In many respects, the risks going forward for countries in the region are the same as for the global economy.
On the downside is the worrying risk that instead of a slow recovery, as projected in the baseline, the recession lasts significantly longer and is associated with secondary crises in countries with large current account deficits (see chapter 1). Although many countries in the Middle East and North Africa region would be affected negatively by a further drying up of foreign capital flows, weaker exports, and remittances, Jordan and Lebanon—two countries with large current-account deficits—face the largest risk of a balance of-payments crisis in a protracted recession scenario.
Should a lack of access to foreign exchange form a binding constraint and official assistance and remittance flows are unable to fill the gap, the countries could be forced into a very painful restructuring process accompanied by large currency depreciation and a reduction in domestic demand in order to restore external balance. Inevitably, this would lead to much higher unemployment and increased social tensions.
Other countries in the region would be less dramatically affected by a prolonged recession scenario. Weaker trade flows, lower remittances, and tourism receipts would likely extend the growth recession further in the region and result in an even larger buildup in spare capacity. The outlook for global energy demand and world oil prices is another key risk for the region.
In the baseline, energy demand is projected to remain low and oil prices are unlikely to increase much beyond current levels. With recent OPEC production cuts and with Saudi Arabia’s increase in its production capacity to 12.5 million barrels a day (thanks to recent investment), there is sufficient slack to absorb any decline in supply that might be caused by unanticipated supply disruptions in other markets. |
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