The Middle East and North Africa economies are expected to grow 5.2 per cent in 2022, the fastest rate since 2016, on the back of higher oil prices, but the Ukraine war and Covid-19 variants add uncertainty to the outlook, the World Bank said on Thursday.
The Washington-based lender also predicted an uneven recovery across the region with surging oil prices and a high vaccination rate benefitting crude exporters.
“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 World Bank said in a report on Mena region.
Oil prices, which rose 68 per cent last year amid faster-than-expected economic rebound, have been extremely volatile this year, rocked by the Russia-Ukraine conflict.
Brent is up more than 30 per cent since the start of this year after falling from a 14-year high when the benchmark nearly touched $140 per barrel last month.
The gross domestic product growth in GCC economies is expected at 4.5 per cent this year, buoyed by the increase in oil prices, but will not recover to pre-pandemic levels till 2023, the World Bank estimates.
Middle income oil exporters, on the other hand, will grow 3 per cent and oil importers 2.4 per cent “both barely lifting living standards above pre-pandemic levels”, the lender said.
“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,” said Ferid Belhaj, World Bank's vice president for Mena.
The World Bank also said inflationary pressures created by the pandemic have been exacerbated by the Ukraine war as many countries in the 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 report said.
Russia’s war in Ukraine could reduce global GDP by as much as 1 per cent by 2023, or about $1 trillion, and add up to 3 per cent to global inflation in 2022 and about 2 percentage points in 2023, the UK’s National Institute for Economic and Social Research said.
The International Monetary Fund is also set to lower economic output projections for 2022 when it presents its World Economic Outlook next week.
Countries like Egypt are heavily reliant on wheat supplies from Russia and Ukraine. The North African country is the world's largest wheat importer, with Russia and Ukraine accounting for 86 per cent of its $2.7 billion wheat imports in 2020. Egypt has reached out to France and India to help it secure wheat supplies.
Egypt’s Gulf allies already pledged $22bn to help the country cope with the indirect effects of the war.
Adding to pandemic-related uncertainty, only a third of the middle-income Mena countries have higher vaccination rates with Gulf countries, excluding Oman, having an average rate of 75.7 per cent vaccination rate.
Algeria and Iraq, on the other hand, have vaccinated around 13 per cent to 17 per cent of their populations. Yemen and Syria have vaccination rates in the single digits, leaving them more exposed to the economic and health consequences of Covid-19 in the near future.
The full extent of the consequences of the war is 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.
“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,” the World Bank said.
Based on the forecast, 11 out of 17 economies in Mena are not expected to recover to pre-pandemic levels by end of 2022, it said.