World Bank: Sustaining Reforms Key for Economic Recovery in Middle East

RABAT, Morocco, April 17 — The World Bank issued the following news release:

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Plagued by war, violence, and low oil prices, economies in the Middle East and North Africa (MENA) region will see growth of 2.6 percent in 2017, down from 3.5 percent in 2016, according to the World Bank's semi-annual MENA Economic Monitor launched today on the sidelines of the Arab Monetary Fund. But after 2017, driven by ongoing reforms, the situation is expected to improve slightly and growth could exceed 3 percent in 2018 and 2019.

“No part of the region has escaped the impacts of instability, which have ranged from devastating people's lives to interrupting trade and discouraging investment,” said Hafez Ghanem, World Bank Vice-President for the Middle East and North Africa Region. “Still, we are changing our outlook from 'cautiously pessimistic' to 'cautiously optimistic' because we see promising signs in the fruits of economic reform, a sense of stability in the oil market, and the fact that eventually all conflicts end.”

While the region's overall growth is expected to decline as a result of a slowdown in the economies of oil exporters, oil importers should perform better with growth picking up to 3.5 percent in 2017 from 2.9 percent a year before. Despite a sluggish overall economic prospect in the region, the report points to some positive signs of recovery in countries like Egypt, which is successfully implementing key reforms to increase revenue and control expenditure, and is expected to see its Foreign Direct Investment (FDI) double in 2017 reaching $5 billion. At the same time, with low oil prices, oil exporting countries have embarked on solid macro-economic reforms which helped them maintain their economic stability.

“The prospects for a recovery in growth and faster development in the Middle East and North Africa are within the grasp of the countries in the region,” said Ghanem. “To achieve that, economic reforms and diversification are a must in order to make room for private sector growth that can create badly needed jobs. At the same time, the quality of schools needs to be improved in order to give young people the skills they need to compete for those jobs.”

The MENA Economic Monitor emphasizes that the sustainability of economic recovery in the region will depend on the effectiveness of any future peace-building and reconstruction efforts. A special section of the new report focuses on the impacts of the conflicts in Libya, Syria and Yemen, and suggests strategies for reconstruction to build and consolidate stability. Causing wide-scale human suffering, weakened institutions and devastated economies, the spillover effects of the three civil wars have also affected neighboring countries such as Jordan, Lebanon and Tunisia, which are hosting an unprecedented number of refugees while seeing their trade, tourism, and security undermined. The report outlines principles that can guide post-conflict reconstruction which must rebuild not just infrastructure, but inclusive institutions, the lack of which was a major cause of the conflict.

“Civil wars, coupled with an economic slowdown, have created newly vulnerable groups and significantly weakened public services such as health and education,” said Shanta Devarajan, World Bank Chief Economist of the Middle East and North Africa Region. “Breaking that vicious cycle of violence and economic recession calls for a collective effort to support the region in a peace-building process that would eventually achieve long-term political and economic stability.”

To illustrate one major aspect of the reconstruction challenge, recent World Bank estimates show that if a political solution were to be reached in Syria and reconstruction begins, it will take 10 years for the Syrian Gross Domestic Product (GDP) to get close to its pre-war level, if the economy grows by 5 percent on average. Growing at lower than this rate will delay the recovery by another 10 years.

As important as economic recovery, it is critical that reconstruction efforts be geared toward consolidating peace to avoid the possible resumption of conflict. The report recommends that any future reconstruction process be inclusive and internally-driven, based on a national vision that the donor community supports rather than leads. Noting that the civil wars involve sectarian conflict, the report finally calls on post-conflict governments to consider giving greater prerogatives to sub-national entities as a way of preserving territorial integrity.

“Peace in the Middle East and North Africa region is a global public good,” said Ghanem. “Any reconstruction effort has to be a nation-building exercise and should address the root causes of the conflict in order to prevent its recurrence by building inclusive institutions, giving voice to citizens, and creating jobs for displaced and resident populations.”