Despite resilient growth in the Middle East and North Africa (MENA) throughout the Great Recession, many fundamental economic and political challenges remain. Masood Ahmed, director of the International Monetary Fund’s Middle East and Central Asia department, joined Carnegie’s Marina Ottaway to discuss the issues facing the region. Carnegie’s Uri Dadush moderated.
While MENA’s financial sector—largely insulated from other parts of the world—avoided a major financial crisis, the region experienced some economic shock as oil prices fell. This shock hurt oil exporters, but strong government spending—made possible by large oil surpluses from previous years—helped mitigate the broader effects of this downturn. Major oil-importing countries (Egypt, Jordan, Lebanon, Morocco, Syria, and Tunisia, or MENA6) were able to maintain relatively strong growth through the downturn’s residual effects thanks to spending by oil exporters and by moderate increases in their own spending.
In the coming years, Ahmed predicted that growth throughout MENA will rebound from its relatively shallow dip in 2009. After falling sharply with oil prices, oil exporters’ current account and budget surpluses are expected to rise again as the oil sector recovers.
This outlook is not without risks. Oil exporters could suffer if oil prices drop unexpectedly—Ahmed estimated that a $10 rise or fall in the price of a barrel of oil adds or subtracts approximately $90 billion from the current account of oil exporters. Oil importers, Dadush noted, could be hurt by the crisis in Europe, where they have strong trade connections, particularly to some of the most threatened economies in the South.
Oil importers must now generate faster growth to bring down chronically high unemployment rates and create jobs for a rapidly expanding population.
To create jobs for this growing population, MENA6 countries must find a way to increase their competitiveness—which has fallen behind that of many other regions—and improve export performance. Ahmed argued that this will require education and labor market reform, as well as changes in the countries’ approach to export partners and their role in the supply chain.
Despite the political uncertainty prevalent throughout the region, Ottaway stressed that no major changes appear imminent. The will for political reform looks to be, at least temporarily, dead, as regional governments openly flout calls for political change. Egyptian leaders, for example, made practically no effort to make the recent parliamentary elections even appear legitimate.
The leadership transition could produce small economic changes, but it is more likely that these changes will harm long-term growth prospects rather than help them. To consolidate public support, new leaders might well slow down or reverse unpopular economic reforms that are critical to improving competitiveness.
Since the fall of Saddam Hussein, the balance of power in the Middle East has shifted toward Iran. Countries are now being forced to choose between engaging Iran on their own or strengthening their political ties to the United States. The political alliances created by these decisions may have important consequences on trade patterns in the region, but thus far, countries’ choices are unclear.
The Carnegie Middle East Program combines in-depth local knowledge with incisive comparative analysis to examine economic, sociopolitical, and strategic interests in the Arab world. Through detailed country studies and the exploration of key crosscutting themes, the Carnegie Middle East Program, in coordination with the Carnegie Middle East Center in Beirut, provides analysis and recommendations in both English and Arabic that are deeply informed by knowledge and views from the region. The program has special expertise in political reform and Islamist participation in pluralistic politics.
The Carnegie International Economics Program monitors and analyzes short- and long-term trends in the global economy, including macroeconomic developments, trade, commodities, and capital flows, drawing out their policy implications. The current focus of the program is the global financial crisis and its related policy issues. The program also examines the ramifications of the rising weight of developing countries in the global economy among other areas of research.
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