Middle East and North Africa Regional Economic Outlook April 25, 2016
Roadmap Global Environment and Regional Themes MENAP Oil Exporters MENAP Oil Importers
A modest recovery in global economic growth, albeit weaker than projected last October Euro Emerging World U.S. China Russia Area markets 2015 3.1 2.4 1.6 4.0 6.9 -3.7 2016 3.2 2.4 1.5 4.1 6.5 -1.8 2017 3.5 2.5 1.6 4.6 6.2 0.8 3
Downside risks have risen amid tighter financial market conditions and slower-than-expected economic activity World Merchandise Trade Equity Markets Sovereign Yields (YoY Percent Change) (Indices, Jan 1, 2013 = 100) (Percent) 160 8 30 150 7 20 140 6 130 10 5 120 0 110 4 -10 100 3 90 -20 2 80 1 -30 70 60 0 -40 Jan-13 Jan-14 Jan-15 Jan-16 Jan-13 Jan-14 Jan-15 Jan-16 07 08 09 10 11 12 13 14 15 16 Volume SP 500 Index Emerging Markets Euro Stoxx 50 Index Price Advanced Countries MSCI Emerging Markets Value 4
Oil prices are expected to remain low for a long time, although uncertainty around these forecasts is high Brent Crude Oil Price Hydrocarbon Production (U.S. dollars per barrel) (Change relative to previous year, millions of barrels per day) 140 2.0 WEO Baseline Average Oil Price: 120 1.5 2016: $35 2017: $41 100 1.0 80 0.5 60 0.0 40 -0.5 20 0 -1.0 2014 2015 2016 2017 2018-21 2014 2015 2016 2017 2018 2019 95% Confidence interval 86% Confidence interval GCC + Algeria Iran Libya + Yemen Iraq 68% Confidence interval Brent futures 5
The region is facing intensifying shocks from conflicts, oil prices, and financing costs Strong U.S. High Financing Low Oil Prices Conflicts Dollar Costs Oil Importers Oil Exporters Remittances, financial flows, trade 16 million refugees and internally displaced Syria 9.6 Yemen 0.3 Afghanistan 3.4 Libya 0.1 Iraq 2.4 6
Roadmap Global Environment and Regional Themes MENAP Oil Exporters MENAP Oil Importers 7
Fiscal effects of the large and persistent decline in the price of oil are significant Public Debt Fiscal Balance (Percent of GDP) (Percent of GDP) 100 10 90 80 5 70 0 60 50 -5 40 30 -10 20 10 -15 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2014 2015 2016 2017 2018 2019 2020 2021 Iran GCC and Algeria Other MENAP Oil Exporters Conflict Countries GCC and Algeria 8
Many countries have adopted sizable fiscal measures Gasoline Prices Fiscal Consolidation Measures (U.S. dollars per liter) (Percent of non-oil GDP, 2015 – 16) 0.6 15 0.5 10 0.4 0.3 5 0.2 0.1 0 0.0 SAU IRQ QAT OMN BHR UAE DZA IRN KWT BHR KWT OMN QAT SAU UAE DZA IRN April 2016 price 2015 average price Sum of spending cuts and revenue increases, 2015 Pre-tax U.S. Price Sum of spending cuts and revenue increases, 2016 9
Further sizable fiscal measures needed to balance budgets Decrease in Spending Needed to Balance 2016 Budget (Percentage decrease relative to baseline) Bahrain Algeria Saudi Arabia Oman UAE Kuwait Qatar 0 10 20 30 40 50 60 With oil at $35/barrel With oil at $50/barrel 10
Cross-country comparisons suggest that room exists to cut spending and raise taxes Spending Tax Revenue (Percent of GDP, 2015) (Percent of non-oil GDP, 2015 or most recent available) EMDCs GCC Algeria Iran 6 25 5 20 4 15 3 10 2 5 1 0 0 Wages Other Capital Interest VAT \1 PIT CIT Property \1 Current Menu of options for the GCC (in percent of GDP) 1. A broad-based 5% VAT: saving 1.5% 3. Further reducing energy subsidies: saving 2% 2. More efficient public investment: 2% 4. Benchmarking spending to pre-oil price boom levels 11
Market discipline reinforces need for sustained fiscal consolidation in GCC countries Private Sector Credit Growth Discount in 12-month Forward (Percent change, YoY) Exchange Rates (Percent ratio of 12-month forward price to spot price) 40 3.0 35 30 2.5 Nov-15-2015 Current 25 2.0 20 15 1.5 10 1.0 5 0 0.5 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 0.0 OMN KWT SAU BHR QAT UAE GCC+DZA Iran Conflict Countries 12
Fiscal tightening to slow economic activity in GCC and Algeria, oil output driving growth in Iran and Iraq Real Overall GDP Growth (Percent) 13 12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 -28.1 -6.4 -3 Bahrain Kuwait Oman Qatar Saudi UAE Algeria Iran Iraq Libya Yemen Arabia 2005-14 2015 2016 2017-21 13
With dwindling oil revenues, the private sector needs to become the engine of non-oil growth and job creation 14
Oil exporters: policy response has to be in sync with the large and lasting shocks – business as usual will not do. • Significant fiscal adjustment is underway, but more is needed as oil prices are expected to be “low -for- long.” • Adjustment can be more gradual if buffers are available; but credible adjustment path is essential for market confidence. • Economic activity is slowing as the public purse is tightened; private sector needs to take over as the engine of growth. • Increased engagement with the private sector can help to identify and address impediments to growth. • Security is a prerequisite for economic growth in countries affected by conflict. • In Iran, sanctions relief will boost the economy but growth dividend would be larger if accompanied by structural reforms. 15
Roadmap Global Environment and Regional Themes MENAP Oil Exporters MENAP Oil Importers 16
Recovery has been gradual and uneven Real GDP Growth (Percentage Point Change, 2016-17 Average vs. 2014-15) Lebanon Syria Tunisia Afghanistan Jordan Morocco Egypt Pakistan Sudan Mauritania Djibouti > 0.5% > 0.5% < -0.5 % Between 0% and 0.5% Between 0% and 0.5% N.A. Between -0.5% and 0% Between -0.5% and 0% N.A. 17
Subsidy reforms and low oil prices have created space for raising growth-enhancing investment Changes in Government Spending (Percentage of GDP, Change from Prior Year) 1.0 Capital Subsidies Other Current Wages 0.5 0.0 -0.5 -1.0 2010-13 2014-15 2016 18
Low oil prices support consumption, offsetting slowing remittances Remittances Oil Price Pass-Through (YoY Percent Change) (Proportion of Sample, Expected end-June ¹) 0 0-0.5 0.5-1 20 100 15 80 10 60 5 40 0 20 -5 Primary Currency of Receipt In Local Currency -10 0 Jan-13 Oct-13 Jul-14 Apr-15 Fuel Electricity ¹ Pass-through period is defined as the oil price drop from Sept. 2014 to end-June 2016. 19
Exports and tourism are slowing, because of deteriorating competitiveness and rising security risks Exports, Tourism, Exchange Rate (Index values, Jan 2010=100) Exports (3MMA) REER Tourism 130 120 110 100 90 80 Jan-13 Jan-14 Jan-15 20
Further fiscal consolidation needed to reduce debt, while greater growth needed to create more jobs and improve living standards Public Debt Unemployment (Percent of GDP) (Latest available, Percent) 45 180 2010 2015 2020 40 Youth unemployment 150 Egypt Tunisia 35 Jordan 120 30 25 90 Lebanon Eastern 20 Morocco 60 Europe Central Asia LAC 15 Asia 30 Sub-Saharan Africa 10 Pakistan 5 0 3 5 7 9 11 13 15 17 19 LBN JOR EGY MAR PAK TUN Total unemployment 21
Structural reforms are key to igniting business confidence and improving labor markets Business Environment Labor Market Bureaucracy Regulations Corruption Efficiency Education 2007 Finance structure Infra- Trade Legal MENAP OI 19% 23% 49% 47% 49% 22% 37% 29% 21% Egypt 19% 23% 51% 43% 49% 0% 36% 8% 11% Jordan 67% 23% 65% 62% 59% 36% 53% 56% 45% Lebanon 2% 23% . 47% . . . . . Mauritania . . 3% 36% 42% 39% 10% 17% 16% Morocco 67% 23% 47% 50% 44% 2% 37% 25% 11% Pakistan 19% 23% 42% 32% . 13% 30% 54% 27% Tunisia 19% 23% 69% 55% 62% 31% 71% 33% 29% Sub-Saharan Africa 19% 12% 17% 31% 31% 41% 23% 31% 30% Latin America 19% 23% 39% 51% 27% 26% 37% 28% 35% Emerging Europe 46% 23% 42% 64% 43% 46% 54% 45% 56% Developing Asia 46% 23% 26% 42% 36% 55% 41% 32% 36% Advanced Economies 82% 84% 85% 92% 81% 77% 84% 84% 85% # # Lo wes t 20th P ercentile 60th-80th P ercentile So urces : Wo rld Bank; Wo rld Eco no mic # # 20th-40th P ercentile To p 20th P ercentile Fo rum; P RS Gro up; and IMF s taff # . calculatio ns . 40th-60th P ercentile N/A 22
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