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 had a combined GDP of about $2.9 trillion and a population of about 321 million in 2012. 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 accounted for about 73% of total exports and 78% of budget revenues in 2012.
Several countries in the MENA region are still navigating a protracted process of political change which has delayed important economic policy decisions. The political transitions in Egypt, Tunisia, and Libya are proceeding in fits and starts while Syria has entered a full-blown, destructive civil war that could leave the country in a shambles. Libya has made significant progress, but there remain serious concerns about the security situation. Bahrain, Jordan and Morocco, longstanding monarchies, appear to have succeeded in avoiding major disruptions through a combination of political reforms, additional government spending, and tighter security. Financial support from GCC countries has underpinned the monarchies’ political stability and eased economic strains.
The future political landscape in the region remains unclear, as the ascendant Islamists struggle to govern in a highly volatile and unpredictable political environment. This has sharply reduced economic activity and undermined the authorities’ capacity to reestablish security and the rule of law, and undertake the urgently needed structural reforms to reignite growth and reduce unemployment. Without a clean path to political stability, economic recovery will remain halting at best. At the same time, increased government spending on fuel and food subsidies, combined with pressures to raise public wages, has further strained public finances. Concessional external financing has been promised, and some has been forthcoming, but disbursements will remain slow and contingent upon increasingly challenging reforms linked to IMF programs. The sharp contraction of the Syrian economy will continue this year. Among the MENA oil importers only the Moroccan economy has been operating at near-trend growth.
Most of the region’s oil exporters continue to post strong nonhydrocarbon growth (an average of 5.5% in 2012), and fiscal and current account surpluses have been buoyed by higher oil prices in recent years. Over the medium term, stronger growth will be contingent on building diversified capacities with reduced dependence on hydrocarbons through sustained structural reforms.
For the oil importers, the economic toll from the unrest, political uncertainty and weak external demand have led to weak real GDP growth of around 1% in 2011 and 2012 (as compared with an average of 5% in 2001-2010). Tourism and foreign direct investment (FDI) remain weak, and are still far below pre-revolution levels. Most businesses have retrenched. The Euro Area recession and sporadic violence have depressed economic activity in Egypt and Tunisia, while Jordan and Lebanon have been severely impacted by the spillover from the civil war in Syria. The prospects in 2013 remain challenging. We expect economic activity remain weak in Egypt, but improve in Morocco, Jordan and Tunisia. The Syrian economy is projected to contact again in 2013.
IIF Teleconference: Egypt, Tunisia and the Long Shadow of the “Arab Spring” in the MENA Region
February 11, 2014 — George T. Abed and Garbis Iradian of the IIF Africa/Middle East Department discuss the status of the transition in Egypt and Tunisia and the prospects for political stability and revival of economic growth. The call also addresses oil and energy issues as well as the fallout from the “Arab Spring” uprising since 2011 and the implications for regional stability.
Tunisia: Political Consensus Paves Way to Economic Recovery / Tunisie: Reprise économique suite au consensus politiqueMarch 25, 2014
The smooth transition to more democratic rule is improving economic prospects and growth is expected to accelerate in 2014, driven by rising investment. Large current account and fiscal deficits remain a challenge but the debt service is manageable. The banking system, however, is in need of modernization and, more generally, deeper economic reforms are needed to achieve and sustain higher growth and to significantly reduce unemployment.Read More
March 13, 2014
The large fiscal deficit and the high and persistent inflation are key macroeconomic challenges facing Egypt. Growth could accelerate to 4% in 2014/15, mainly reflecting the impact of the stimulus packages. The prospects beyond the near term could deteriorate if a new government following the presidential election fails to undertake the difficult but needed reforms.Read More
January 22, 2014
The worsening of the security situation and spillover from the Syrian crisis depressed growth to 0.9% and widened the fiscal deficit to 11% of GDP in 2013. The extent of economic recovery in 2014 will be contingent on improvement in the domestic security situation and on regional political stability, although even with such improvement the deep-seated structural issues facing the Lebanese economy would weigh on the prospects for high and sustainable growth.Read More
December 18, 2013
The additional sanctions imposed by the U.S. and the EU in the past year have caused severe damage to an economy already suffering from the cumulative impact of three decades of stress. Any economic relief the recent interim agreement on the nuclear issue might bring will be limited. If, however, the six-month interval goes well and paves the way to a permanent agreement on the nuclear issue, some of the most binding sanctions could be lifted. Iran’s economy could then return to trend growth. A more comprehensive agreement covering other outstanding issues that would renormalize Iran’s relations with the international community, especially if accompanied by internal economic and political reforms, could have far-reaching economic and geopolitical implications.Read More
October 20, 2013
In the three months since the ouster of President Morsi, the military has clamped down hard on the Muslim Brotherhood, alienated the movement from the political transition process, and strengthened its grip on internal security. Faced with dire economic conditions, the interim government has taken some measures to spur demand but skirted fundamental reforms. The immediate outlook is for the authorities to muddle through while the transition proceeds. Over the longer term, the outlook remains cloudy with major risks to the downside.Read More
October 02, 2013
The financial sector has remained resilient, including to the recent financial turmoil in the Euro Area. Progress has been made in adopting international regulatory financial standards. Important challenges remain to improve financial intermediation and mobilize additional savings to fund credit to the private sector.Read More
August 29, 2013
The turmoil in the region has aggravated the twin deficits in 2012. The removal of fuel subsidies combined with a surge in grants will narrow the fiscal deficit to 6% of GDP in 2013. There is a need for reprieve from short-term financing to control spending and develop alternative sources of energy to ensure medium-term fiscal sustainability.Read More
January 30, 2014
Ample supplies will trump revived demand in 2014 creating a looser market based on fundamentals. Non-OECD oil demand is expected to drive the total global demand increase of 1.3 mbd. However, additional supplies, notably from the U.S. and Libya, will more than offset this expected increase in 2014, and possibly in 2015. Prices will fluctuate in the $100-110 per barrel range averaging $105 for the year.Read More
October 27, 2013
After nearly three years of political turmoil and uncertainty, the Arab Spring countries are yet to see the light at the end of the tunnel. Popular uprisings against authoritarian rule and for human dignity have morphed into various forms of political, sectarian or armed conflicts, dimming the outlook for political stability and economic recovery. The divergence in economic performance between oil-exporting countries and oil-importing countries since the start of the uprisings has widened further. The outlook for oil-exporting countries remains favorable with robust nonhydrocarbon growth and large financial surpluses. Oil importing countries will continue to struggle to achieve even modest growth with high unemployment, persistent macroeconomic imbalances and challenging prospects. Building cooperative economic relationships between wealthy GCC countries and the Arab Spring countries could transform prospects for the region and bring vast benefits to both donors and recipients.Read More
September 16, 2013
The recent rise in the Brent oil price due to geopolitical tensions will remain in check on the tentative agreement over Syria’s chemical weapons. Furthermore, supply disruptions in Libya and shortfalls in Nigeria and Iraq will only have a small impact on prices as added supplies from Saudi Arabia and North America continue to support market demand. Overall, Brent will remain firm at slightly above the year-to-date average while the WTI benchmark will likely soften somewhat, thus widening its spread against Brent in coming weeks.Read More
May 12, 2013
The GCC registered an average growth of 5.8% in 2012. Growth is projected to moderate to 3.8% in 2013, due to flattening crude oil production. Growth of nonhydrocarbon sector, however, is forecast to stay robust at around 5% this year. The banking system is sound and has fully recovered from the spillovers of the global financial crisis. The external current account and fiscal balances are projected to remain in large surpluses this year, leading to a further increase in net foreign assets to $2.1 trillion, equivalent to 132% of the aggregated GDP, by end-2013. The report signals that the main downside risk to the GCC outlook stems from the possibility of much lower oil prices for a sustained period of time.Read More
February 28, 2013
The short term economic setbacks brought about by the ‘Arab Spring’ uprisings reflect only a part of the challenge faced by the affected countries in seeking to recover their growth momentum. The greater challenge lies in the heavy legacy of lack of dynamism, openness and global competitiveness that these countries need to overcome if they are ever to respond adequately to their people’s expectations of personal dignity, freedom and prosperity.Read More
February 22, 2013
The future political landscape of the MENA oil-importing countries remains unclear, as the ascendant Islamists struggle to govern in a highly volatile and unpredictable political environment. This has sharply reduced economic activity and undermined the authorities’ capacity to reestablish security and the rule of law, and undertake the urgently needed structural reforms to reignite growth and reduce unemployment. Without a clean path to political stability, economic recovery will remain halting at best. Most of the region’s oil exporters continue to post strong nonhydrocarbon growth. The financial surpluses will persist, although over the medium term, stronger growth will be contingent on building diversified capacities with reduced dependence on hydrocarbons through sustained structural reforms.Read More
February 11, 2013
The oil market will continue to be well-supplied in 2013 as production capacity, especially outside of OPEC, will grow faster than demand, which will be only marginally higher than last year. As a result, prices will be steady, averaging $110-$115 for the year. Geopolitics in the MENA region will remain the main risk to oil price stability.Read More