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Middle East and North Africa economies are set to expand at their fastest pace since 2016, but growth will be uneven as oil-importing countries continue to overcome the impact of the pandemic and the shock of soaring energy and food prices exacerbated by the outbreak of the Ukraine war, coupled with rising interest rates, according to the World Bank.
Mena economies are projected to grow 5.5 per cent this year and a slower rate of 3.5 per cent in 2023, the Washington-based lender said in its latest economic update.
Oil-exporting countries of the region are benefiting from high hydrocarbon prices, but oil-importing nations are vulnerable to shifting market dynamics, the bank said.
GCC economies are projected to grow 6.9 per cent in 2022, driven by high oil prices, as well as higher growth rates in non-oil sectors. Developing oil exporters are forecast to grow at lower levels expanding at 4.1 per cent this year and slow to 2.7 per cent in 2023.
While oil prices have come down from nearly $140 in March following the start of the Ukraine war, they are nearly double what they were at the start of 2019. Natural gas prices have increased more than fourfold, while food and fertiliser prices also remain high.
This has led to soaring inflation levels in advanced economies and caused central banks to raise interest rates, which subsequently weakened currencies of some emerging market and developing economies, exacerbating their debt vulnerability as they have to pay higher interest rates when they issue debt.
While Mena energy exports have benefited, oil importers "face heightened stress and risk from higher import bills, especially for food and energy, and tightening fiscal space as they spend more on price subsidies to cushion the pain of price rises on their populations", the World Bank said.
Developing Mena oil importers — including Tunisia, Morocco, and Egypt — are expected to grow an average of 4.5 per cent this year and 4.3 per cent in 2023, and may be adversely affected by slower growth in the US and China, and a recession in Europe, which they rely more on for trade.
Inflation in most Mena countries was lower between March and July than in the US, Europe and OECD states — largely because, to a varying effect, they implemented policies that reduced the amount of the higher global prices for food and fuel that were passed through to the prices their consumers paid.
Authorities in the Mena region intervened by using price controls and consumption subsidies to make the domestic price of specific tradable goods, such as food and energy, less than the global price, the World Bank said. As a result, the actual rates of inflation in the Mena region were lower than they would have been, had countries taken no action.
In Egypt, for example, the average year-on-year inflation rate during March to July was 14.3 per cent, but it would have been 4.1 percentage points higher, 18.4 per cent, had authorities not intervened, the World Bank said.
Inflation in the US and the UK shot up to four-decades highs and hit a record in Europe. In the euro area, year-on-year inflation rose to 9.1 per cent in August, from 8.9 per cent in July.
On Tuesday, the latest data showed that annual inflation in the Organisation for Economic Co-operation and Development (OECD) countries reached 10.3 per cent in August. While headline inflation decreased between July and August in 16 of 38 OECD countries, driven by slower increases in energy prices, 15 countries continued to record double-digit inflation in August. The highest rates were in Estonia, Latvia, Lithuania and Turkey — all above 20 per cent.
“All countries in the Mena region will have to make adjustments to deal with significantly higher prices for food and other imports, especially if they lead to an increase in government borrowing or currency devaluations,” said Ferid Belhaj, World Bank vice president for the Mena region.
“What countries need now is smart governance to weather the storm and begin to rebuild after multiple shocks on top of the pandemic.”
Developing oil importers have to reduce expenditures, find new revenue, or increase deficits and debt to fund the inflation mitigation programmes and any other additional spending. The debt service burden for oil importers will increase, as they must pay higher interest rates on any new debt they incur and existing debt they refinance.
The World Bank said good governance, improved transparency and accountability can help Mena countries.
Responsive governance, reforms leading to more transparency and accountability in public institutions, can help countries confront challenges more effectively and help sustain long-term growth, the lender said.
“Moving towards greater data transparency and accountability is a game changer for the region; it can help countries identify what is working and needs improvement and to act on it,” said Roberta Gatti, World Bank chief economist for the Mena region.
“It will help them manage risk and shape progress towards a more sustainable and inclusive future. Not only are the potential benefits large, but the reforms needed to put institutions on a learning path are within reach.”