The MENA countries may be divided into two groups: (1) oil-exporters which include the six GCC countries (Bahrain, Kuwait, Qatar, Oman, Saudi Arabia, and the UAE), Algeria, Libya, Iraq, and Iran; and (2) net oil-importers which include Egypt, Jordan, Lebanon, Morocco, Syria, and Tunisia. The MENA countries have a combined GDP of about $2.0 trillion and a population of about 320 million. Most currencies in the region are pegged to the dollar or to a basket of currencies, and monetary policy is therefore largely constrained.
Endowed with about 70% of the world's proven oil reserves and 50% of proven gas reserves, MENA oil-exporters play a critical role in the world energy market. Earnings from oil and gas account for about 70% of total exports, and 75% of budget revenues. The global financial crisis and recession affected mainly the oil exporters (as oil prices peaked and then dropped sharply) and the more globalized jurisdictions such as Dubai where the financial sector and the property market suffered severe setbacks. Massive step-up in government spending along with central bank liquidity support and capital injections into the banking sector helped mitigate the impact of the crisis on economic activity. Many governments in the region remain on a path of strong fiscal expansion, especially in the GCC, where real GDP growth in 2010-11 is projected to average 4.2% annually, still below the annual average growth of 8.0% in 2002-2008.
As to the MENA net oil-importers, tourism, remittances and FDI are important sources of external receipts (particularly from the GCC). Limited integration with global financial markets, coupled with steady structural reforms, has helped these economies avoid the worst of the global financial crisis. They face, however, important policy challenges to improve their global competitiveness and reducing unemployment, fiscal deficits, and public debt.
The Arab Spring: A Difficult Passage Ahead
A year into the Arab Spring and affected countries in the region are facing formidable political and economic challenges. The transformation of political systems and the establishment of new economic policy frameworks for a new era are straining the capacity of transitional governments. Beyond transition, if meaningful reforms are put into place, the prospects for the region appear exceptionally bright.
MENA Publications
Country Publications
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Qatar: Gas Output Peaks as Economy Sustains Growth
May 18, 2012LNG production reached maximum capacity in 2011, leading to a double-digit growth rate, as well as large fiscal and current account surpluses. In 2012, Real GDP growth will decelerate as government spending on infrastructure and development projects will replace gas as the primary driver.
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Bahrain: Struggling to Return to Higher Growth
May 10, 2012Political and social unrest, which broke out in early 2011, continues to simmer. Although we expect growth to rise to 3.7% this year, buoyed by an increase in oil production, this is still weaker than the decade before the global financial crisis. The recovery will likely be patchy, while further out a more durable social peace and securing new sources of gas for Bahrain’s industry will be crucial.
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Saudi Arabia: Steady Reforms, Continued Strong Growth
May 07, 2012Growth is expected to moderate from 6.4% in 2011 to 5% in 2012. Continued firm oil prices will widen the current account and fiscal surpluses, and raise net external assets to $756 billion by end-2012. The fiscal breakeven oil price is expected to decline from $82/b in 2011 to $77/b in 2012. High unemployment among nationals continues to pose a challenge.
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Kuwait: Oil Drives Growth as the Private Sector Lags
May 01, 2012The hydrocarbon sector led Kuwait’s economic growth in 2011 as government investment continued to lag in the face of political opposition that caused delays or cancellations of government projects. High oil prices and increased oil output also generated the GCC’s highest fiscal surplus as a percentage of GDP in FY 2011/12. Consumption was also robust, stimulated by larger government transfers in the form of grants and subsidies.
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Oman: Using Oil Revenue To Diversify The Economy
April 12, 2012High oil prices are facilitating government efforts to diversify the economy and promote private sector activity. The strategy involves improving the physical infrastructure, including building new ports connected to industrial free trade zones where foreign investors benefit from a range of incentives; developing gas-based and related downstream industries; and promoting tourism.
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Algeria: Robust Growth, but Long-Term Challenges
March 23, 2012Nonhydrocarbon growth is expected to remain strong, driven by public spending. The continued decline in hydrocarbon output and a large increase in public spending will raise the breakeven Brent price of oil to $124/b in 2012. Structural reforms are needed to diversify the economy, energize the private sector, and sustain rapid growth.
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Lebanon: Navigating an Uncertain Political Environment
March 08, 2012The continued unrest in Syria and the ensuing domestic political tensions dashed hopes for a strong recovery in 2012. The fiscal deficit will widen from 5.7% in 2011 to 8.0% in 2012 due to a sizable rise in public wages. While government debt remains high, risks are contained by adequate international reserves and support from a highly liquid banking system
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Regional Publications
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GCC: Surge in Oil Revenues Fuels Strong Growth
April 17, 2012The GCC countries will experience robust growth in 2012. Sharp increases in oil production coupled with a surge in public spending helped lift the region’s growth rate to 6.9% in 2011. This will moderate to 4.9% in 2012. Expansionary fiscal and monetary policies are expected to remain in place, and inflation will remain subdued. The consolidated fiscal surplus will widen to 12% of GDP this year. With the combined external current account surplus expected to be a record $358 billion, gross foreign assets could rise to about $2.3 trillion at end-2012. Banks in the GCC are now sounder.
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Oil: OPEC Unthreatened by New Crude Discoveries
February 17, 2012Despite new discoveries outside OPEC, OPEC countries will continue to maintain a pivotal role in the global oil market through 2030. Shifts in the global oil balance will take place as non-OECD consumption overtakes that of OECD while new discoveries of conventional and unconventional oil in the Western Hemisphere improve this region’s supply/demand balance. Continued concentration of market power in OPEC will underpin higher market volatility and upward price pressures.
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The Arab Spring: A Difficult Passage Ahead
February 08, 2012A year into the Arab Spring and affected countries in the region are facing formidable political and economic challenges. The transformation of political systems and the establishment of new economic policy frameworks for a new era are straining the capacity of transitional governments. Beyond transition, if meaningful reforms are put into place, the prospects for the region appear exceptionally bright.
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Oil Market Update: Geopolitical Risks Keep Oil Prices Firm
January 20, 2012Political tensions surrounding the Strait of Hormuz have raised the risk premium on oil and will support Brent prices of around $110-$115 over the short run. Reduced oil supplies from Iran will likely be counterbalanced by higher production from Libya and Iraq, but OPEC spare capacity will remain low and could decline if sanctions against Iran sharply reduce it exports. As the year progresses, however, and if sanctions-related tensions dissipate, prices could begin to trend lower.
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The Arab World: Navigating through the Turbulence
October 19, 2011The economic fallout from the Arab Spring produces divergent outcomes this year and next as between oil-exporting and oil-importing countries. While the oil-exporters are likely to see average growth of 6.5% this year, the Arab oil importing countries will see their economies contract on average by 0.4%. The short-term outlook for some countries in the region is still subject to large uncertainties associated with the transition process. The Arab oil-exporters’ financial sectors are better prepared for further deterioration in the external environment as banks’ liquidity continues to improve and deleveraging progresses steadily.
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The Arab World in Transition: Assessing the Economic Impact
May 02, 2011Unprecedented divergence unfolds in 2011 in Arab economies, posing exceptional challenges but also opportunities. For the oil importers, the economic toll from the political upheaval will translate into a collapse in growth in 2011. In contrast, growth in the GCC will accelerate in 2011 while the combined current account surplus is set to surge from $129 billion to $292 billion, raising the level of their gross foreign assets to $1.7 trillion by year end.
This divergence affords the Arab region a unique opportunity as the oil exporting countries, teaming up with international financial institutions, come to the aid of the transition countries not only to provide immediate financial assistance, but also to help them put in place a medium-term framework of reforms that would help secure their long-term growth and prosperity.
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2010 Gulf Cooperation Council Regional Report
May 13, 2010The GCC economies are now recovering and growth this year is likely to average 4.4% and then rise to 4.7% in 2011, following just 0.3% growth in 2009. Prospects vary considerably across the region. Underpinning the robust GCC recovery are higher oil prices, likely continuation of expansionary fiscal policies, and normalization of global trade and capital flows.
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