A World Bank report forecasts upbeat economic growth for the Middle East and North Africa region at 5.2 per cent this year. Although the report flags the uncertainty caused by the Ukraine War and new variants of the coronavirus, it says “oil producers [read the GCC] will benefit from higher prices and higher vaccination rates”.
The report lists Covid-19 and emerging strains, high inflation, climate change, social unrest in the MENA and the war in Eastern Europe to support current global uncertainty.
Managing uncertainty is a challenge facing policymakers in MENA, says the report. “While not all risks can be mitigated before they materialise, the challenge does engulf a broad range of policy issues, from prudent macroeconomic policies to smart investments in public health systems.”
The GCC has taken good macro policy decisions. Most decisions have balanced buying capacities of citizens and the expatriate workforce that adds up to 14.5 million in all the six GCC members.
The report pegs the growth outlook for the GCC between 3.2 per cent to 5.7 per cent. The report places Bahrain at the lower end and Kuwait at the higher end. The Sultanate of Oman, Qatar, and the UAE rates figure between these two smaller countries.
The report remains optimistic about the Sultanate of Oman’s economy. The government’s prudent policy decisions have revived the country’s economy from the double impact of coronavirus and lower oil prices last year.
Citing estimates, the report says Oman’s overall growth reached 2.1 per cent in 2021. “Hydrocarbon GDP grew by an estimated 2.2 per cent, driven by higher oil production due to easing OPEC+ cuts and the coming on-stream of a new liquified gas plant in mid-2021. Non-oil GDP rebounded by almost 2 per cent in 2021, signalling the recovery of domestic and external demand, aided by increased vaccine penetration that boosted the sectors most impacted by the pandemic (tourism, hospitality, and retail).
“Annual inflation switched from negative territory in 2020. It picked up to an average of 1.5 per cent in 2021. Mainly because of VAT [Value Added Tax] introduced on April 16, 2021, according to Royal Decree 121/2020 dated October 12, 2020, which improved domestic demand.”
Inflation expectations are rising, says the report and credits the rise to higher commodity prices, demand, and stressed supply chain bottlenecks. Inflation expectations rose from 2.05 per cent on February 23 this year, before the Eastern Europe War, to 2.31 per cent on March 17. The authors say this inflation rate “is still modest”.
Citing economists the report says, “Rising food prices, especially wheat prices, are likely to raise inflationary pressures and increase food insecurity in MENA countries. The overall impact will largely depend on the direct effects of price increases, attenuated by any government subsidy programmes.
“Many MENA countries with large tourism sectors may experience less revenue from tourism receipts induced by fewer tourists from Russia and Ukraine. For example, almost a third of Egypt's tourists are from either Russia or Ukraine. The impact on tourism can be both direct, through travel disruptions, and indirect, through lower global demand for example, because of rising oil prices.”
Overall, the report has an optimistic outlook for six of the 11 MENA countries. However, forecasting growth of countries in uncertain times is risky. As World Bank MENA Vice-President Ferid Belhaj writes in the report’s foreword, “The future can be hard to predict, especially during times of extreme uncertainty such as the current war in Ukraine
which is destabilising grain and energy markets. It is the difficult job of forecasters to tell where the economic winds may blow, to warn of impending catastrophes, and how they can be avoided.”
[Sudeep Sonawane, an India-based journalist, has worked in five countries in the Middle East and Asia. Email: [sudeep.sonawane@gmail.com]
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