Over the last three decades, Middle East and North Africa (MENA) countries have witnessed the slow unraveling of the old social contract, where a dominant public sector offered jobs, social services, and security—but at the same time protected a privileged business class. The brutal upheavals of a decade ago across the region sealed the end of that tired compact.
As part of renewing the social contract, MENA countries should give the highest priority to transparency, governance, and the rule of law as avenues to instill trust between the state and its citizens, attract private sector investment, grow the economy, and expand access to opportunities for all.
What gives hope to the people of MENA and beyond is the dynamism of its youth and women. Two-thirds of the population is under 35-years-old. However, pre-crisis youth unemployment stood at nearly 25%—nearly half of which (40%) were women. Before the COVID-19 crisis, nearly half of MENA’s population (42%) lived on incomes below US$5.50 per day.
In contrast to every other region in the world, life satisfaction in the MENA region was already on the decline before the COVID-19 pandemic. In 11 out of 14 MENA countries for which data is available, life satisfaction in 2019 was lower than in 2010. Low life satisfaction is arguably driven by lack of economic opportunities, high levels of unemployment (especially youth and female unemployment), and widespread economic insecurity.
Moreover, conflicts in the region contributed to a doubling of extreme poverty (measured as individuals living on incomes of less than US$1.90 per day), from 2.4% in 2011 to 4.2% in 2015; in addition, broadening the poverty measure to include a more multidimensional analysis, factors such as uneven educational attainment and access to basic infrastructure contribute to a near doubling of the extreme poverty rate.
COVID-19 and Poverty
The COVID-19 crisis has brought severe economic losses and social pain; however, the situation remains fluid, and it is difficult to offer precise estimates of the income losses and consequent increases in the number of poor people.
Given the information available, the World Bank estimates that poverty has increased by roughly 12 million to 15 million people in 2020 alone at the middle-income poverty line of living on US$5.50 per day. And we estimate that the number could rise to upwards of 23 million by the end of 2021.
The COVID-19 pandemic exacerbated MENA’s underlying structural issues. The combination of the pandemic and the collapse in oil prices has affected all aspects of MENA’s economies. Oil prices have recovered somewhat; however, they remain far below levels prior to the first COVID-19 outbreak in the region in February 2020.
As of October 1, 2020, gross domestic product (GDP) in the Middle East and North Africa was expected to contract by 5.2% in 2020, which is 4.1 percentage points below the forecast in April 2020, and 7.8 percentage points worse than that of October 2019, reflecting an increasingly pessimistic outlook for the regional economy. The region is expected to recover only partially in 2021.
The outlook for MENA’s current account and fiscal balances also has deteriorated sharply. Driven largely by lower oil export revenue, a drop in fiscal revenue, and the large increase in fiscal expenditure required to respond to the health crisis, the region’s current account and fiscal balances in 2020 are forecast at -4.8% and -10.1% percent of GDP respectively, much worse than the forecasts in October 2019. Public debt is projected to rise significantly in the next few years, from about 45% of GDP in 2019 to 58% in 2022.
The expected costs of the COVID-19 pandemic are about 3.7 percent of the region’s 2019 GDP—roughly $100 billion.
Last Updated: Nov 15, 2020