Transparency about critical economic issues — such as public debt and employment — will be the key to driving growth and enhancing trust in government in the Middle East and North Africa (MENA) region. 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. 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.
Chapter I: The Dual Shocks of the Novel Coronavirus and the Oil Price Collapse
This chapter 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. 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.
This is in addition to the slow growth challenge across MENA that predated today’s dual shocks. 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, to 2.1% as recently as March 19, 2020.
Chapter II: External Imbalances, Fiscal Sustainability and Data Transparency in MENA
This chapter assesses the sustainability of current account and fiscal deficits across MENA countries. It relies on the best available data that are comparable across countries. In 2019, 11 MENA countries seemed to be on unsustainable fiscal paths: Their reported primary fiscal balances were insufficient to stabilize their gross-debt-to-GDP ratios. Fiscal sustainability assessments are hampered by lack of transparency concerning public debt stocks.
Chapter III: Data Gaps, Definitions and the Measurement of Labor Market Outcomes
This chapter studies the role of transparency in the measurement of aggregate labor market outcomes in the MENA region. It analyzes unemployment rates, female labor force participation rates, and, to a lesser extent, informality. MENA countries rely on imprecise definitions of employment, which blur the lines between unemployment and informality.
The discrepancies distort the role of women and rural areas in national labor markets. Using precise definitions of employment and unemployment, statistical evidence suggests that female labor force participation might be a generational issue because it is high among educated young women.
Chapter IV: Summary of Findings
World Bank economists expect output of MENA to decline in 2020. This is in sharp contrast to the forecast in October 2019 when the regional economies were expected to grow at 2.6% this year.
The growth forecasts don’t change the picture of the region’s struggle with the triplet challenges of lackluster long-term growth of GDP per capita, macroeconomic fragility, and poor labor market outcomes. The region’s lack of data and transparency contributed to these long-term outcomes.
The report recommends that countries respond with policies in two parallel steps:
- Address the health emergency and the associated economic contraction
- Start in the enactment of transformative and largely budget-neutral reforms such as debt transparency and restructuring of state-owned enterprises.
ALGERIA: Following a year of political uncertainty and social unrest leading to the deceleration of economic activity, Abdelmadjid Tebboune won the December 2019 Presidential election. In 2020, the COVID19 outbreak will slow down consumption and investment, while falling oil prices will cut into fiscal and exports revenues. The new Government has the difficult task to maintain macroeconomic stability, respond to the public health crisis and pursue structural reforms.
BAHRAIN: Overall economic growth is expected to decelerate this year as economic disruption associated with Covid-19 will weaken oil demand and weigh heavily on non-oil activity. The fiscal and external deficits are expected to reverse the narrowing path observed in 2019. Then the budget deficit is projected to only gradually narrow given lower oil revenues, and the large off-budget spending. A key source of stress is large interest payments on the external debt, intensifying pressure on reserves. Downside risks arise from the twin crises for the Gulf of continued plunge in oil prices and Covid-19 outbreak.
DJIBOUTI: After two decades of strong economic growth, the economy is expected to slow dramatically as the government takes restriction measures to avoid rapid and wide spread of the COVID-19 in local communities and strain healthcare systems. Per capita GDP is expected to contract for the first time since the global financial of 2009. With the rigid monetary regime (currency board) and virtually no fiscal buffers to protect vulnerable households, the social impact of the crisis could be particularly devastating
EGYPT’s macroeconomic stabilization program was largely successful in supporting growth, generating a solid primary budget surplus, reducing the debt-to-GDP ratio, and replenishing reserves. Vulnerabilities persist however, including the exports and FDI underperformance, which may be aggravated by the disruptive repurcussions related to the COVID-19 pandemic. This underscores the urgency of resolving structural challenges to safeguard a sustained recovery, through addressing the business environment constraints, while enhancing revenue-mobilization to create the fiscal space needed to advance the human capital agenda.
IRAN: The economy contracts for a second consecutive year in 2019/20 due to the tightening of US sanctions and despite growth in some non-oil sectors. Inflation and unemployment remain high compared to regional averages. The fiscal deficit has widened due to underrealized revenues as the current account surplus diminished. Iran has been severely impacted by the COVI19 pandemic which, combined with the recent decline in global oil prices and stringent economic sanctions present significant risks to the country’s economic outlook.
IRAQ: While the oil sector boosted growth in 2019, the Government of Iraq’s failure in service delivery, fighting corruption, and private-sector job creation has prompted ongoing social unrest since November. In response, a considerable expansion in public sector employment, pensions, and transfers overshadowed critical spending for human capital and reconstruction. The outlook entrails considerable risks linked with lower oil prices, the spread of COVID19, budget financing constraints, political deadlock, and the need for fiscal consolidation.
JORDAN: Amid already weak economic performance, recent global developments in light of the COVID-19 pandemic are likely to have a substantially negative impact on Jordan’s growth prospects in the new term. This impact would be largely transmitting through slowdown in major export and regional markets, reduced international travel and foreign inflows, and disruption in the services sector, as social distancing measures are rigorously enforced. On the flip side, lower oil prices are helping reduce oil’s import bill, and to some extent limit the current account deterioration although its impact on remittances and international concessional financing, especially from the GCC could partly offset the reduced import bill.
KUWAIT: Subdued oil prices and lower oil production led to slower overall economic growth in 2019 but robust public spending and credit growth are expected to underpin non-oil growth through the medium term. The steep downturn in oil prices since March and slower global growth spurred by the coronavirus will be absorbed by fiscal and financial buffers, at the expense of sustainability and diversification. This underscores the need for implementing fiscal and structural reforms to diversify away from hydrocarbons, support private sector activity and lay the foundations for a more sustainable growth model.
LEBANON: The country is facing compounded crises. On March 7, the Government defaulted on a $1.2 billion Eurobond redemption as the economy continues to suffer from financial crisis stresses. The decision’s main effect is on banking solvency, for which the authorities are ill prepared. On March 18, the Government declared a state of General Mobilization giving authorities a legal mandate to impose special measures to counter COVID-19, including the closure of the borders (airport, sea and land), and public and private institutions.
LIBYA: The country’s conflict has become a proxy war, which complicates peace and recovery prospects. Oil production stopped as the sector is being used for partisan political gains, which exacerbating the economic situation and the hardship of the population. Consequently, the macroeconomic framework is unstable as both the budget and current account will run deficits in 2020. Prospects are uncertain, exacerbated bu the effects of COVID-19 globally and domestically. A political resolution is needed to implement the required reforms for a private sector driven growth and jobs creation
MOROCCO: The global effects of the covid-19 pandemic compound with the domestic ones and those of the drought. Consequently, Morocco’s economy is expected to suffer from a recession this year, the first one in more than two decades. The twin deficits will deteriorate, increasing significantly financing needs. Demands for external financing have increased, which also underlying the imperative of consolidating foreign reserves. Both Central government’s and external debt will increase but will remain sustainable. The outlook remains subject to significant downside risks, including from more severe and longer duration of the pandemic.
OMAN’s economy is expected to show a marked slowdown in 2020 due to the oil price slide and concerns related to the coronavirus outbreak. An increase in gas output and infrastructure spending plans in the non-oil sector will help growth to recover over 2021-2022. Fiscal and external deficits will remain under immense strain due to low oil and gas prices. Rigid recurrent spending will keep public debt high at an estimated 60 percent of GDP in 2020, and to increase further in the years to come. Key risks to the outlook arise if the oil price crash is long-lived, which would include higher domestic and external borrowing and result in further sovereign rating downgrades and higher financing costs.
QATAR: Growth had been rebalancing as FIFA-related infrastructure investment tapered while other large projects in the gas and non-hydrocarbon sectors are underway. Fiscal and external balances had returned to surplus but remain highly vulnerable to volatility in hydrocarbon prices. Expanding LNG capacity is expected to underpin growth in the medium-term. Drags on growth include energy price volatility, COVID-19 disruptions, and the continued diplomatic rift with some Gulf neighbors. The diplomatic rift vindicated the infrastructure-focused diversification strategy, but COVID-19 has worsened under-utilization of capacity.
SAUDI ARABIA: The contracting oil sector led to sluggish growth in 2019, despite strong performance of non-oil sectors. The outlook for 2020 remains very weak in the wake of Covid-19 and oil supply shocks. Medium term fiscal balances are estimated to continue in deficit -- risking the ability in realizing Vision 2030 fiscal targets. Vision 2030 related reforms are critical for diversification and progress was made on business environment reforms. The ambitious reforms agenda will pose implementation challenges for the public sector.
TUNISIA: The new government faces an economic situation that is highly vulnerable to a deterioration of the global economy due to the coronavirus pandemic and volatile oil prices. Tunisia has high twin deficits and debt, and limited buffers, whereas growth is anemic, employment stagnant, and inflation relatively high. A worsening pandemic would negatively impact tourism, exports and domestic demand and consequently growth, employment, and household vulnerability. A sharp reversal of recent oil price dynamics would exacerbate current account and fiscal pressures.
UNITED ARAB EMIRATES: Overall economic growth stabilized in 2019, despite a recovery in the hydrocarbon (HC) sector, due to headwinds in non-HC sector, notably from real-estate oversupply. Fiscal stimulus programs targeting business costs were launched to facilitate an acceleration. In 2020, plunging oil prices and efforts to contain the coronavirus will weigh heavily on the non-HC sector which was already facing challenging debt burdens and intensified traded services competition. The medium-term outlook depends on a rebound in trade/travel and on structural reforms that can reinvigorate productivity and innovation.
WEST BANK AND GAZA: Following a fiscal crisis in 2019, the Palestinian economy was projected to slowly recover in 2020. However, the covid-19 outbreak seems to be largely weighing on economic activity. Living conditions are difficult with a quarter of the labor force unemployed and 24 percent of Palestinians living below the US$5.5 2011 PPP a day – even prior to the recent outbreak. A larger than expected decline in aid and a further spread of the covid-19 virus pose significant downside risks.