Washington, D.C., April 9, 2020 — Transparency about critical economic issues — such as public debt and employment — will be the key to driving growth and enhancing trust in the governments in the Middle East and North Africa (MENA) region, according to the World Bank’s latest regional economic update.
The need for greater transparency comes as the MENA region faces unprecedented dual shocks from the COVID-19 (Coronavirus) pandemic and the collapse in oil prices. The shocks have exacerbated already slow economic growth in the region, due, in part, to lack of data transparency.
The new report, entitled How Transparency Can Help the Middle East and North Africa, shows that estimates of the costs of the current crisis are fluid because it is difficult to predict how the global economy, national policies and societies will react as the pandemic spreads. Consequently, estimates of the costs can vary in a matter of days. As an example, the report shows how the spread of COVID-19, along with the collapse in oil prices, brought changes in private-sector and World Bank growth forecasts for 2020. As of April 1, changes in forecasts implied that the costs for MENA were about 3.7% of the region's 2019 GDP (approximately US$116 billion) compared to 2.1% as recently as March 19.
"More than any other region, MENA is confronting two distinct but related shocks with the spread of the virus and the collapse in oil prices. The World Bank is ramping up efforts to help governments weather these shocks and leave no one behind," Ferid Belhaj, World Bank Vice President for the Middle East and North Africa, said. "But to bring new hope to citizens, we must learn and change. Across the region, transparency can help lead to growth with enhanced trust in government in the years and decades to come."
According to the new report, the COVID-19 pandemic is affecting MENA economies across four channels: the deterioration of public health; falling global demand for the region’s goods and services; declines in MENA’s domestic supply and demand because of social distancing measures; and, importantly, falling oil prices. The collapse of oil prices hurts both oil exporters directly, and oil importers indirectly, through declines in regional remittances, investment and capital flows.
The report recommends that countries respond with policies in two parallel steps: address the health emergency and the associated economic contraction; and start in the enactment of transformative and largely budget-neutral reforms such as debt transparency and restructuring of state-owned enterprises.
"Investing in transparency now will break the vicious cycle of distrust and lack of government accountability in the region," said Rabah Arezki, World Bank Chief Economist for the Middle East and North Africa Region.
In addition to estimating the effects of these latest shocks, the report examines the challenges across MENA that predate the crisis — most notably slow growth. The authors estimate that if the region’s growth of output per capita had been the same as that of typical peer economies over the last two decades, the region’s real output per capita would be at least 20% higher than what it is today.
The report argues that a large part of MENA’s slow growth is due to a lack of transparency. MENA is the only region that has dropped in data capacity and transparency since 2005.
"The decline in MENA’s transparency between 2005 and 2018 is associated with an expected loss of the region’s income per capita ranging from 7 to 14%," said Daniel Lederman, World Bank Deputy Chief Economist and lead author of the report.
The report highlights two areas where the lack of transparency hinders credible analyses of important issues:
- Lack of data transparency hampers credible analyses of MENA’s debt sustainability, which will be an important issue to examine after the crisis. MENA countries vary greatly in their debt reporting standards, and World Bank economists and other external analysts do not have access to vital information about many types of public debt.
- Unemployment and informality numbers in the region are ambiguous because MENA countries rely on varying definitions of employment. There is little harmonization — across the region, or with respect to international standards — which affects analyses of informality and unemployment.
On April 2, the World Bank announced an initial surge of support to help countries across the Middle East and North Africa.
The World Bank Group is taking broad, fast action to help developing countries strengthen their pandemic response, increase disease surveillance, improve public health interventions, and help the private sector continue to operate and sustain jobs. It is deploying up to $160 billion in financial support over the next 15 months to help countries protect the poor and vulnerable, support businesses and bolster economic recovery.
Due to the COVID-19 pandemic, economic circumstances within countries and regions are fluid and change on a day-by-day basis. The analysis in this regional report is based on the latest country-level data available as of April 1.