The Mena region will face a coronavirus-induced loss of $227 billion this year, exacerbating underlying poverty and developmental challenges, according to the World Bank.
The region’s economy, which is expected to have shrunk by 3.8 per cent last year, is set to recover by only 2.2 per cent this year, the lender said in a report on Friday.
Public debt, which grew as nations borrowed to avert health and economic crises, will hit 54 per cent of the region's gross domestic product this year, up from 46 per cent in 2019.
“Most Mena countries may find themselves in a post-pandemic world, stuck with a debt service bill sucking up resources that otherwise could be devoted to economic development,” said Ferid Belhaj, World Bank vice president for the Mena region.
The debt levels of oil-importing countries in the region could climb to 92 per cent of GDP this year, the Washington lender projected.
A recovery next year could prove challenging and will depend on a number of factors.
However, it will largely be contingent on efforts to contain the health crisis, according to Roberta Gatti, the World Bank’s chief Mena economist.
Economic recovery depends on the pace of Covid-19 vaccination campaigns and whether countries can use data to communicate clearly and assure tourists and foreign investors, said Ms Gatti.
“We know that some actions will make that recovery [pick up pace],” she said.
The Covid-19 economic crisis is having an “unequal impact” across different demographics and industries in the region.
Governments were urged to focus on spending that will lessen the suffering of poor households and vulnerable families.
The $227bn loss was calculated using macroeconomic data compiled since the pandemic sparked lockdowns. However, it does not take into account crucial human capital indicators, said Ms Gatti.
“The health services in some countries, particularly maternal health and child health and nutrition, are affected,” she said.
“And we know that when workers lose their jobs, there is a scarring effect and workers end up having lower earnings later on. So, all of these losses are not included in these $227bn.”
High debt levels will have a debilitating impact on Mena economies, particularly nations such as Lebanon that already faced a fiscal crisis before the pandemic.
The World Bank issued a warning earlier this year that Lebanon's GDP could shrink by 13.2 per cent this year, after contracting by 19.2 per cent last year.
The country faces its worst economic crisis and the Washington lender said half of its population could fall into poverty this year.
Lebanon’s debt-to-GDP ratio surged to 170 per cent last year, according to the International Monetary Fund.
It defaulted on $30bn worth of international debt last year, with political turmoil and an explosion at Beirut port causing the economy to deteriorate. The Lebanese pound has lost more than 90 per cent of its value while the average inflation rate stood at 84.9 per cent last year.
“Actually, crisis can also be a trigger for positive change,” said Ms Gatti, citing the example of Morocco, which adopted universal health cover as a result of the pandemic.
The World Bank called for “transparency and good governance” to help the most indebted countries manage their debt.
“It can help governments select the right public investment, the ones that are complimentary to the private sector,” said Ms Gatti.