PRESS RELEASE April 1, 2019

Continued Reforms Needed in Middle East and North Africa to Increase Labor Productivity, Boost Growth

New World Bank report forecasts 1.5 percent growth in 2019, increase in 2020 and 2021

WASHINGTON, April 1 , 2019 —– Economic growth in the Middle East and North Africa (MENA) region is set to drop slightly to 1.5 percent in 2019 from 1.6 percent in 2018, according to a new World Bank report. Despite the fall in growth this year, regional growth is expected to see a modest uptick to 3.4 percent in 2020 and 2.7 percent in 2021.

The World Bank’s latest bi-annual MENA Economic Update, launched today, says the expected growth in the region is led by developing oil importers, such as Egypt, which accounts for roughly 8 percent of MENA’s GDP, with a forecast at 5.5 percent in 2019, and higher in 2020-2021 Growth in GCC economies is expected to reach 2.1 percent in 2019. The revival of growth in Egypt and the GCC is partly and indirectly the result of domestic reform policies. Meanwhile, the expected growth slowdown of MENA’s largest export markets, namely, the EU, US and China, will have a negative effect on the region.

“We’re challenging the region to embrace ambitious reforms,” said Ferid Belhaj, World Bank Vice President for the Middle East and North Africa Region. “There’s an urgency today for reforms to improve productivity and encourage innovation and competition. The Middle East and North Africa will have 300 million young people looking to enter the job market by 2050. The region can only succeed if it addresses the structural impediments to growth. We see that the countries that have taken difficult measures to implement policy reforms are the drivers of economic growth in MENA today.”

The modest expected pickup in growth in the upcoming years does not change the long-term picture of lackluster growth of GDP per capita and persistent current account deficits in several developing economies of MENA. Many oil-importing countries have been running large and persistent trade and current account deficits for more than a decade. In contrast, MENA’s oil exporters have historically had large current account surpluses, but that has changed in recent years. The deterioration in external balances has limited the ability of the region to recirculate savings from high-income oil exporters to developing economies with persistent current account deficits, most notably since the global restructuring of the oil market in 2014.

The new Bank report, entitled Reforms and External Imbalances: The Labor-Productivity Connection in the Middle East and North Africa, lays out the urgent need for more structural reforms that can raise aggregate labor productivity to simultaneously raise growth and reduce external imbalances in the region.

MENA countries should be growing at least at twice the rates they currently do,” said Rabah Arezki, World Bank Chief Economist for the Middle East and North Africa Region and lead author of the report. “To awaken its untapped potential, the region must transform its economies, strengthen market contestability, and adopt a moonshot approach to the digital economy.”

Existing excess current account deficits must shrink gradually, the report argues, rather than wait until souring capital flows force current account deficit reversals upon MENA economies.

The report affirms that both demographic changes and aggregate labor productivity are fundamental drivers of an economy’s current account balance. Structural reforms are urgently needed to raise aggregate labor productivity. These reforms include: fiscal-expenditure reforms that can help by both increasing fiscal savings and enhancing labor productivity when subsidies prevent market contestability; trade reforms aimed at lowering trade costs beyond tariffs to help integrate MENA in global value chains; labor market reforms to enhance labor productivity while also providing a safety net for displaced workers; and smart reforms in State Owned Enterprises in network industries, such as energy and telecoms to help improve the efficiency of the firms as well as raise aggregate labor productivity.

Last Updated: Apr 01, 2019


Contacts

In Washington
Ghanimah AlOtaibi
(202) 458-8406
galotaibi@worldbank.org
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