2008 Economic Developments and Prospects : Questions & Answers

2008 MENA Economic Developments and Prospects

Full Report Questions & Answers: English, French, Spanish Press release: English, French, Arabic, Spanish

 

For the fifth year in a row, the Middle East and North Africa region (MENA) experienced growth at a rate higher than 5 percent (5.7% for 2007), exceeding levels reached in the 1990s and early 2000s.  During 2007, GDP growth was almost evenly distributed across the sub-groups of the region. Growth was higher for the resource-rich labor importing countries of the region, at 5.8 percent, than for other groups.  For the resource-poor labor abundant economies, output growth was 5.4 percent in 2007.  With the exception of Morocco which suffered another year of drought, GDP accelerated or equaled its 2006 pace among the resource-poor labor abundant economies. While the region has done well in comparison to its own past, it continues to lag behind other regions.  For example, MENA’s growth rate of 5.7 percent in 2007 compares unfavorably with the 10 percent rate achieved by East Asia and the Pacific region, the 8.4 percent rate achieved by the South Asia region,  or even the 6.1 percent rate achieved by the Sub-Saharan Africa region.

 

What were the main sources of growth for MENA in 2007?

 

Sources of growth in MENA have undergone a shift in recent years.  In the period 2000-04, the main source of growth was domestic private consumption.  However, by 2007, this had declined in importance and had been replaced by gross domestic investment.  Much of this was made possible, of course, by plentiful government revenues obtained from a buoyant hydrocarbons sector.  Oil prices increased 78 percent during the course of 2007, rising from $54 per barrel at the start of the year to $94.50 at the end. 

 

How  do food price increases affect MENA countries?

 

Increases in food prices have different impacts on different countries.  Low income countries that are relatively big food importers (in terms of proportion of imports and consumption) are at highest risk: examples include Djibouti and Yemen.  In Yemen, food price inflation exceeded 20 percent in 2007, the highest in the region.  Other risk factors include the extent to which food features in the spending patterns of the lowest income groups in a country.  Countries like Egypt and Yemen are among the most vulnerable since the bottom two quintiles of their populations spend more than 50 percent of their household budgets on food.  Also, some countries have felt the pressure of food price increases directly in national budgets since they subsidize staple foodstuffs.  Countries like Egypt, Iran, Jordan and Syria have seen food subsidies claim shares of between 4 percent (in Egypt)  and 8 percent (in Iran) of their budgets in 2007.  Among GCC countries, the main manifestation of food price increases has been in inflation. 

 

How is the MENA region doing in terms of structural reforms?

 

In recent years, MENA has embarked on wide-ranging reforms to improve the overall environment for growth.  Key developments in the areas of trade, business climate and governance include:

 

Trade reforms. Substantial progress has been made in reducing tariffs and the time required for import and export processing.  Tariffs have been reduced from a simple average of 20 percent in 2000 to 13 percent by 2007, a decline not matched in any other region over this period. However, non-tariff barriers remain high and trade logistics performance, reflecting the quality of  customs, ports and transport arrangements, remains sub-par.  

 

Business climate reforms.  Despite notable improvements in some countries  (e.g., Egypt and Saudi Arabia), as a whole the region has failed to keep pace with business climate reforms elsewhere.  In terms of reform effort, it ranks in the bottom third worldwide (29th percentile).     

 

Governance reforms.  Progress with regard to governance has been mixed.  On the one hand, the quality of public administration remains relatively high in MENA, ranking above East Asia, Latin America, South Asia and Sub-Saharan Africa.   On the other hand, the quality of public accountability remains very low in MENA, ranking below all other regions of the world.  However, in terms of reform efforts devoted to improving accountability, MENA ranked in the 67^th percentile, above all other regions.  The latter ranking reflects a range of improvements in combating corruption, addressing weaknesses in the judiciary, improving property rights, and streamlining bureaucracy, especially among the GCC countries.

 

What is the forecast for the next few years in light of the current global context?

 

Average growth of around 5.6 percent is expected over the next three years.  Oil prices will remain buoyant, leading to high levels of domestic and foreign investment as well as remittance flows.  Food prices are also expected to remain high.  Since most countries in the region subsidize food and energy, this will lead to fiscal pressures for many of them.  But such pressures are not expected to choke off economic growth which will continue to be driven by high levels of investment. Global financial turbulence and a likely slowdown of growth in the OECD countries is expected to be offset by continued robust spending among oil-exporting countries and vibrant expansion in China and India.