Economies in the Middle East and North Africa (MENA) region are expected to grow by 5.2 per cent in 2022, the fastest rate since 2016, on the back of oil-price windfalls benefitting the region’s oil exporters. But heightened uncertainty surrounds this forecast due to the war in Ukraine and ongoing threats from Covid-19 variants.
Titled "Reality Check: Forecasting Growth in the Middle East and North Africa in Times of Uncertainty", the World Bank’s latest economic update forecasts an uneven recovery as regional averages mask broad differences. Oil-producers will benefit from higher oil prices and vaccination rates as fragile countries lag. But tighter global monetary policy, the unpredictability of the course of the pandemic, ongoing supply chain disruptions and food price hikes raise inflation risks for the entire region.
"The harsh reality is that no one is out of the woods yet. The threat of Covid-19 variants remains and the war in Ukraine has multiplied risks, particularly for the poor who bear the brunt of the increase in food and energy prices. A good dose of realism about the region’s growth prospects during these times of uncertainty is essential," said Ferid Belhaj, World Bank Vice President for the MENA region. "Managing this wave of uncertainty is a key challenge for policymakers and the World Bank is committed to working alongside governments across the MENA region during this time of compounding risks," he added.
Currency depreciation in some countries in MENA is already adding to inflationary pressures. Economies facing fiscal and debt vulnerabilities will likely encounter more challenges as they roll over existing debt, or issue new debt amid tighter financing conditions as global central banks aim to contain inflation expectations.
Inflationary pressures created by the pandemic have been exacerbated by the Ukraine war. Countries in the MENA region rely heavily on food imports, including wheat from Russia and Ukraine. The rise in food prices and the higher risk of food insecurity are likely to hurt poor families the most, because the poor tend to spend more of their household budget on food and energy than do rich households. The full extent of the consequences of the war are yet to be determined, but early signs point to a heightening of the economic difficulties already besetting MENA economies, particularly oil-importing middle-income countries.
Despite the projected growth rate of 5.2 per cent, GDP per capita, an indicator of people’s living standards, will barely exceed pre-pandemic levels due to a generally lackluster performance in 2020-2021, the report said. In Gulf Cooperation Council countries, buoyed by the increase in oil prices, GDP per capita is projected to grow by 4.5 per cent in 2022, but will not recover to pre-pandemic levels until 2023. In contrast, in 2022, GDP per capita of middle-income oil exporters is projected to grow by 3.0 per cent, and by 2.4 per cent for the region’s oil importers, both barely lifting living standards above pre-pandemic levels. Overall, if these forecasts materialise, 11 out of 17 economies in MENA may not recover to pre-pandemic levels by end of 2022.
Adding to pandemic-related uncertainty, only a third of the middle-income MENA countries have higher vaccination rates than their income peers. But countries like Algeria and Iraq have vaccinated around 13 to 17 per cent of their populations and Yemen and Syria have vaccination rates in the single digits, thus leaving them more exposed to the economic and health consequences of Covid-19 in the near future.