World Bank revises Mena growth forecast sharply downwards

The lender forecasts the region’s GDP will contract 1.1% as it confronts the impact of the pandemic and falling oil prices

FILE PHOTO: An atrium is seen at the World Bank headquarters building during the IMF/World Bank annual meetings in Washington, U.S., October 14, 2017. REUTERS/Yuri Gripas/File Photo

The World Bank lowered its growth forecast for the Middle East and North Africa for 2020, citing the twin shocks of the Covid-19 outbreak and the recent decline in oil prices.

The Washington-based lender is now forecasting a region-wide contraction in gross domestic product of 1.1 per cent for 2020, having previously predicted growth of 2.6 per cent during its last forecast in October 2019. A recovery is expected in 2021, albeit at a slower pace than previously anticipated, at 2.1 per cent.

"More than any other region, Mena is confronting two distinct but related shocks with the spread of the virus and the collapse in oil prices. The World Bank is ramping up efforts to help governments weather these shocks and leave no one behind," Ferid Belhaj, the lender's vice president for the Middle East and North Africa, said.

The Covid-19 pandemic is affecting economies in four ways: a deterioration of public health; falling global demand for the region's goods and services; declines in Mena's domestic supply and demand because of social distancing measures; and, importantly, falling oil prices.

Brent, the international crude benchmark traded at $34.42 at 6:33pm UAE time on Thursday, while WTI, the US gauge, was trading at $26.35. Traders have bid up the price over the past week despite continued weak demand as hopes grow that Opec members and allies could reach a new deal on production cuts to support pricing after the previous agreement expired last month.

The oil price drop hurts both cride exporters directly and importers indirectly, through declines in regional remittances, investment and capital flows, the World Bank said. However, it argued that its lower growth forecasts were not strongly correlated to oil exports, with countries better equipped to prevent and mitigate pandemics likely to experience shallower declines.

The report recommends that countries respond to the current crisis through  two parallel steps – the first involves immediately addressing the health emergency and the associated economic contraction, through prioritising health spending and providing safety nets for workers in the informal economy.

The second step involves more transformative, longer term reforms, which should be largely budget-neutral – providing greater data transparency and restructuring state-owned companies.

The lack of data transparency could at least be partly responsible for the region's slower-than-average growth, the World Bank argued, stating that Mena is the only global region to witness a decline in data transparency between 2005-18.

"The decline in Mena's transparency between 2005 and 2018 is associated with an expected loss of the region's income per capita ranging from 7 to 14 percent," said Daniel Lederman, World Bank deputy chief economist and lead author of the report.

Two specific areas that need to be addressed are improving data around public debt and unemployment, the World Bank said, with the latter varying considerably between countries and having little correlation to global norms.

"Lack of data and transparency hinders credible analyses of many important issues, including the performance of state-owned enterprises, public procurement, the allocation of precious assets such as land, the attraction of private foreign investment, and even obfuscate the maladies affecting the macroeconomies and labour markets of our countries," the report said.

"Since economic policies will only be as good as the information they are based on, logic dictates that lack of transparency in Mena deters effective policy making."

Data standards vary markedly between countries, with Egypt considered to be the best performer, while Syria, Yemen and Libya were deemed the worst, with the acknowledgement that “all three economies are overwhelmed by conflict”, which has led to a marked deterioration in data systems.