GDP growth in the region is projected to strengthen to 3.0 percent in 2018, and rise slightly.
higher in 2019-2020, with oil exporters continuing their recovery from the collapse of oil prices, and oil importers experiencing a smaller acceleration.
The outlook assumes continued policy reforms and oil prices remaining above their 2017 average. In 2018, growth in oil exporters is expected to rise substantially to 2.7 percent due to additional government spending, enabled by increased domestic revenues and firm oil prices.
In the GCC, 2018 growth will be further supported by higher fixed investment, bolstered by public investment programs and improved demand. Growth will remain stable during 2019-20, propelled by steady growth in private consumption, infrastructure investment programs like those related to the Dubai Expo 2020 or Qatar’s World Cup 2022, and the expiration of OPEC+ agreement.
Growth in non-GCC exporters is expected to be supported by higher capital expenditures.Fiscal balances in oil exporters are expected to improve as oil prices are forecast to stay firm and revenue-enhancing measures, such as VAT and energy subsidy reforms, are implemented.
These measures are expected to improve the non-oil share of government revenue in oil exporters. Higher oil prices are also expected to support remittance inflows (World Bank 2018j).
Growth in oil importers is expected to rise to 4.0 percent in 2018, as business and consumer confidence are spurred by business climate reforms and improving external demand.
Policies to relax foreign investment restrictions have supported higher capital flows, and are expected to boost foreign investment and trade flows, in part through relaxing financial constraints in firms(Kiendrebeogo and Minea 2017; Wood and Yang2016).
Tourism growth is also expected to improve upon stable security conditions. However, fiscal consolidation is expected to be an important headwind for activity among oil importers. In smaller oil importers (e.g., Jordan, Lebanon), external and fiscal imbalances remain a constraint to higher growth in the short-term. Reform programs, such as World Bank-supported initiatives to improve urban investment capacity or electricity performance, are expected to improve growth potential (World Bank 2017e, 2018k).
Similarly, public-private partnerships and bilateral agreements within the region are expected to support private sector participation in infrastructure investment, which benefits economic activity (Figure 2.4.2, Arezki et al. 2018; Calderon and Serven 2004).
Additional plans in energy subsidy reforms or tax revenue enhancement across oil importers will support further fiscal adjustment The short-term outlook in MENA is positive. Public-private partnerships are expected to support private sector participation in infrastructure investment.
However, geopolitical tensions may deter the recovery of tourism in oil importers.
Upside risks are associated with the possibility of higher-than-expected activity in key trading partners.
Risks
Risks to the outlook are diverse, but tilt to the downside. Key downside risks include renewed volatility in oil prices, an intensification of geopolitical tensions, and a slower-than-expected pace of reforms.
Nonetheless, favorable spillovers from stronger than expected activity in key trading partners and recovery in war-torn areas cannot be ruled out.
On the downside, the recent rise in oil prices may not be sustained in the short term, potentially due to higher-than-expected U.S. shale production This would reduce fiscal space in oil exporters and complicate fiscal management reform across many economies.
Tighter fiscal policy in oil exporters may lead to spillovers to oil importers via external linkages (e.g., FDI and remittances).
Volatility in oil prices may also affect oil importers through their current account exposure to higher oil prices.
The amplification of security concerns or escalation of geopolitical tensions may cloud oil importers’ tourism prospects, which have strengthened considerably in the past year. Intra- and interregional tensions in the region may also affect investor confidence and access to finance, such as through higher sovereign spreads.
Continued progress in reforms could face challenges to implementation. Among oil importers, potential social discontent about higher energy prices may lead to delayed implementation of fiscal adjustments. This issue may be further compounded by the high debt levels (in some cases exceeding 100 percent of GDP) among several economies in the region.
The loss of momentum in these reforms could negatively impact longer-term growth in the region.
On the upside, positive growth surprises in key advanced and emerging economy trading partners would provide an important support to growth in MENA.
Oil-importing economies in the Maghreb region are dependent on the Euro Area for trade, remittances, or financial flows. Stronger-thanexpected external demand could mitigate headwinds to growth associated with domestic policy uncertainty in smaller oil importers, or from potential spillovers associated with reduced FDI and remittance flows from GCC economies to oil importers.
Stronger-than-expected impacts from reconstruction programs and rising infrastructure investment in war-torn countries, such as Iraq, could lead to a sustained economic recovery. Associated spillover effects could unlock the potential for higher growth among other countries in the region.
This would also allow the restoration of access to health, water, or food (Devarajan and Mottaghi 2017a; World Bank 2018l) to these economies, and improve the conditions of neighboring host economies (e.g., Djibouti, Jordan, Lebanon) by providing more resources for public services for both host residents and refugees (Devarajan and Mottaghi 2017b).
Source: World Bank.
