2006 Economic Developments and Prospects : Financial Markets in a New Age of Oil

For the third straight year, the Middle East and North Africa (MENA) region has enjoyed a spectacular year of economic growth. With oil prices continuing their upward climb, MENA countries grew by an average of 6 percent over 2005, led by the region's predominant oil exporters. Over the last three years, MENA's economic growth has been the strongest experienced by the region since the 1970s. But MENA's growth upturn has not been universally shared, and with rising energy use and diminished positive transmission channels from the region's oil economies, resource poor economies are increasingly feeling adverse impacts from rising oil prices. Moreover, the region is contending with large fiscal implications from the heavy reliance on domestic energy subsidies.

This is the second annual issue of the World Bank's MENA Economic Developments and Prospects Report, highlighting the recent key economic developments as well as the forces underlying the region's economic outcomes. It analyzes MENA's medium term growth prospects given global forecasts, and charts the region’s progress with implementing comprehensive structural reforms needed for longer-term growth. As with last year, the 2006 MEDP also examines a theme of particular importance to the region, with this year's theme devoted to regional financial markets. With oil prices continuing their soaring advances, the efficiency with which the region channels the oil-related resources into the real economy will depend critically upon financial sectors. It is thus particularly opportune to to examine the state of the region’s financial systems, to understand how they are poised to meet some of the region's development challenges.