Global growth forecast is expected to slow down, from 3.2% in 2022 to 2.7% in 2023. This is caused by a combination of the global cost-of-living crisis, tightening financial conditions, the invasion of Ukraine and the enduring impacts of the pandemic.
As economic growth will weaken worldwide in 2023, most countries in the Middle East and North Africa region will experience economic hardship in varying degrees. Countries exporting their hydrocarbon reserves, particularly those of the Gulf Cooperation Council – GCC, (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) marked by high export levels and small populations, are expected to sustain high government spending, thanks to strong financial buffers maintained by a relatively stable export revenue.
According to the IMF, the average economic growth across the Middle East and Central Asia is projected to stand at about 3.6% in 2023. This is above the global average and, mostly, a reflection of a price rise in hydrocarbon resources. The growth is not distributed evenly in the region, as oil-importing economies fall behind oil-exporting nations.
Parts of the area have faced a harsher impact from the war in Ukraine, particularly those who rely on Ukrainian grain imports. All in all, the region´s growth prospects will depend on how various global issues will unfold, including a potential decline in oil prices, the economic downturn in the developed countries, and the war in Ukraine.
As per IMF forecasts, global inflation is expected to have peaked in 2022. It went from 4.7% in 2021 to 8.8% in 2022 and it is predicted to decline to 6.5% in 2023. As its driving factors vary among different countries, inflation will be felt at various levels across the region.
Countries with high government revenues mostly generated through hydrocarbon resources export will be subjected to lower inflation compared to those with low government revenue. The case of the Iranian economy will continue to be exceptional for an energy-exporting economy, as there is virtually no prospect for a nuclear agreement recovery. Sanctions are expected to keep putting pressure on the government´s ability to generate hydrocarbon export revenue.
Combined with the ongoing popular uprising since September 2022, this will increase economic pressure on the Iranian economy. Various episodes of strikes were recorded, either in the government and in the private sectors. As protests continue, the possibility of further, widespread strikes increases. The most severe inflation rise will affect oil-importing economies, Jordan, Egypt and Lebanon, where economic challenges and currency depreciation of 2022 will persist.
The impact of inflation on households with limited disposable income will have visible impacts on the standard of living across the region. Energy prices are projected to remain sensitive to war in Ukraine and the risk of further escalation and/or spread of the conflict beyond Ukraine.
Food price inflation – caused by the impact of war in Ukraine (i.e., the decline in export of Ukrainian agricultural products), extreme weather conditions and water shortage – is expected to remain persistently high across the world. The likelihood of extreme weather events due to overall climate change may have major impacts on the global food supply, entailing upward pressure on global food prices. Under such circumstances, the MENA food markets are predicted to be impacted by high inflation, given the region´s high dependence on imported food.
This will decrease local households’ ability to afford food bills. As such, the standard of living across the region is projected to be affected by the rise in food and energy prices. Indeed, a decreased disposable income will have direct repercussions on consumption and saving. The latter will have an impact on credit access. Persistent inflation will contribute to further currency depreciation and elevated interest rates.
In the such a global economic environment, transparency and accountability are key to all MENA countries to face the economic storms of 2023. Policy action must be directed towards sustainability in the economic environment, protection of the more vulnerable segments of society, and inclusive growth across the region.
Indeed, such efforts require strong political will, stable foreign and domestic policies, and a realistic understanding and acceptance of the challenges and capacities of each economy. For years, policymakers across the MENA region have been entangled in maintaining state political power, often heavily relying on widespread oppression and balance of power struggle, both domestically and in relation
to other regional rivals.
Economic stability, development, and reform have remained far down on the ´priority list´ of governments across the region. The financial crisis is the new norm from Lebanon to Tehran, while very little attention is paid by policymakers to address the underlying challenges. Banking and pension sectors, social safety nets, market transparency, and fighting corruption have remained unbothered, if not worsened, across the area.
Devastating global shocks and the lack of appropriate policy-making contributed to worsening socio-economic grievances and loss of public trust for many governments in the MENA region. Local human capital was wasted on unemployment and bad policy choices. There is an urgent need for authorities to learn from past experiences, acknowledging the real socioeconomic strength and weaknesses of their respective countries to implement effective policies. (Photo: 123rf.com)