Mubasher: The economies of the Middle East and North Africa (MENA) region are forecast to grow by 5.5% this year, the fastest rate since 2016, followed by a slowing of growth to 3.5% in 2023.
Published twice-yearly, World Bank’s latest economic update, titled "A New State of Mind: Greater Transparency and Accountability in the Middle East and North Africa," says this growth, however, is uneven across the region.
Countries, still struggling to overcome the lasting effects of the COVID-19 pandemic, face jolting new shocks from higher oil and food prices resulted from the war in Ukraine, coupled with increasing global interest rates and slowdowns in the US, China, and the Euro area.
"All countries in the MENA region will have to make adjustments to deal with significantly higher prices for food and other imports, especially if they lead to an increase in government borrowing or currency devaluations," said Ferid Belhaj, World Bank Vice President for the MENA region.
The report says that responsive governance will help countries confront these challenges more effectively now and cement the foundations for long term growth.
The bank’s analysis forecasts diverging paths of growth in the region. The GCC countries are on track to grow by 6.9% in 2022, helped by high hydrocarbon earnings, slowing to 3.7% in 2023 as hydrocarbon prices subside.
Developing oil exporters are projected to experience trends like those of the GCC but at lower levels, with 2022 growth expected to increase to 4.1%, before falling back to 2.7% in 2023.
Developing oil importing countries are expected to grow by 4.5% in 2022 and 4.3% in 2023. However, the slowdown of growth in Europe poses a particular risk, as this group of countries relies more on trade with the Euro area, especially the North African oil importers closest to Europe: Tunisia, Morocco, and Egypt.
Regionally, policymakers have introduced measures to make the domestic price of certain goods, such as food and energy, lower than the global price. This has had the effect of keeping inflation in MENA lower than in other regions. In Egypt, for example, average annual inflation during the period of March to July 2022 was 14.3%, but it would have been 4.1% points higher at 18.4%, had authorities not intervened.
Some governments have made cash payments to poorer households, a more efficient way of helping the poor deal with rising prices than general market subsidies that lower prices for everyone, including the rich.
Governments will incur additional expenses as they increase subsidies and cash transfers to mitigate the damage to the living standards of their populations from higher food and energy prices. For the GCC and developing oil-exporting countries, this is not of much concern now as windfall raises in state revenues from the increase in hydrocarbon prices have significantly increased their fiscal space and will result in fiscal surpluses for most oil exporters in 2022.
However, developing oil importers do not have such a windfall and will have to cut other expenditures, find new revenues, or increase deficits and debt to fund the inflation mitigation programs and any other additional spending. Moreover, as global interest rates rise, the debt service burden for oil importers will increase, weighing on countries’ debt sustainability over time.
