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.

MENA Publications

Country Publications

  • Morocco: Political Stability, Challenges for Higher Growth / Maroc: Stabilité politique et défis pour une croissance accélérée
    July 24, 2014

    The policy environment has improved since the formation of the coalition government. Reform of the subsidy system will help to ensure fiscal sustainability. Looking forward, the gradual recovery in the European economy should raise demand for Moroccan goods and support the tourism sector. However, deeper reforms will be needed to achieve sustained higher growth in order to address the high urban unemployment and reduce poverty.

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  • Kuwait: Improved Prospects for Reform
    July 10, 2014

    Growth in nonoil economic activity is improving modestly after a period during which Kuwait has lagged behind peers as the implementation of the 2010-2014 development plan fell short of targets. The country remains one of the most dependent in the region on oil receipts and lags behind in global competitiveness and ease of doing business rankings. Inertia persists in key areas such as fiscal policy where subsidies and social benefits remain high and inefficiently targeted, capital expenditures lag, and nonoil revenues remain low. There is a recognition of structural challenges, but it remains to be seen how successful recent measures to tackle these will be given the decisive changes required.

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  • Qatar: Managing a Surge in Investment and Growth
    June 19, 2014

    Qatar’s economy is continuing to grow rapidly following a smooth leadership transition in mid-2013. 2015 will mark the completion of major hydrocarbon projects and a review of the moratorium on further exploitation of the North field. Development in the nonhydrocarbon sector is brisk as Qatar races to prepare for the FIFA World Cup 2022, but inflationary pressures are emerging. Risks include potential supply bottlenecks, asset bubbles, geopolitical challenges, volatility in energy prices, and uncertainty over the ongoing investigation into the World Cup award process.

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  • Algeria: Time for Change / Algérie: L’heure du changement
    June 12, 2014

    Algeria’s growth model based on hydrocarbon-financed fiscal spending and heavy-handed government intervention in the economy is not sustainable. Softening energy prices combined with a persistent decline in hydrocarbon exports in volume terms will undermine economic performance over the coming years. Key immediate challenges include boosting production of oil and gas and decelerating the pace of rapid growth in the consumption of fuel. Wide-ranging reforms are needed to diversify the economy and raise growth potential.

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  • Bahrain: No Easy Solutions To Fiscal Vulnerabilities
    May 29, 2014

    Bahrain’s fiscal situation is coming under increasing strain, with the government debt-to-GDP ratio having soared over the past five years due to persistent budget deficits. This has come about mainly as a result of large wage increases and higher social transfers following the outbreak of political and social unrest in 2011. Subsidies have also continued to rise, adding to spending pressures. While diversifying the revenue base and reducing dependence on oil are goals for the authorities, options are limited at present. The more immediate focus will thus have to be on spending restraint.

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  • Saudi Arabia: Giving Diversification A Boost
    May 28, 2014

    Saudi Arabia’s economy is undergoing an important shift as oil surpluses—while still large—gradually decline and the government makes a new, big push for diversification and undertakes important changes in the regulatory and institutional framework to meet social challenges arising from rapid population growth.

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  • UAE: Set for Sustained Growth
    May 22, 2014

    The current macroeconomic performance and near-term outlook remain favorable. Nonoil growth will remain slightly above 5% in 2014 and 2015, led by the preparations to host the World Expo 2020 and robust private sector activity. Monetary and macroprudential policy settings are appropriate. Equity and real estate prices have risen sharply over the past year and should be carefully monitored in the period ahead.

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Regional Publications

  • Oil: A Perfect Storm Hits Prices
    October 23, 2014

    Oil prices have been retreating since peaking mid-year, driven by a confluence of excess supplies, downward revisions to global growth, and a rise in the dollar. Changes to fundamentals, with both OPEC and non-OPEC producers increasing supplies in a period of weak demand, are creating imbalances in the global oil market and contributing to bearish market sentiment. A stronger dollar and shift away from risk assets has accentuated the fall in prices. Risks to the downside will continue to weigh on prices through the rest of 2014 and into mid-to-late 2015, averaging $87/bbl in Q4 and $94/bbl in 2015.

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  • MENA Region: Recovery Buffeted by Geopolitical Risks
    October 08, 2014

    The collapse of long-standing authoritarian regimes in important parts of the MENA region, coupled with weak institutional structures, has opened the way for chaos, civil strife and social disintegration in the affected countries. Political instability and overarching geopolitical risks will weigh on economic performance. However, political stability in the GCC and an improved security environment in Egypt, Morocco, and Tunisia should contain the spillovers from the intensifying fighting along the borders of Syria and Iraq. We therefore expect a modest pickup in growth to 3.4% in 2015 on account of continued robust growth in the GCC and improved prospects for the stable, nonoil countries. Over the medium term, a return to trend growth in the range of 4-5% will hinge on reducing geopolitical risks, achieving political stability, and the implementation of structural reforms.

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  • Oil: Market Volatility: How Serious?
    June 19, 2014

    Slightly tighter market fundamentals and an overlay of increased geopolitical risks have led us to raise our forecast for the average Brent benchmark to $110/bbl for the year. Demand in 2014 will be firmer and supply tighter than we had expected as OPEC production holds steady and new U.S. output remains home. The “fear premium” has come back into play as headline risk from events unfolding in Iraq is exerting upward pressure on oil prices. A significant disruption to supplies by insurgents, albeit a very low probability event, would have far reaching consequences on the region and global economy.

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  • GCC: Strong Diversified Growth, Limited Risks
    May 04, 2014

    The Gulf Cooperation Council (GCC) member states registered an average growth of 4.2% in 2013, down from 5.5% in 2012 due to a leveling off in hydrocarbon production. Overall growth is projected to remain firm at 4.2% in 2014 driven by the non-hydrocarbon sector which is forecast to expand by a robust 5.4%. The external current account and fiscal balances are projected to, again, remain in large surpluses this year, but are expected to gradually come down. Net foreign assets are expected to rise to $2.3 trillion, equivalent to 138% of the aggregated GDP, by end-2014. The main downside risk to the GCC outlook stems from an unexpectedly sharp drop in oil prices for a sustained period of time. The rise in asset prices in specific areas bears monitoring, but is not a concern at this time.

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  • Oil: Ample Supplies, Softer Prices in 2014
    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.

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  • MENA: Arab Spring Countries Struggle, GCC Prospects Favorable
    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.

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  • Oil: Geopolitics, Supply Issues, But Only a Modest Price Lift
    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.

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