Economies in the Middle East and North Africa (MENA) region are expected to grow by 5.5% this year – the fastest rate since 2016 – followed by a slowdown to 3.5% in 2023. However, this development has been uneven across the region across countries. , which is still struggling to deal with the lingering effects of the Covid-19 pandemic, faces new severe shocks from the war in Ukraine, rising oil and food prices, global interest rates and recessions in the US, China and the Eurozone.
The World Bank’s latest economic update, “A New Mindset: Greater Transparency and Accountability in the Middle East and North Africa,” notes that oil-exporting countries in the region benefit from hydrocarbons, but oil-importing countries face different circumstances. Oil importers face increased pressure and risk, especially as import bills for food and energy rise and fiscal space tightens, with higher price subsidies to ease the pain of price hikes on their populations.
« All MENA countries will need to adjust to cope with significantly higher food and other import prices, especially if they lead to increased government borrowing or currency devaluations. said Ferid Belhaj, World Bank Vice President for the MENA Region. area. » Smart governance is what countries need now to weather the storm and start rebuilding after multiple shocks in addition to the pandemic. . »
Published twice a year, the report says responsive governance can help countries more effectively address these challenges now and secure the foundation for long-term growth. Each MENA Economic Update focuses on a specific area, and this report explores how reforms leading to greater transparency and accountability in public institutions can promote sustainable economic recovery. Countries urgently need to develop systems that allow state bureaucracies to measure results, align accountability, experiment, and learn from those results.
The bank’s analysis predicts divergent growth trajectories in the region. The Gulf Cooperation Council (GCC) countries are projected to grow by 6.9% in 2022, supported by strong hydrocarbon revenues, with oil prices slowing to 3.7% in 2023 as hydrocarbons decline. Oil-exporting developing countries are expected to experience similar trends to the GCC, but at lower levels, with growth expected to increase to 4.1% in 2022, led by Iraq, which will decline to 2.7% in 2023. Oil-importing developing countries are expected to grow by 4.5 percent in 2022 and 4.3 percent in 2023. However, slowing growth in Europe poses a particular risk, as this group of countries is highly dependent on trade with the Eurozone, especially North African oil importers close to Europe: Tunisia, Morocco. , and Egypt.
Across the region, policymakers have introduced price controls and subsidies, in particular, to make domestic prices of certain commodities, such as food and energy, lower than world prices. This has had the effect of keeping inflation lower in the MENA region than in other regions, the report found. In Egypt, for example, average annual inflation was 14.3% in the March to July 2022 period, but would have risen 4.1 percentage points to 18.4% had the authorities not intervened.
Some governments have offered cash transfers to poor households, a better way to help the poor cope with price increases than public market subsidies that lower prices for everyone, including the rich. For Egypt, reducing average inflation by 4.1 percentage points using subsidies on food and energy prices is 13.2 times more than raising prices to benefit the entire population, and only transfers to the poorest 10% of households.
Governments will spend more as food and energy prices rise, increasing subsidies and cash transfers to mitigate the damage to their people’s living standards. For the GCC and oil-exporting developing countries, this is not a major concern at present. The sudden increase in government revenues resulting from higher hydrocarbon prices has significantly expanded their fiscal space and will result in budget surpluses for most oil exporters in 2022, even after additional spending on export projects.
Developing oil importers, however, have no such windfall and must either cut spending, find new revenue, or increase deficits and debt to finance inflation-busting programs and any other additional spending. Also, when global interest rates rise, the debt service burden on oil importers will increase, as they will have to pay higher interest rates on any new debt they receive, as well as on existing debt, weighing on countries’ debt sustainability. Time, especially for countries with already high levels of debt, such as Jordan, Tunisia and Egypt.
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