the Middle East and North Africa (MENA) region in which the Bank has ongoing operations. (Algeria, Egypt, Iran, Jordan, Lebanon, Morocco, Tunisia,the West Bank and Gaza, and Yemen.) Nevertheless, most of these economies achieved growth rates ranging from 4.0 percent to 5.6 percent, a substantial improvement over the average for the past decade. The exceptions were Algeria, Morocco, and the West Bank and Gaza, where special circumstances led to minimal or negative growthnotably including the consequences of drought in Algeria and Morocco and the limited progress of the Middle East peace process in the West Bank and Gaza.

Despite year-to-year fluctuations in growth rates, most of the countries of the region are now participating in varying degrees in the broad-based economic recovery that has increasingly characterized the regional economy during the present decade. Nevertheless, the region still suffers from persistently high levels of unemployment against a background of rapid labor force growth, along with sharp rural-urban disparities in incomes and social and physical infrastructure. Meeting these and other critical development challenges entails maximizing regional economies' potential for securing the rapid, equitable, and sustainable economic growth on which future prosperity and socioeconomic cohesion depend. This in turn will involve promoting private sector-led growth, liberalizing trade, privatizing state-owned enterprises, and focusing on a new role for government as an effective referee and facilitator of productive economic activity rather than a direct participant in it. Support for human development, socioeconomic inclusion, and targeted poverty reduction initiatives will also be critical, along with continuing efforts to preserve fragile or limited natural resources and the region's unique cultural heritage.