Arab economies to continue expansion as inflation falls and fiscal positions improve: UN

Inflation rates in the region to drop to 8 per cent and 4.5 per cent in 2023 and 2024 respectively, from 14 per cent in 2022

A 2023 decoration on a street in Cairo. Egypt's economy is expected to grow by 4.3 per cent over 2023-2024, driven by an increase in demand for and prices of gas. Photo: Reuters

Arab economies are set to expand this year and the next as they continue to recover from the Covid-19 pandemic, record lower inflation rates and benefit from improved fiscal positions, the UN said in its latest survey.

The gross domestic product of 22 Arab countries is forecast to grow an average 4.5 per cent in 2023 and 3.4 per cent in 2024, albeit at a slower pace from 5.2 per cent last year, with some discrepancies as the Ukraine war affects economies differently, the UN Economic and Social Commission for Western Asia (Escwa) said in a report.

"While some Arab countries benefited from spikes in energy prices, others suffered from rising energy costs, food supply shortages, and drops in both tourism and international aid inflows," Escwa said in its Survey of Economic and Social Developments in the Arab Region.

"This outlook faces many risks and uncertainties, including fears of a new Covid-19 wave, a protracted war in Ukraine and expanding sanctions on the Russian Federation, economic collapse in some Arab countries suffering from dire socio-economic conditions and persistence of conflict and political instability."

The regional outlook comes after some Arab countries benefited from a surge in energy prices, while non-oil importing states faced rising energy costs, food supply shortages, drops in tourism and lower international aid inflows in the wake of the ongoing Russia-Ukraine war.

Intra-regional economic growth varies

GCC countries will grow at their fastest pace since 2014, expanding 4.6 per cent and 3.3 per cent in 2023 and 2024 respectively, from 6.3 per cent in 2022, as they benefit from a recovery in oil markets that started in 2021.

“The current situation presents an opportunity for oil-exporting Arab countries to diversify their economies away from the energy sector by accumulating reserves and investing in projects that generate inclusive growth and sustainable development," Ahmed Moummi, head of the Escwa survey, said.

Arab middle-income countries (MICs) are expected to grow by around 3.6 per cent this year and next, respectively, from 4.3 per cent last year, as most face higher energy and commodity prices and depreciation of their national currencies.

Egypt, the Arab world's third largest economy, will outpace these rates with growth of 5.4 per cent in 2022 and 4.3 per cent over 2023-2024, driven by an increase in demand for and prices of Egyptian gas.

Conflict-affected countries or CACs's collective GDP is expected to grow 6.8 per cent this year and 3.6 per cent the next, up from 2.8 per cent last in 2022, led by Iraq which has benefited from higher oil prices.

Arab least-developed countries (LDCs) are forecast to grow by 3.3 per cent and 4.6 per cent in 2023 and 2024 respectively, up from only 0.9 per cent in 2022, the UN said. They face an increase in energy and essential commodities prices, while risking a drop in official development assistance as more aid is redirected to support Ukraine and countries hosting Ukrainian refugees.

Easing inflation rates in 2023-2024

While inflation rates in Arab countries jumped this year to an aggregate 14 per cent, they are projected to drop to 8 per cent and 4.5 per cent respectively in 2023 and 2024, according to the UN survey.

Inflation in MICs is expected to reach as high as 17.7 per cent in 2022 before dropping to 10.9 per cent in 2023, driven mainly by high inflation rates in crisis-hit Lebanon. The country will register an inflation rate of about 86.9 per cent in 2022 and about 13.7 per cent in 2023, as it grapples with an economic and financial meltdown and sharp currency depreciation.

The fiscal position of Arab countries is expected to have improved in 2022 as a result of higher energy prices, though this will be partially offset by an increase in metal and food prices, the UN survey said.

GCC countries are expected to record a fiscal surplus of 5.6 per cent of GDP in 2022, allowing the bloc to decrease its debt-to-GDP ratio to about 30 per cent in 2022 from 36.4 per cent in 2021.

The fiscal deficit in Arab MICs is expected to reach 8 per cent of their collective GDP, as non-oil importing states face higher oil prices.

Debt-to-GDP ratio is expected to decline in MICs to 76.3 per cent in 2024 from 79.1 per cent in 2022, as a result of the drop in the value of Lebanese debt following the massive depreciation of its currency.

CACs will record a 4.7 per cent fiscal surplus as percentage of GDP, driven by a significant improvement in the fiscal position of Iraq.

Arab LDCs are also projected to record a significant reduction of their debt-to-GDP level to 47.3 this year from 78.1 per cent in 2022, driven mainly by a significant reduction of the debt level in Sudan.

Persisting gender inequalities

In terms of gender parity, Arab countries are still "characterised by structural barriers" that hinder women’s economic participation, with only 5 per cent of businesses in the region having top female managers, the survey showed.

The female labour force participation rate in Arab countries continues to be the lowest worldwide, estimated at 19.9 per cent in 2022 and below the global average of 46.6 per cent.

Arab female unemployment rate is the highest worldwide, estimated at 22.1 per cent compared with a global average of 6 per cent.

For both men and women, joblessness remained a problem. The Arab world registered a 12 per cent unemployment rate in 2022, the highest in the world, the survey showed.

Poverty also surged, affecting 130 million people in Arab countries, the UN said.

Excluding Libya and GCC countries, more than one-third of the region’s population is hit by poverty.

Poverty levels are expected to rise over the next two years, reaching 36 per cent of the population in 2024, the UN said.