WORLD BANK MIDDLE EAST AND NORTH AFRICA REGION

MENA ECONOMIC MONITOR

Refugee Crisis in MENA

Meeting the Development Challenge

October 2017

WORLD BANK GROUP

 WORLD BANK MIDDLE EAST AND NORTH AFRICA REGION
MENA ECONOMIC MONITOR

Refugee Crisis in MENA

Meeting the Development Challenge

World Bank Group

Washington, DC
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DOI: 10.1596/978-1-4648-1214-9

Cover photo: © UNHCR/Shawn Baldwin.

 Contents

Acknowledgments v

Abbreviations vii

Recent Economic Developments and Prospects 1

Global Outlook 1
Developments in the Oil Market 2
Recent Economic Developments and Outlook for MENA 3
Economics of MENA: A Longer Term View 7

Refugee Crisis in MENA: Meeting the Development Challenge 9

Introduction 9

Why Is the Welfare of Refugees a Development Challenge? 11

Welfare of Refugees as a Global Public Good 11
Supporting Livelihoods for Refugees 12

What Are the Development Challenges and How Should They Be Tackled? 13
Four Interlinked Crises and Four Sets of Policy Responses 13
1. Education 13
2. Health 17
3. Jobs 21
4. Livelihoods 24

How Can the Development Community Do Better? 26

Interventions and Assistance 26
Resources 26
Burden-Sharing 28
Data and Monitoring 31

References 35

Country Notes 42
Boxes
Box 2.1 Resettlement of Refugees in Third Countries 30
Box 2.2 Global Concessional Financing Facility (GCFF) 31

Figures
Figure 1.1 Global Outlook 1
Figure 1.2 Developments in the Oil Market, 2013Q1–2017Q1 2
Figure 1.3 Macroeconomic Status of MENA 4
Figure 2.1 Distribution of Refugees across the 251 Most Vulnerable Localities in Lebanon 15
Figure 2.2 Enrollment Trends in Public Schools in Lebanon, 2011–17 16
Figure 2.3 Gross Official Development Assistance, 2013–15 27
Figure 2.4 Syrian Humanitarian Response, 2012–17 28

Tables
Table 1.1 MENA’S Macroeconomic Outlook, 2014–19 5
Table 2.1 Status of Registered Syrian Refugees 19
 Acknowledgments

The MENA Economic Monitor is a product of the Chief Economist’s Office of the Middle East and
North Africa Region of the World Bank.
The report was prepared by a team led by Lili Mottaghi, and including, Afrah Alawi Al-Ahmadi,
Nabila Assaf, Philippe Auffret, Caroline Bahnson, Safaa El Tayeb El-Kogali, Angela Elzir, Kent
Garber, Yashodhan Ghorpade, Jan von der Goltz, Himanshi Jain, Omer Karasapan, Hideki
Matsunaga, Aakanksha Pande, David Robalino, Friederike Uta Rother, Meriem Ait Ali Slimane,
Sami Sofan, and Mohamed Yassine.
The report was prepared under the overall guidance of Shanta Devarajan and Samia Msadek.
We are grateful to Elena Ianchovichina, Omer Karasapan, Youssouf Kiendrebeogo, Hideki
Matsunaga, Sajjad Ali Shah Sayed, and Christina Wood for providing comments on the earlier
version of the report. Isabelle Chaal-Dabi and Eva Davoine provided excellent administrative and
data support. Alicia Hetzner edited the report.
The country notes are based on reports by the following Country Economists, led by Kevin Carey:
Sara B. Alnashar, Luca Bandiera, Ibrahim Chowdhury, Khalid El Massnaoui, Nur Nasser Eddin,
Wilfried Engelke, Wissam Harake, Sahar Hussain, Kamer Karakurum-Ozdemir, Majid Kazemi,
Tehmina Khan, Christos Kostopoulos, Julie Lohi, Emmanuel Pinto Moreira, Harun Onder,
Abdoulaye Sy, Fulbert Tchana Tchana, and Hoda Youssef.

v
 Abbreviations

ALMP active labor market program

ALP Accelerated Learning Program
CCT conditional cash transfer
CDC United States Centers for Disease Control
CFF Concessional Financing Facility
CIREFCA International Conference on Assistance to Refugees in Central America
CRRF Comprehensive Refugee Response Framework
DAC Development Assistance Committee
DAR Development Assistance for Refugees
DLI Development through Local Integration
ECD early childhood development
ECE early childhood education
EU European Union
FAO Food and Agriculture Organization of the United Nations
4Rs Repatriation, Reintegration, Rehabilitation, and Reconstruction
FD financial development
FDI foreign direct investment
GCC Gulf Cooperation Council
GCFF Global Concessional Financing Facility
GDP gross domestic product
ICARA International Conference on Assistance to Refugees in Africa
IDA International Development Association (World Bank group)
IDP internally displaced person
IEA International Energy Agency
IFI international financial institution
ILO International Labour Organization
IMF International Monetary Fund
ISIS Islamic State in Iraq and Syria (Daesh)
KRI Kurdish Region of Iraq
mbd million barrels per day
MDG Millennium Development Goal
MEHE Ministry of Education and Higher Education (Lebanon)
MENA Middle East and North Africa Region (WBG)
MILES Macroeconomic policy, investment climate, labor regulations, education, and
social protection policies
MOL Ministry of Labor

vii
NGO nongovernmental organization
ODA Official development assistance (OECD/DAC)
ODI Overseas Development Institute
OECD Organization for Economic Co-operation and Development
OOSC out-of-school children
OPEC Organization of Petroleum Exporting Countries
Oxfam Oxford Committee for Famine Relief
PSSA Psychosocial Structured Activities
REACH Consortium comprises IMPACT, ACTED, and UNOSAT
RRP Refugee Response Plan (UNHCR)
SME small and medium size enterprise
SOE state-owned enterprise
UAE United Arab Emirates
UN United Nations
UNDP United Nations Development Programme
UNHCR Office of the United Nations High Commissioner for Refugees
UNICEF United Nations Children's Fund
UNRWA United Nations Relief and Works Agency for Palestine Refugees in the Near East
USAID United States Agency for International Development
VAT value-added tax
WBG West Bank Group
WDI World Development Indicators (World Bank)
WDR World Development Report (WBG)
WFP World Food Programme
WHO World Health Organization

viii
Recent Economic Developments and Prospects

Global Outlook
The recovery in global activity anticipated in the April MENA Economic Monitor is on track. The
global economy is projected to grow by 2.9 percent over the next two years, up from 2.4 percent
in 2016 (Figure 1.1). The uptick in global growth reflects strong domestic demand, improved
industrial production, and increased exports in almost all countries (Figure 1.1, right panel). The
recovery is led by a pickup in growth in advanced economies including the United States, the Euro
Area, and Japan. Growth in East Asia and Pacific, Eastern Europe and Central Asia remains robust.
Economic activity in commodity-exporting developing countries is accelerating, contributing to
the global recovery.

After years of slow growth, economic activity in oil exporters is starting to improve because the
oil market has reached some stability, although at low prices. Russia, Nigeria and Brazil are
expected to emerge from recession and growth could turn positive in 2017 and beyond. In oil-
importing countries, economic activity points to solid momentum. In low income countries
growth is expected to rebound in 2017 by 1 percentage point, projected at 5.4 percent, compared
to the last year. The rebound is due primarily to rising metals prices, which raised production in
metals exporters, and infrastructure investment in others.

Figure 1.1 Global Outlook

Global Growth Outlook (%) Industrial Production, seasonally adjusted

2008M01=100
8 125

6
115
4
105
2

95
0

-2 China Russia 85
Eurozone United States
2008M01

2016M10
2008M08
2009M03
2009M10
2010M05
2010M12
2011M07
2012M02
2012M09
2013M04
2013M11
2014M06
2015M01
2015M08
2016M03

2017M05

Global
-4
2015 2016 2017 2018 2019

Source: World Bank and Haver data.

MENA Economic Monitor October 2017 1

Risks to the outlook still tilt to the downside. Increased policy uncertainty; an increase in volatility
in commodity prices, especially in the oil market; and weaker growth potential over the long term
could cloud the prospects for a growth rebound. While inflation remains low, as actual growth
continues to exceed potential growth, increasing inflation and closing output gaps could lead to
the prospects of less accommodative monetary policy, which could dampen global growth going
forward. Over the long run, reforms to boost potential output are important.

Developments in the Oil Market

Oil prices have stayed within the $48 to $55 per barrel range since mid-2016 due to the ongoing
market imbalances, mainly from the supply side (Figure 1.2). Rising U.S. shale oil production,
reaching its highest level in two years, has offset some of the impacts of the production cuts
among OPEC members and their allies. Moreover, the overall compliance with production cuts
within OPEC is estimated at 75 percent. Among OPEC members, Libya, Angola, and Nigeria
increased output by an estimated 350,000 barrels per day only in August. As a result, the
inventory buildup peaked at approximately 4.6 million barrels of crude oil during the same
period, higher than the 4 million barrels forecasted by the International Energy Agency (IEA). As
predicted in the MENA Quarterly Economic Brief, the stagnation in oil prices is expected to
continue into 2020 (Devarajan and Mottaghi 2016a).

Figure 1.2 Developments in the Oil Market, 2013Q1–2017Q1

Global supply, demand and prices for oil

100 120

98 100
96
80
94
60
92
40
90

88 20

86 0

Demand (mb/d) Supply (mb/d) Crude oil, Brent ( nominal US $, RHS)

Source: IEA data.

Several factors will contribute to keep oil prices low for longer, including the oil production
growth in the U.S.; the weakening impact of OPEC and non-OPEC cuts; and the rise of electric
vehicles, specifically in China (Petroleum Monitor 2017).

MENA Economic Monitor October 2017 2

Going forward, rebalancing in the oil market is expected to be delayed. Estimates by the
International Energy Agency (IEA) show that the global demand for oil will continue to grow at a
slower pace than the global supply, at least until the end of the decade. Non-OPEC output is
expected to double to reach 1.4 million barrels per day (mbd) in 2018 from the previous year.
Due to cost efficiency measures, an increasing number of oil projects world-wide could break
even at $30 per barrel and lower. This lower price could significantly increase oil production
beyond the U.S. (that is, in Canada and Brazil). These last two likely would add to the already high
oil inventory and, in the absence of a pickup in demand, could hold oil prices down for longer.
Uncertainty about compliance among some OPEC members including Iran, Iraq, Libya, and
Nigeria is a challenge facing OPEC in battling the excess supply. There are speculations that the
OPEC cut of approximately 1.2 million barrels a day will be extended until March 2018. It remains
to be seen how the extended cut and the excess supply will affect the sentiment in the oil market.

Recent Economic Developments and Outlook for MENA

The pickup in economic activity in the Middle East and North Africa (MENA) region that started
in mid-2016 is expected to moderate in 2017 due to slower growth in MENA’s oil exporters. Oil
production cuts will weigh down growth in almost all countries in the subgroup. Growth
prospects for the MENA region is projected to improve in 2018 and 2019 with growth exceeding
3 percent. Both MENA’s oil exporters and oil importers will benefit from a steady improvement
in the global growth; increased trade with Europe and Asia; more stabilized commodity markets,
especially oil; and reforms undertaken in some of the countries in the region (Figure 1.3).
Nevertheless, MENA’s overall growth levels are half of what they were before the 2011 Arab
Spring, making it difficult to address the youth unemployment problem and the needs of massive
numbers of people who are displaced across the region as conflicts continue. Fiscal and current
account balances are expected to improve over the projection period ending in 2019, resulting
from both fiscal consolidation efforts and some stability in the commodity markets, including oil.

Growth outlook in MENA’s oil exporters is expected to improve in 2018 and 19, as governments
are slowly adapting to the “new normal” of low oil prices. To counter the impact of falling oil
prices, most of the governments have adopted new revenue measures and spending cuts. These
measures range from increases in corporate income tax in Bahrain and Oman, and introduction
of value-added tax (VAT) in 2018 in all Gulf Cooperation Council (GCC) countries, to spending cuts
that include reducing fuel, water, and electricity subsidies elsewhere in the region (Figure 1.3,
bottom left panel).

After a contraction in 2015, a growth recovery is projected for the group of developing oil
exporters in the short term. Growth prospects in the subgroup is contingent on recovery in the
oil sector while non oil sector activity is expected to remain subdued. Iran and Algeria showed a
strong recovery in the oil sector in 2016 and early 2017. Economic growth in Libya is expected

MENA Economic Monitor October 2017 3

to increase significantly in 2017 and continue through 2018 and 2019 due to the resumption of
oil production. However, oil production still remains below potential due to violent conflict. The
war on ISIS and low oil prices are expected to weigh on the Iraqi economy in 2017, but growth
will accelerate in the following years. After a grinding three-year recession, growth is expected
to rebound in Yemen in 2018 and 2019. Economic outlook in 2018 and beyond will depend on
whether an end to the on-going conflict will allow for rebuilding the Yemeni’s economy.

Figure 1.3 Macroeconomic Status of MENA

Real GDP Growth (%) MENA

8 8

4
projections

projections
projections

6
0
4
-4

2 -8

-12
0

2016

2019
2014
2015

2017
2018
2019

2014
2015
2016
2017
2018
2016
2014
2015
2016
2017
2018
2019

2014
2015
2016
2017
2018
2019

2014
2015

2017
2018
2019

Fiscal balance as % of GDP Current account balance as % of

MENA Developing MENA GCC GDP

Fiscal Consolidation Measures Fiscal Space Sustainability*

0.9
20 Saudi Arabia
Foreign reserves as % of GDP, 2016

(10 years)
Algeria (7
15 years)
% of non-oil GDP

0.6
10
Oman (8 Qatar (8 Iraq (8 years)
5 years) years)

0.3 UAE (76

years)
0
Yemen (7
years) Bahrain (11
-5 years)
IRN UAE DZA BHR QAT SAU OMN IRQ KWT 0.0
Spendings Cuts 2015 Revenue Increases 2015 -20 -15 -10 -5 0
Spending Cuts 2016 Revenue Increases 2016 Fiscal balance as % of GDP, 2016
Source: World Bank and IMF.
Note: *Total number of years to finance deficits through reserves.

Growth in the GCC subregion is expected to remain low in 2017, at below 1 percent. Among the
GCC countries, UAE is more diversified and has a large fiscal buffer that helps withstand sustained
low oil prices. Qatar is feeling the brunt of political turmoil with neighboring countries, and its
growth projections for 2017 are revised downward to 2 percent.

MENA Economic Monitor October 2017 4

 Table 1.1 MENA’s Macroeconomic Outlook, 2014–19

Real GDP Growth (%) Fiscal Balance (% of GDP) Current Account Balance (% of GDP)
2014 2015 2016e 2017f 2018f 2019f 2014 2015 2016e 2017f 2018f 2019f 2014 2015 2016e 2017f 2018f 2019f
MENA 2.7 2.6 4.9 2.1 3.0 3.4 -2.4 -9.6 -10.6 -6.7 -4.8 -3.6 6.0 -3.9 -4.8 -1.4 -0.7 -0.4
Developing MENA 2.2 1.3 7.4 3.4 4.0 3.9 -7.2 -10.1 -10.3 -6.5 -5.2 -3.9 -3.0 -5.7 -6.1 -4.4 -3.7 -3.0
Oil Exporters 2.7 2.3 5.3 1.7 2.8 3.1 -0.9 -9.9 -10.9 -6.5 -4.5 -3.1 8.5 -3.5 -4.1 -0.1 0.5 0.8
GCC Countries 3.2 3.7 2.3 0.7 1.9 2.7 2.1 -9.1 -10.9 -6.8 -4.5 -3.3 14.4 -2.2 -3.5 1.2 1.9 1.9
Bahrain 4.4 2.9 3.0 2.4 2.0 1.6 -3.4 -12.8 -13.0 -7.8 -7.5 -6.8 4.6 -2.4 -4.8 -3.5 -3.1 1.1
Kuwait 0.5 0.6 3.6 -1.0 1.9 3.5 18.7 0.0 0.5 1.7 1.6 2.5 32.5 4.5 -4.5 0.1 1.8 2.8
Oman 2.5 5.7 2.8 0.1 3.4 2.9 -3.6 -16.5 -20.8 -13.5 -12.2 -11.4 5.2 -15.5 -17.4 -15.7 -11.1 -9.2
Qatar 4.0 4.0 2.2 2.0 1.7 3.0 12.6 1.4 -8.3 -5.7 -4.3 -2.7 23.9 8.4 -7.6 3.9 3.5 1.9
Saudi Arabia 3.7 4.1 1.7 0.3 1.2 2.1 -3.4 -15.8 -16.6 -10.0 -6.3 -4.9 9.8 -8.7 -3.9 1.7 2.4 2.3
UAE 3.1 3.8 3.0 1.4 3.1 3.3 1.9 -3.4 -4.3 -3.2 -1.9 -1.0 13.3 4.7 2.4 2.6 2.8 2.9
Developing Oil Exporters 1.9 0.0 9.7 3.3 4.1 3.7 -6.1 -11.1 -10.9 -6.1 -4.5 -2.9 -1.6 -5.6 -5.1 -2.4 -1.9 -1.1
Algeria 3.8 3.7 3.3 2.2 2.0 1.5 -8.0 -15.7 -13.7 -11.5 -7.3 -5.7 -4.4 -16.5 -15.6 -13.0 -10.8 -9.5
Iran, Islamic Rep. 4.6 -1.3 13.4 3.6 4.0 4.3 -1.1 -1.7 -2.2 -2.2 -2.3 -2.1 3.1 2.3 3.9 4.1 4.0 3.8
Iraq 0.7 4.8 11.0 -0.5 3.0 1.7 -5.3 -12.3 -14.1 -5.1 -4.8 -1.7 2.6 -6.5 -8.7 -6.3 -6.7 -4.1
Libya -24.0 -8.9 -2.8 25.6 16.4 10.4 -43.3 -76.9 -63.9 -22.0 -11.0 -5.0 -46.1 -31.9 -12.8 -8.3 -5.6 -4.4
Syrian Arab Rep. -17.0 -3.9 -1.5 … … … -17.7 -16.4 -9.0 … … … -14.9 -9.7 -27.9 … … …s
Yemen, Rep -0.2 -28.1 -9.8 -2.0 8.5 13.5 -4.1 -10.6 -13.5 -9.9 -6.6 -2.5 -1.7 -5.5 -6.1 -2.3 -2.4 -2.1
Developing Oil Importers 2.7 3.7 3.0 3.7 3.7 4.2 -9.1 -8.8 -9.4 -7.4 -6.7 -5.6 -5.2 -5.8 -7.6 -8.3 -7.2 -6.6
Djibouti 6.0 6.5 6.5 7.1 7.0 7.0 -10.7 -20.7 -15.2 -3.8 -2.6 -1.4 -25.2 -30.4 -22.2 -15.4 -12.3 -10.2
Egypt, Arab Rep. 2.9 4.4 4.3 4.2 4.5 5.3 -12.0 -11.4 -12.5 -10.8 -8.8 -7.1 -0.9 -3.7 -6.0 -6.6 -4.6 -3.9
Jordan 3.1 2.4 2.0 2.3 2.4 2.5 -9.3 -3.6 -3.2 -3.3 -1.6 -0.5 -7.3 -9.1 -9.3 -8.7 -8.6 -8.5
Lebanon 2.0 0.8 2.0 2.0 2.5 2.0 -6.3 -7.8 -9.6 -9.2 -9.6 -9.8 -24.2 -16.1 -19.8 -17.9 -19.4 -19.5
Morocco 2.7 4.5 1.2 4.1 3.1 3.2 -4.7 -4.2 -4.0 -3.5 -3.5 -3.0 -5.7 -3.1 -4.3 -5.2 -5.3 -5.1
Tunisia 2.3 1.1 1.0 2.3 3.0 3.5 -5.0 -5.6 -6.1 -6.2 -5.9 -4.4 -9.1 -8.9 -8.4 -8.8 -8.5 -7.9
West Bank and Gaza -0.2 3.4 4.1 3.0 3.0 2.9 -2.8 -5.1 -2.4 -3.8 -3.3 -3.2 -7.4 -16.3 -10.4 -13.1 -13.2 -13.4
Source: World Bank data.
Note: e = estimate, and f=forecast. Data for Egypt correspond to fiscal year (July-June). Due to lack of data for Syria, regional and subregional averages may not be comparable
over time.

MENA Economic Monitor October 2017 5

A settlement of the Qatari standoff would limit the damage on its economy. Growth outlook is
projected to improve over the projection period ending in 2019, ranging from 3.5 percent in
Kuwait to 2.1 percent in Saudi Arabia in 2019. The overall growth in GCC countries for 2019 is
projected at 2.7 percent, below the levels seen prior to the 2014 oil price shock. The average
growth rate prior to 2011 for the GCC countries was around 4.5 percent.

In Saudi Arabia, low oil prices, coupled with reduced oil output resulting from the OPEC oil
production cuts, are keeping investment subdued and harming private consumption. Although
the fiscal grip was relaxed to some extent this year, the overall stance remains tight, with public
employees’ salaries still frozen and several infrastructure projects postponed. Financial
challenges have exhausted Saudi Arabia’s foreign reserves, which hit a 6-year low in July 2017
(Figure 1.3, bottom right panel). Lower-than-expected oil prices, limited crude production, and
widespread geopolitical risks will lead the economy to slow down this year. The World Bank
expects Saudi growth to fall to 0.3 percent in 2017, before rising to 2 percent in 2019, which is
down 1.4 percentage points from last year.

Challenges remain, particularly in debt issuance volumes across GCC counties. Moody estimates
the debt-to-GDP ratio across the GCC will rise from 10.5 percent in 2014 to 31.6 percent by 2018,
adding another $154 billion in government debt in 2017 and 2018. Bahrain and Qatar likely will
continue to rely solely on market funding whereas Kuwait, Oman, Saudi Arabia, and UAE will issue
debt and make use of government reserves. Bahrain and Saudi Arabia will record the largest
increase in debt between 2016 and 2018, with the government-debt-to-GDP ratio rising by
around 14 percentage points. For Kuwait and Oman, Moody expects lower debt increases of 8 to
9 percentage points of GDP. On the other hand, the debt burdens of Qatar and UAE, having pre-
financed part of their 2017 deficits, are expected to stabilize in 2017 and decline in 2018.

Among oil importers, Egypt’s economy is projected to perform better going forward with growth
expected to accelerate to 5.3 percent in 2019. This growth is due mostly to liberalization in the
exchange rate market and recovery in merchandise exports and tourism. Of the remaining
economies in the subregion, Morocco likely will grow faster in 2017 than in 2016 due to a strong
rebound in the agricultural output. However, the rebound is unlikely to sustain because the
economy is prone to drought. The protracted Syrian conflict remains an impediment to the return
to potential growth in Lebanon and Jordan. For the fifth year, Lebanon remains the largest host
(on a per capita basis) for displaced Syrians. This influx has significantly strained already weak
public finances.

The short-term prospects of improvement in MENA’s economic activity are contingent on many
factors. First, rising global risks aversion and geopolitical uncertainty arising from protracted
conflicts in Iraq, Libya, Syria, and Yemen can impact the overall performance of both oil exporters
and oil importers. Second, the region is dealing with massive numbers of refugees and internally

MENA Economic Monitor October 2017 6

displaced persons (IDPs). This influx brings development challenges and impacts the economic
performance not only of the countries of origin but also of the neighboring host countries.

Economics of MENA: A Longer Term View

Economic performance in the MENA region has stayed below potential for at least 40 years.
There were periods of sharp growth followed by sharp falls, but growth was never sustained.
Historical data show that most of the output growth in the region occurred during boom years
and because of increases in oil production: the region grows by oil and slows by oil.
Approximately two-thirds of the countries in the region are oil exporters and, over the past five
decades, have benefitted immensely from several episodes of oil price shocks. The positive
spillovers of the boom years also have benefitted oil importers who are recipients of foreign
direct investment (FDI), remittances, and tourism. Nevertheless, the volatile pattern of long-term
growth in the region reveals that MENA countries initiate growth but fail to sustain. This pattern
is clearly seen in the high volatility of growth across the region (Devarajan and Mottaghi 2016b).
Among countries, volatility of real GDP growth in oil exporters has been twice that of the oil-
importing economies. A major consequence of the volatile growth is the region’s high youth
unemployment rate of 30 percent: the highest rate in the developing world. The rate for females
is even higher, standing at around 50 percent in some MENA countries.

To address these long-standing challenges, in the short run, MENA countries need to grow faster
to enable them to create more jobs for the youth bulge. However, in the long run, it is necessary
to for these countries to increase their potential output. To boost the growth potential in MENA
countries, the right mix of policies is needed. Although policies may differ by country, the need
for reforms is urgent, particularly to diversify away from oil in oil exporters, thus strengthening
the business climate to unleash the potential of the private sector (Devarajan and Mottaghi
2017). Reforming the business climate and making it more competitive through enforcing
competition policies and reducing the power of monopolies is very important.

Rationalizing fiscal policies by replacing untargeted and wasteful energy subsidies with targeted
cash transfers is equally important. A related challenge holding back growth is the low female
labor force participation rate. In this vein, promoting the formal private sector is important.
Equally important is the need to reform the education system and skills training programs. These
programs can improve the education system by making teachers more accountable to students
and their parents; and by better adapting the curriculum to the modern world. Even in the short
run, such reforms could start producing positive effects on the macroeconomic indicators,
particularly on employment and output, thereby increasing potential output in the long run.

Conversely, crises and conflicts could permanently reduce the supply side capacity (losses in
output and employment) that could weigh on the potential output over the medium and long

MENA Economic Monitor October 2017 7

terms. Studies show that there is a strong likelihood of a large negative impact of prolonged crisis
on potential output in the short run, followed by a prolonged period of slow growth as economies
adjust to their post-crisis growth paths. A "permanent level loss" in potential output means that
the economy eventually would return to its pre-crisis potential growth rate but would fail to
recoup all of the lost output. The total effect depends on an assessment of the various channels
through which the crisis could impact labor market developments, investment, and productivity.

MENA is among the most conflicts affected regions in the world and the Syrian refugee crisis is
among the worst such crisis since World War II. The protracted stay of refugees in hosting
communities, now in its sixth year, not only has increased the risk to MENA’s economic outlook
but also has brought refugees’ long-term development challenges to the forefront. Meeting
these enormous challenges requires collective efforts, which are the subject of the next chapter.

MENA Economic Monitor October 2017 8

 Refugee Crisis in MENA
Meeting the Development Challenge

Introduction
The current refugee crisis in the Middle East and North Africa (MENA) stands out for many
reasons. First, Syrians account for the bulk of the refugees and displaced people regionwide,
followed by Iraq, Libya, and Yemen, in which conflicts are ongoing. Second, the Syrian conflict
has seen exponential growth of refugees during 2012 to 2016. In July 2012, 100,000 Syrians were
registered refugees. This number increased 15-fold in 1 year, and that new number quadrupled
by the end of 2016 to reach 5.4 million. There are estimates that the number of unregistered
refugees in MENA could be as many as those registered.1 Third, and most important, more than
75 percent of the refugees hosted in MENA are concentrated in only 2 countries: Lebanon and
Jordan.2 In 2016, Lebanon ranked among the top 10 hosting countries worldwide in per capita
numbers (UNHCR 2017). The remaining top hosting countries were in Africa.

The massive scale of the inflows of refugees has brought increasing social and economic burdens
to hosting communities, exacerbating their pre-existing development challenges while leaving
refugees with uncertain futures. In the past, refugees’ welfare was viewed primarily as a
humanitarian, rather than a development, issue on the assumption that once the conflict
stabilized and emergency needs were met, longer term solutions would be addressed after
returnees reached their homelands. However, the protracted refugee crisis3 in MENA has
brought development challenges to the forefront. Specifically, refugees face four interlinked

1
This may result from differences between country’s official statistics and the UNHCR statistics due to the fact that
"the UNHCR calculates the number of those registered with it as refugees, while Jordan, for example, classifies a
refugee as any person who enters its territory from the nationalities that cannot return to their countries for any
reasons.
2
Civil war in Syria has displaced 50 percent of the population, 33 percent of them outside the country. The conflict
in Yemen has touched every aspect of Yemenis’ lives. Violence in Libya has displaced 10 percent of its 6 million
people internally, and approximately 125,000 externally, particularly to Europe because of its proximity. The 2011
Arab uprising caused some movements between and within other states, but for short periods. For example, before
the Arab uprising, approximately 2 million Libyans had left their countries, most moving to Chad, Egypt, Italy, and
Tunisia. While official data are not available, after the fall of Gaddafi, many Libyan refugees were encouraged to
repatriate.
3
Defined by the United Nations High Commissioner for Refugees (UNHCR) refugees can be regarded as being in a
protracted situation when they have lived in exile for more than five years, and when they still have no immediate
prospect of finding a durable solution to their plight by means of voluntary repatriation, local integration, or
resettlement.

MENA Economic Monitor October 2017 9

crises: limited or no access to, and poor quality of, education, health care, jobs, and livelihoods.
If not addressed, these four interlinked crises continue to fuel long-term problems.4 Targeting
these challenges not only helps hosting communities deal with their development challenges but
also prepare refugees for the time that they can return to their homelands.

This chapter provides a perspective on the long-term development challenges faced by refugees
in MENA which are (1) basic health services, (2) education needs, (3) jobs and accommodation of
refugees in local labor markets, and (4) civil, social, and economic rights including freedom of
movement. The chapter further lays out specific development policy responses to tackle these
challenges.

Specifically, we address three fundamental questions:

1. Why is the welfare of refugee a development challenge?

2. What are the development challenges and how should they be tackled?
3. How can the development community do better?

While the details will be country specific, this chapter suggests enhancing an early transition from
humanitarian aid to development assistance. For example, at the time of crisis, Sierra Leone
received more support in the form of development aid than did Liberia, giving Sierra Leone more
predictable support for education. The transition cannot happen without reliable statistics, which
are lacking globally, particularly in some hosting countries. There is an urgent need for more data
and an integrated monitoring system, for both registered and unregistered refugees.5 In this vein,
creating specific development indicators for refugees and their children and integrating these
indicators in the global development indicators could help immensely to monitor refugees’
welfare. At the country level, an improved data system is even more important. It would improve
understanding of the micro-implications of the refugee crisis, especially poverty measurement.

Equally important is the need for refugee-specific policies focusing on empowering women
refugees, increasing mobility, and developing their skills. The longer refugees are unemployed,
their chances of finding a job diminishes because they become deskilled and they find themselves
dependent on the country’s resources.

4
There is evidence that malnutrition contributes to a longer-term development problem, especially in education.
The effect on refugees’ children is larger because they have experienced violence and trauma and interrupted
education. These experiences damage children’s cognitive functioning, thus affecting their educational performance
throughout adolescence and into adulthood. Studies have shown that the cognitive damage to children from
receiving no education lowers their school performance and cuts their future earnings by an average of 22 percent.
5
For example, the Jordanian government estimates that the total Syrian population in Jordan is close to 1.3 million,
compared to the approximately 680,000 Syrians in Jordan who have been registered by the UNHCR.

MENA Economic Monitor October 2017 10

Why Is the Welfare of Refugees a Development Challenge?
Welfare of Refugees as a Global Public Good

The 1951 Convention Relating to the Status of Refugees, itself based on the 1948 Universal
Declaration of Human Rights, requires any signatory country to protect refugees who are on their
territory. Initially designed to accommodate European refugees after World War II, the
Convention has been reinterpreted in light of the dramatically different patterns of refugee
movements since 1951. Large numbers of refugees have arrived in relatively small and
economically vulnerable countries (including Lebanon and Jordan) only because of their
proximity to the conflict countries of Somalia and Syria. Drawing on the preamble to the 1951
Convention, which emphasizes international cooperation, scholars have identified two
obligations with respect to refugees: (1) asylum, which is the responsibility of the state that hosts
the refugee; and (2) burden-sharing, which reflects the obligation of other states toward those
countries in which refugees have settled (Betts 2015).

The burden-sharing obligation is a clear statement that the welfare of refugees has all the
characteristics of a global public good. It is both non-rival and non-excludable: If one country
contributes to a refugee’s welfare, it does not diminish another country’s satisfaction in seeing
that refugee better off. However, precisely for this reason, as with all public goods, there is the
problem of “free-riding.” Since the benefit to the refugee (and hence to everyone else) is a
function of the sum of every one’s contribution, but the cost is borne by the individual country,
there is an incentive for each country to cut its contribution and let others pay. If every country
does this, there is no benefit to the refugee and hence no public good. This is the reason that the
international community has tried to develop cooperative agreements to ensure collectively they
contribute towards the common goal.

These cooperative agreements have incorporated other insights from the economics of global
public goods. First, since smaller states always will have an incentive to free-ride on larger states
(Olson and Zeckhauser 1966), the agreements have concentrated on the larger, richer countries.
For instance, the two largest contributors to the U.N. High Commission for Refugees (UNHCR) are
the United States and the European Union. Second, the welfare of refugees is not a pure public
good because it combines two types of goods: (1) a purely altruistic good, whereby the donor
feels a moral obligation to help the refugee; and (2) a “security public good” (Betts 2003),
whereby the donor is concerned that the presence of refugees may be a security threat, either
in the host country or even in the donor’s country. The latter comes closer to a private good (in
that it is excludable). Inasmuch as these two goods are jointly produced (Betts 2003), it is possible
that the presence of the security good leads to less free-riding in the financing of refugees.

MENA Economic Monitor October 2017 11

Supporting Livelihoods for Refugees

The impact of refugees on communities and countries will vary depending on the initial
conditions in the labor market, access to resources, demographics, the national and local labor
laws, and the policy responses of hosting governments. Globally, most refugees are concentrated
in some of the poorest, most fragile countries. The refugees’ demands on these countries’
strained economies, inadequate public services and infrastructure, and scarce jobs further distort
their markets, and often dramatically affect local populations. If not met with increased supply,
refugees’ increased demands for food and services often increase inflationary pressures that
adversely affect the livelihoods of the poor.

Studies have shown that the inflow of refugees to a nearby country adversely affects the income
per capita growth of the latter. Murdoch and Sandler (2004) argue that the negative spillovers of
conflict are anticipated to be greater in countries close to many civil wars. Easterly and Levine
(1998) show that, due to regional economic integration and regional multiplier effects, the
spillovers will push beyond close neighbors. The spillovers can cause negative economic
consequences through reduced trade, low investment, and increased capital flights.

Borjas and Monras (2016) find that refugee supply shocks can adversely affect local, low-skilled
workers, but this supply also can provide a positive complementary effect. Refugees take on low-
skilled jobs that native workers spurn, enabling locals to find better paying jobs. Foged and Peri
(2015) find positive effects on employment and wages of native workers with similar skills. The
influx of refugees prompted less educated native workers to change occupations. The less
educated native workers experienced either positive or insignificant wage and employment
effects, which persisted in the long run. Quantitatively, a 1 percentage point increase in the share
of low-skilled native workers, including refugees, increased wages for low-skilled native workers
by 1.0 percent to 1.8 percent.

Due to the lack of data and an effective monitoring system (see section on Data and Monitoring),
the net economic effect of refugee influx on the local economies is still a source of controversy.
Given the protracted nature of conflicts worldwide, particularly in MENA, and the fact that
refugees are unable to return to their countries of origin in the foreseeable future due to conflict,
the international community and policy-makers need to focus on refugees’ development
challenges.6 These include facilitating the participation of refugees in the labor market by

6
The idea of providing targeted development assistance to support durable solutions for refugees is not new.
According to the WDR 2011, UNHCR had promoted the concept of “Refugee Aid and Development,” which was
applied in both the International Conference on Assistance to Refugees in Africa (ICARA) in 1981 and 1984; and the
International Conference on Assistance to Refugees in Central America (CIREFCA) in 1989. In 1999 the issue again
was taken up through the “Brookings process,” which set out to define a new way to address relief to the
development transition of forced displacement. In 2003 the approach was revived as part of the Framework for

MENA Economic Monitor October 2017 12

investing in skills through strengthening childhood7 and adult education and vocational training.
Refugees’ chances of finding jobs diminish the longer they are unemployed in their hosting
countries because they become deskilled. The economics literature has found strong links
between education and human capital, and between human capital and long-term growth and
productivity (Griliches 1996). These links could justify the international community’s and policy-
makers’ extending quality education and job skills training to registered and unregistered
children and adult refugees, regardless of gender or nationality.

What Are the Development Challenges and How Should They Be Tackled?

Four Interlinked Crises and Four Sets of Policy Responses

I. Education

Two MENA countries host the largest number of refugees per capita: Lebanon and Jordan with
ratios of refugees-to-host-population in the former exceeding 1:4. Most of these refugees are
children under the age of 18. In Jordan, approximately 51 percent of Syrian refugees are children;
in Lebanon, the percentage goes up to 55 percent.8 The cost of not educating refugee children is
high in loss of human capital for regional economic development; and for the long-term
processes of peace, stability, and reconstruction. Because these refugee children need education
services, significant strains are put on the education sector of the hosting countries. These
countries are forced to expand service provision to refugees while maintaining education quality
for both the hosting and refugee communities. Thus, the education systems of hosting countries
will need to be strengthened because these systems will be catering to a larger number of
students, many of whom require additional academic and psychosocial support due to forced
displacement. Financing for the sector also will need to be increased.

When enrolling in schools in hosting countries, refugee children face a pedagogic and
psychosocial challenges. On the pedagogic side, when the language of instruction is different
from the native languages of the refugees or the languages of instruction in their home countries,
the language of the hosting country can impede the academic success of refugee students. Syrian

Durable Solutions for Refugees and Persons of Concern. The framework comprised the three tools of (a) Development
Assistance for Refugees (DAR); (b) the 4Rs of Repatriation, Reintegration, Rehabilitation, and Reconstruction; and (c)
Development through Local Integration (DLI). UNHCR’s DAR initiative was driven by the necessity to address the
long-term economic and social impacts of displacement on hosting communities. The 4Rs initiative was based on
the understanding that, in post-conflict situations, the development needs of refugees and returnees have not been
incorporated systematically in transition and recovery plans by the hosting governments, the donor community, and
the UN.
7
Fifty percent of the world’s registered refugees are under age 18.
8
UNHCR, July 2017, http://data.unhcr.org/syrianrefugees/regional.php.

MENA Economic Monitor October 2017 13

refugees in Turkey and the Kurdish Region of Iraq (KRI) as well as Ethiopian and Somali refugees
who migrated to Yemen all face this challenge. Even in an Arabic-speaking country such as
Lebanon, schools use French or English as a language of instruction for mathematics and science
classes. Many Syrian refugees face serious challenges in understanding subjects taught in these
languages (UNHCR 2015). In many cases, the Lebanese Ministry of Education and Higher
Education (MEHE) instructed teachers to use Arabic for instruction in second-shift classrooms.
This remedy cannot be fully effective so long as the national textbooks used for instruction
remain in a language foreign to the refugee students (Shuayb and others 2014).

On the socioemotional side, schools are settings in which children affected by displacement
manifest symptoms of trauma and shock. However, schools also can provide the psychosocial
support that children need. Indeed, evidence shows that school-based psychosocial programs
improved children’s well-being in Bosnia (Layne and others 2008), Uganda (Ager and others
2011), and the United States (Han and Weiss 2005). Teacher-led interventions also have been
effective in a variety of contexts in Croatia, Kosovo, Lebanon, and Turkey.

For hosting countries that integrate refugee children in their formal education systems,
overcrowding is a common challenge. Overcrowding can impede students’ learning, particularly
when teachers have not been trained to manage large classrooms. Overcrowding is exacerbated
by the fact that refugees often migrate to some of the most vulnerable localities, which have pre-
existing challenges in delivering education services. As an example, in Lebanon, more than 50
percent of Syrian refugees live in the 50 most vulnerable localities. Furthermore, the 251 most
vulnerable localities in Lebanon host 87 percent of the country’s Syrian refugees as well as 67
percent of the extremely poor Lebanese (Figure 2.1).9 This population distribution greatly
exacerbates the difficulty of providing quality education services to both refugees and vulnerable
hosting communities.

A development response

An effective strategy to expand access to education services to refugees should address both the
demand-side barriers and the supply-side constraints to education. Different countries in
different contexts have employed various models to provide refugee education. The United
Nations Relief and Works Agency for Palestine Refugees (UNRWA) operates the longest standing
system for providing education services in MENA. This model is external to the hosting country’s
education system and is funded by donors. Over more than 60 years, UNRWA has educated 4
million children in Jordan, Lebanon, Syria, and the West Bank and Gaza (Cahill 2010). Today,
approximately 500,000 children are studying in 689 UNRWA schools. In Gaza, almost 90 percent
of the school-age refugee population attends UNRWA schools.

9
UN Interagency data, March 2016.

MENA Economic Monitor October 2017 14

Figure 2.1 Distribution of Refugees across 251 Most Vulnerable Localities in Lebanon

Source: UN Interagency data, March 2016.

Hosting countries could decide to provide nonformal education opportunities to help raise
learning outcomes for refugee children. Nonformal education can facilitate the transition of
school children into formal education. In Lebanon, the Ministry of Education and Higher
Education (MEHE) is running an Accelerated Learning Program (ALP), which enables out-of-school
children to cover in a short period the curricula of the grades that they have missed so that they
can enroll in formal education at the most age-appropriate grades. MEHE also regulates a series
of nonformal education programs delivered by NGOs for early childhood education and for basic
literacy and numeracy.10 In Jordan, UNICEF is running nonformal education centers, which
provide learning and psychosocial support to refugee children.11 In 2015–16, these centers

10
MEHE. Reaching All Children with Education 2 Final Narrative.
http://www.mehe.gov.lb/uploads/file/2016/Oct/RACE percent20II_FINAL percent20Narrative_29AUG2016.pdf.
11
UNICEF. Guidance Note on “Makani.”
https://www.unicef.org/jordan/Guidance_Note_on_Makani_DRAFTmarch_2015.pdf.

MENA Economic Monitor October 2017 15

hosted 66,000 children (28 percent of Jordan’s school-age refugees), many of whom were
enrolled simultaneously in the formal education system.

Expanding formal education services to refugees has had different levels of success depending
on the hosting country and the context. Early childhood education (ECE) and secondary education
tend to have the lowest enrollment rates. However, these two education stages are critical to
develop the region’s human resources. In Jordan, 125,000 Syrian refugees were enrolled in
formal education represents 54 percent of total registered refugees. In Lebanon, the public
education student population almost doubled and enrolls 51 percent of its Syrian refugee
students in public formal education.12 In 2017, in Lebanon’s first-shift schools, the number of
Syrian refugees (68,822 students) exceeds 25 percent of total students. In addition, the country
has opened 313 second-shift schools, which are operating solely for Syrian students (more than
120,000).13 This remarkable increase of refugee students was coupled with a slight decrease in
Lebanese enrollment in public schools at the onset of the crisis due to the influx of refugees and
the consequent loss of confidence in the quality of public education (Figure 2.2). However, after
three years of enrollment fee subsidies to Lebanese students, this loss was recouped.

Figure 2.2 Enrollment Trends in Public Schools in Lebanon, 2011–17

300,000

250,000
Number of public enrolment K-12

200,000

150,000

100,000

50,000
Lebanese Non-Lebanese
-
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Source: Lebanon MEHE.

Other methods of expanding access to education in MENA have used mobile classrooms or
technology e-learning tools. Iraq used the latter, enabling the country to reach all Syrian children

12
Brussels Conference April 2017.
http://wos-education.org/uploads/reports/170331_Brussels_paper.pdf.
13
Ministry of Education and Higher Education (MEHE), Lebanon. March 2017.

MENA Economic Monitor October 2017 16

with education opportunities. More than 80 percent of these children were reached through
formal education, and the rest through nonformal pathways.

Addressing the demand-side barriers that prevent refugee parents from sending their children to
schools is equally important. One of the main barriers is the necessity for refugee children to
work to support their families. This barrier is more common for children in Grade 7 and above.
Early marriages for girls also are common in some refugee communities. To incentivize
enrollment, associated costs of attending schools need to be reduced or eliminated. These costs
include transportation, textbooks and learning materials, and enrollment fees, which, for
example, were waived in Jordan, and covered by the Ministry of Education on behalf of parents
in Lebanon. In contrast, conditional cash transfer (CCT) programs could help the households with
the cost of children enrolled in schools. In Lebanon, in 2016 the United Nations Children's Fund
(UNICEF) piloted a cash transfer program in two governorates. The pilots had very positive
results. The agency measured an increase of 7 percent in enrollment rates in the pilot regions
and an increase of 1 month in school attendance for students who participated in the program
(WFP and others 2017).

II. Health

Before the start of the Syrian conflict, Syria’s neighbors had enjoyed a decade of steadily
improving health outcomes. From 2000 to 2010, life expectancy in Jordan and Lebanon rose
(from 71.9 years to 73.4 years, and 74.9 years to 78.5 years, respectively) and continued to
outstrip the MENA regional average (69.2 years to 71.4 years). Other basic health indicators such
as maternal and infant mortality rates improved as well, and both countries met the UN
Millennium Development Goals for maternal and child health.

These improvements came despite quite different economic and political contexts affecting
health spending. Jordan, which enjoyed relatively steady economic growth during the 2000s,
increased public spending on health from 4.6 percent to 5.9 percent of GDP over the decade,
while reducing out-of-pocket spending from 39 percent to 28 percent of total health
expenditures. Lebanon, by contrast, had to contend with austerity measures, high debt levels,
and the 2006 Lebanese war, which limited its overall fiscal space. From 2000–10, Lebanon’s
public spending on health fell from 3.2 percent to 2.7 percent of GDP; and out-of-pocket
spending, although trending down, remained high, declining from 57 percent to 46 percent of
total health expenditures.

Despite these gains, both health systems, like many in the region, faced growing pressure to
evolve to better meet the needs of their populations and support development goals.
Noncommunicable diseases such as heart disease and stroke had replaced infectious diseases as
the major causes of morbidity and mortality. Concerted efforts to address these conditions

MENA Economic Monitor October 2017 17

lagged. Although the numbers of hospital beds and physicians generally were considered
adequate, many of these resources were concentrated in major cities, leaving rural and remote
areas with limited access and poorer quality care. Despite progress to reduce out-of-pocket
payments, the poorest in these countries remained highly vulnerable to financial shocks from
health-related issues.

Refugees’ impacts on MENA hosting countries

The Syrian crisis and resulting refugee flows have significantly increased demand for health
services in neighboring MENA countries (Table 2.1). In 2014, Jordan recorded some 700,000 visits
by Syrian refugees to health centers or hospitals throughout the country. In Lebanon, in 2015,
the country’s Primary Health Care Center network, which provides care to vulnerable populations
at roughly 200 facilities, recorded more than 1.5 million visits––more than double the 700,000
visits recorded in 2009 before the crisis began. In 2013, nearly 35 percent of all visits to primary
health centers in Lebanon were by Syrian refugees.

Displacement has stalled, and in some cases reversed, important health gains. Although Lebanon
met the Millennium Development Goals (MDGs) for maternal and child health, both goals have
suffered notable reversals. From 2012 to 2017, the neonatal mortality rate in Lebanon increased
from 3.4 to 4.9 deaths per 10,000 live births, and the maternal mortality rate increased from 12.7
to 21.3 deaths per 100,000 live births. For both, rates among Syrian refugees were nearly double
the rates of the native population. In Jordan and Lebanon, previously well-controlled
communicable diseases including measles, tuberculosis, and leishmaniosis have reemerged and
are threatening both local and regional disease control efforts. In 2012, for example, the first
year of significant refugee inflows to Lebanon, reports of tuberculosis increased by 27 percent.
UNHCR data show that communicable diseases are one of the main drivers of refugees seeking
primary care in Jordan and Lebanon.

Refugee influxes have complicated efforts to provide universal health coverage and basic
financial protection. In 2013 Lebanon unveiled ambitious plans to expand insurance coverage,
particularly for vulnerable Lebanese, but the influx of 1.3 million Syrian refugees over the past 5
years and the resulting demand for health services has stalled such efforts (World Bank 2017d).
Today, UNHCR covers a part of the cost of specific hospital services, such as obstetrical care and
life-threatening emergencies, for Syrians in Lebanon, but the remainder of the bills often falls to
the patients. Other services, such as cancer treatment, dialysis, and catastrophic illnesses, are
not covered at all. A recent study found that hospitalization rates among Syrian refugees lagged
well behind their Lebanese counterparts (6 percent vs. 12 percent annually), raising serious
concerns about cost as a barrier to care.

In Jordan, a similar set of concerns has emerged. From 2012 to 2014, the Jordanian government
generously covered essentially all healthcare cost for refugees. However, as the refugee numbers

MENA Economic Monitor October 2017 18

rose, this approach became fiscally unsustainable, forcing Jordan to implement a 20 percent
copayment by refugees for most services. In the 2 years since the copayment was implemented,
use of health services by refugees in Jordan has dropped nearly 60 percent. A recent survey found
that more than 50 percent of Syrian refugees in Jordan say that they cannot afford their
medications, and more than 50 percent of pregnant women say that they cannot afford
transportation to antenatal care appointments.

Table 2.1 Status of Registered Syrian Refugees

Country of Asylum Syrian Arrivals* Living Conditions Access to Health Services

Iraq 227,971 38% camp Specific services are offered to select

62% non-camp a registered refugee populations.b c d

Jordan 655,833 82% urban or informal Syrian refugees (registered with

settlements a UNHCR) can access public health
system.h

Lebanon 1,017,433 Urban areas (Beirut); informal UNHCR registration is required for
tent camps (Bekaa Valley); Syrian refugees to access primary
Sabra and Shatila camps healthcare services.h
(Beirut)f Registration of new arrivals was
halted in May 2015 at request of
Lebanese government.a
Turkey 2,764,500 Districts (known as a satellite Registered Syrian refugees who live
cities); camps along Turkish- in low income neighborhood are
Syrian borderg enrolled in the Turkish General
Health Insurance Program and can
access free health services. In camps,
government agencies provide clean
water, sanitation, and other health
services.f
Egypt 115,204 Urbanh Syrians are granted access to the
public health system but are
required to pay the same fees as
Egyptians.e Services are
overburdened and often inaccessible
to refugees due to cost.h
Source: CDC 2016.
Note: *Number of UNHCR-registered refugee arrivals as of October 31, 2016,.
a. https://www.cdc.gov/immigrantrefugeehealth/profiles/syrian/population-movements/index.html#thirteen.
b. https://www.cdc.gov/immigrantrefugeehealth/profiles/syrian/population-movements/index.html#fourteen.
c. https://www.cdc.gov/immigrantrefugeehealth/profiles/syrian/population-movements/index.html#fifteen.
d.https://www.cdc.gov/immigrantrefugeehealth/profiles/syrian/population-movements/index.html#sixteen.
e. https://www.cdc.gov/immigrantrefugeehealth/profiles/syrian/population-movements/index.html#seventeen.
f. https://www.cdc.gov/immigrantrefugeehealth/profiles/syrian/population-movements/index.html#eighteen.
g. https://www.cdc.gov/immigrantrefugeehealth/profiles/syrian/population-movements/index.html#nineteen.
h. https://www.cdc.gov/immigrantrefugeehealth/profiles/syrian/population-movements/index.html#twenty.

MENA Economic Monitor October 2017 19

The inability to meet growing demand for health services has decreased patient satisfaction,
threatening an already tenuous relationship between citizens and the health system. Waiting
times for services have increased in both countries. In Jordan, in 2016 these delays became so
long that referrals to non-Ministry of Health hospitals increased more than 50 percent over the
previous year, costing the government $154 million. Stock-outages of some essential medicines
reportedly have become more common (World Bank 2017c). Shortages of health workers,
particularly those trained to address reproductive health, gender-based violence, mental health,
and noncommunicable diseases, have further undermined satisfaction with care. Cultural
disconnects also have dampened patient satisfaction, with some Syrian refugees reporting that
humanitarian health workers lack appropriate cultural sensitivity when providing care.

A development response

With basic health services overstretched and development goals in jeopardy, new solutions are
needed that simultaneously address the underlying problems of health systems while responding
to new demands created by refugee influxes. Even before the Syrian conflict, many MENA
countries were grappling with shortcomings in their health systems, from high reliance on out-
of-pocket payments and shortages of certain types of health workers to fragmentation of services
resulting in inefficiencies and poorer quality care. Efforts to address these pre-existing challenges
have been exacerbated by the arrival of millions of refugees, who live largely within local
communities rather than in camps and often seek access to the same services as do local
populations. Despite initial attempts by some hosting countries to fund these services for
refugees, the costs and demand have proved overwhelming, particularly amid rising debt levels
and shortfalls in humanitarian support.

Recent experiences suggest several ways that health sectors can help countries facing large
refugee inflows to meet development goals:

▪ Use innovative financing mechanisms to support basic health service while affirming the
principle that hosting refugees is a global public good. In recent months, the Bank approved
2 emergency health projects in the MENA region: the Jordan Emergency Health Project for
$50 million; and the Lebanon Health Resilience Project for $120 million. Both projects were
part of separate $150 million projects, with parallel financing crowded in by the Islamic
Development Bank (IDB). These are the first health projects supported by the World Bank’s
Global Concessional Financing Facility (GCFF), which was established recently to support
middle-income MENA countries that are hosting large numbers of refugees.

▪ Many MENA countries’ health systems were highly fragmented well before the Syrian crisis
began, with health services provided by an array of actors including various government
ministries, private sector players, NGOs, and faith-based charities. Recent refugee flows often

MENA Economic Monitor October 2017 20

 contributed to this fragmentation because humanitarian actors sometimes set up parallel
systems that do not support––and, in some cases, drain—resources from national health
systems. Efforts to increase the supply also should strengthen national capacity, not compete
with it. For example, the Lebanon Health Resilience Project helps to expand the scope and
scale of the basic service package already covered by UN organizations within the country’s
network of primary health facilities, helping to strengthen capacity within these sites and
streamline care.

▪ Enable trained refugee health workers to fill human resource gaps. UNHCR March 2017 data
show that the Syrian refugee population in Jordan included 483 doctors, 880 nurses, 448
pharmacists, and 335 medical assistants. Due to legal restrictions, most of these health
workers will be unable to resume working in their fields. Some countries are exploring
innovative pathways to employ such specialists to address refugees’ health needs. Turkey,
for example, has opened dozens of refugee clinics employing Syrian doctors and nurses, who
provide primary care in Arabic to the refugee populations.

▪ Tailor health worker training to the changing burden of disease brought by conflict and mass
displacement. Consideration should be given to scale up such efforts to ensure that the next
cadre of clinicians and public health officials are trained appropriately to meet the health
needs often unique to refugee populations as well the needs of the hosting communities.

III. Jobs

Labor market developments before and after the influx of refugees

More than 5 million Syrians have fled the conflict and the majority of them across borders to
neighboring MENA countries (Table 2.1). The Syrian conflict has caused a loss of 3.2 million jobs
in the country, inducing major structural changes in the economy and labor markets and massive
losses of high-end skills. Since 2011, due to the massive lay-offs caused by factory and firm
closures, jobs have been destroyed at an estimated rate of 538,000 per year. More than 50
percent of the working age population is out of the labor force. In 2015 the national
unemployment rate increased to 52.9 percent, and the rate for youth to 78 percent. To earn an
income for their families, individuals increasingly are engaged in military service or the “war
economy”. As the oil and manufacturing sectors collapse, a large and increasing share of the labor
force now works in low-productivity sectors. The share of industrial jobs declined from 14 percent
to only 2 percent. Twenty percent of workers are still employed in agriculture despite the loss of
400,000 agricultural jobs. In contrast, employment has increased in low-productivity services,

MENA Economic Monitor October 2017 21

which constitute 78 percent of workers.14 Emigration due to the lack of security, lack of job
opportunities, and steep decline in the standards of living also has created important skills
shortages in Syria (World Bank 2017a).

The impacts of refugees on the hosting country labor market and wages are difficult to ascertain.
Even before the Syrian conflict, labor regulations and active labor market programs (ALMPs) in
MENA countries had structural deficiencies. Domestic labor markets still face a large reservoir of
untapped human resources due to the high inactivity and unemployment rates, particularly
among youth. The high unemployment coupled with limited private sector formal job creation
has pushed a growing number of workers into unproductive, subsistence-level activities, often in
the informal economy (World Bank 2012). The massive influx of refugees have exacerbated the
malaise in the local labor markets because 50 percent of the refugees are in working-age groups.

In Lebanon, the influx of refugees from Syria increased the size of the labor force by close to 35
percent. Many of these refugees work in the informal sector due to lower education levels and/or
lack of work permits. Youth are much more likely to compete occupationally with Syrian refugees
in the labor market and to be concentrated in the sectors (tourism and trade) whose growth is
most impacted by the crisis.15 Syrian refugees also accept lower wages than hosting community
unskilled workers.

The Jordanian economy was grappling with high unemployment rates prior to the influx of
refugees. Unemployment rates continue to be in double digits especially among youth and
women, reaching a 10-year high of 15.8 percent in 2017 (IMF 2017). Approximately 120,000
Jordanians enter the work force every year, but only 55,000 find employment. Females and the
least educated constitute the majority of the 65 percent of the population who are
inactive. Moreover, approximately 50 percent of employment in Jordan is informal.16 The
situation is worse for Syrian refugees residing in Jordan. Of approximately 1.3 million Syrian
refugees, of whom only half are registered with UNHCR, only 40,000 hold a work permit (as of
mid-2017).17

In Iraq, the refugee crisis has impacted both the Iraqis who fled and the communities that they
left behind. The situation is even worse for Syrian refugees who have sought safety and jobs in
Iraq. In 2016 the national unemployment rate was 16 percent, and youth unemployment was 36

14
The sectoral employment figures are estimated based on the ratio of employment to GDP elasticities so should be
interpreted carefully. This method assumes constant labor intensity of production, which might not be the case in
all sectors in a conflict situation.
15
In 2010 more than 50 percent of employed youth worked in tourism and trade, compared with only 33 percent in
2015.
16
Jordan’s National Employment Strategy 2011–2020 and MOL reports.
17
Non-Jordanians are allowed to work subject to a set of restricted professions and sector-specific quotas.

MENA Economic Monitor October 2017 22

percent. The public sector provides 40 percent of all jobs,18 resulting in virtually no fiscal space.
Private job creation is hampered by a very poor business environment: insecurity, corruption,
high operating costs, depressed demand, poor access to power and to credit, and a heavy state-
owned enterprise (SOE) footprint. Most recently, the struggle against Daesh has significantly
harmed jobs prospects. Labor income has fallen by 47 percent in regions affected by Daesh. An
estimated 5 million jobs must be created by 2030 to reverse the negative impacts of decades of
sanctions and conflict, oil dependency, and heavy regulation that have severely constrained both
private and public job creation.

The ongoing conflict in Yemen is devastating its economy and has obliterated 600,000 jobs,
mostly in agriculture and services. Approximately 3 million people have been displaced, and
Yemeni refugees have fled to Djibouti, the Gulf countries, and Sudan. Most of them have fled for
security reasons to avoid forced recruitment so have lost their jobs. Yemen itself is hosting
refugees from the Horn of Africa, including Ethiopia and Somalia, who are hoping to find better
opportunities despite the ongoing conflict. Small and medium size enterprise (SMEs) have been
hit the worst by the conflict. In 2015 private sector employment declined by approximately 12
percent19 and has continued to contract. Approximately 70 percent of SMEs have laid off 50
percent of their workforce. In 2016 Yemen’s unemployment rate was only 17 percent (WDI). The
destruction of infrastructure and instability has increased business costs; the customer base and
revenues have decreased; and significant private sector capital has migrated overseas.

UN Refugee Agency (UNHCR) estimates show that approximately 50 percent of those fleeing to
Libya are looking for jobs, but they end up fleeing to Europe to escape difficult economic
conditions and instability in the labor market. The deep political strife in Libya has had significant
negative impact on the economy and hence on the labor market. The overall unemployment rate
in Libya increased from 13.5 percent in 2010 to 19.0 percent as of 2012, and has changed little
since then. Youth unemployment stands at approximately 48 percent, and female
unemployment at 25 percent. The vast majority (85 percent) of Libya's labor force is employed
in the public sector, a high rate even by regional standards. The rate for women is even higher,
at 93 percent.

A development response
Although to different degrees, all MENA countries face three common challenges: (1) to
accelerate the rate of job creation in the formal sector in higher-value-added activities; (2) to
improve the quality of existing informal jobs; and (3) to connect vulnerable population groups to
jobs or help them move to better jobs. Over the next decade, it is unlikely that enough formal

18
Unless stated otherwise, all numbers were obtained from the 2012 and 2014 Iraq Household Socio-Economy
Surveys.
19
ILO and the Republic of Yemen’s Central Statistical Office Rapid Survey, 2015.

MENA Economic Monitor October 2017 23

jobs will be created to absorb all new entrants to the labor market. However, it is possible, and
necessary, to gradually expand the share of formal employment to enable more fundamental
structural transformation.

Labor and migration policies are critical to support vulnerable workers, including refugees, to
access jobs or move from low to higher quality jobs. Unfortunately, labor regulations and active
labor market programs (ALMPs) in MENA countries have structural deficiencies. First, regulations
were designed for an environment in which most workers were in the formal sector. Second,
ALMPs were “supply driven” and unable to effectively respond to the needs of workers and
employers outside the formal sector.

Labor regulations need to be made more efficient to protect workers, including in the informal
sector, while internalizing the social costs of jobs destruction and reducing distortions that
constrain the creation of formal jobs. Making such regulatory transformations implies coming up
with different approaches to (1) guarantee a minimum level of income, (2) ensure a fair
distribution of value added between wages and profits, (3) protect workers from unemployment,
and (4) enforce core labor standards and adequate working conditions.

Similarly, if the social value of connecting workers to jobs or helping workers move from low to
higher quality jobs goes beyond the value to the worker (and the employer, when there is one),
there is a rationale for increasing investments in ALMPs and expanding their coverage. To achieve
these targets, delivery and financing systems must be reformulated. Delivery systems, in
particular, should better link the labor market programs to “demand” side interventions that
focus on job creation or higher labor productivity. The best way to help refugees get jobs is to
substantially improve the functioning of hosting country labor markets.

IV. Livelihoods

Inadequate civil, social, and economic rights including freedom of movement and residence often
inversely impacts refugee livelihoods. Studies (Jacobsen 2002) show that many refugees cannot
establish or maintain their livelihoods because they cannot exercise the rights to which they are
entitled under international human rights, humanitarian law, and/or refugee law (see section on
Changing the Political Debate). A series of country examples follows. The ability of Liberian
refugees in Ghana to exercise the rights of freedom of movement as well as access to
employment and public education has contributed to their relative success in becoming self-
reliant (Dick 2002). The Uganda’s government provided refugees with agricultural land with the
objective of making them self-sufficient pending a durable solution.

The external environment and uncertainty also influences the refugee’s livelihood. Refugees not
only have to cope with the often-traumatic experience of flight and displacement but also often
end up with very limited or no resources due to loss of assets and capabilities. Uncertainty about

MENA Economic Monitor October 2017 24

obtaining work permits due to rapidly changing policies over renewals and the sectors to which
permits apply can negatively influence refugees’ livelihoods. The uncertainty makes it harder for
refugees to make decisions and calculate the costs, benefits, and risks of various livelihood
strategies.20 In Ecuador, asylum-seekers are not permitted to work until their legal status is
resolved. The waiting period, which can last as long as one year, is full of fear and anxiety for the
refugees and is made more stressful by their inability to legally engage in formal employment,
the lack of labor opportunities, and discrimination. In Colombia, refugees must sustain illegal
livelihoods during the asylum application process. Lo (2005) argues that removing this restriction
on asylum-seekers would reduce the fear associated with working illegally.

A development response

As discussed above, livelihoods are influenced by a range of economic, social, political, and
environmental factors. For this reason, it is essential to apply a comprehensive approach to the
design and implementation of programs that support refugee livelihoods. The right mix of
policies is necessary. In this vein, consideration should be given to lifting not only legal barriers
but also other barriers, including de facto limited access to the job market due to poor economic
conditions, remoteness of refugee settlements, and restrictions imposed by local authorities.
Addressing language differences, lack of skills, lack of tools and/or start-up capital, and
xenophobia toward refugees is equally important.

Activities tend to be more successful when taking into account gender specifics. Creating and
maintaining livelihoods are done differently by men and women. Moreover, due to flight and
experiences in exile, the gender roles and socioeconomic status of refugees have changed
significantly. In establishing their livelihoods, women face different constraints and insecurities
than do men. When household livelihoods are on the brink, girls are the first to be pulled out of
school to work or are forced into early marriage. A study by No Lost Generation finds that, in
2016, rates of child marriage reached 20 percent in Lebanon and over 30 percent in Jordan.21
Girls in unprotected settings also are prone to being trafficked. Policies to address women’s
livelihoods and the assets on which they rely for their livelihoods should take into account these
differences.

According to UNHCR, when embarking on legislation or regulations to create livelihood-

supporting activities, a bottom-up approach is the preferred option. One of the most crucial
elements is ensuring and incorporating refugee voices and participation. UNHCR’s success in
Guatemala (Cheng and Chudoba 2003) can be largely contributed to the fact that the agency was
able to rely on the vast leadership ability and knowledge within the refugee population. Among

20
Discussion in this section is based on a 2017 Overseas Development Institute (ODI) study.
21
In 2016 rates of child marriage reached 20 percent in Lebanon and over 30 percent in Jordan.

MENA Economic Monitor October 2017 25

the Guatemalan refugees whom UNHCR assisted, the most successful refugee communities were
those in which refugees had been given choices: to live where they wanted with whom they
wanted, and to support themselves the ways that they wanted.

Finally, addressing pre-existing long-standing development issues in hosting communities

including improving the business climate; strengthening and expanding the delivery of education,
health, and environmental services to cope with the increased population; and providing skills
training for youth should be the key component of promoting livelihoods for refugees.
Encouraging policies that enhance freedom of movement and expanding the right to work for
refugees––both of which are in the interest of the hosting communities––are equally important.

How Can the Development Community Do Better?

Interventions and Assistance

Resources

The massive displacement witnessed by the MENA region over the last decade has significant
associated financial costs. Not surprisingly, many of these costs are borne by the refugees
themselves, who are using existing assets to support their move and provide for the subsistence
of their families. One Oxfam study finds that most Syrian refugees interviewed in Lebanon
indicated that, upon arrival, they had relied primarily on their savings (Oxfam America 2015).
These resources often get depleted rapidly before the refugee can secure work or long-term
shelter.

Another major portion of the financing comes from the countries and communities hosting the
displaced. Depending on the ratio of refugees to the native population, refugees can significantly
strain fiscal and macroeconomic indicators, stemming from, for example, their use of services
and access to subsidized goods. Various actors including the World Bank have tried to monetize
the burden posed by refugees on hosting countries. However, these studies have tended to use
a wide variety of methodologies, making the studies difficult to compare across time and
countries (see Section on Burden-Sharing).

The third major source of financing for the displacement crises in MENA is external partners,
either as humanitarian or development assistance or through private charities and donations. No
exhaustive overview or estimates of the amounts of financial assistance that the international
community spends on forced displacement crises globally yet exists.

A new World Bank study estimates that the global expenditures on forced displacement reached
approximately $20 billion in 2015 (World Bank 2017b). However, this calculation leaves out a

MENA Economic Monitor October 2017 26

number of actors so is likely to have underestimated the actual costs.22 In 2016 approximately
$15.4 billion, or 75 percent of these monies, were spent on refugee resettlements inside OECD
donor countries. The share that is staying in donor countries has been rising since the onset of
the Syrian crisis, with a 27.5 percent increase from 2015 to 2016. Unprecedented, this amount
equated to 10.8 percent of total net ODA. When excluding the cost of refugee resettlement, each
refugee in the rest of the world benefitted from an average of $131 dollars in 2015.

Determining the actual amounts and type of financing reaching the refugees and their hosts is
similarly difficult in MENA. During 2014–15, Jordan was the ninth largest recipient of ODA,
receiving approximately $2.5 billion. Of this amount, 30 percent was provided as humanitarian
aid, most of which likely was channeled toward the Syrian refugees. In stark contrast, during the
same period, Lebanon received $975 million, with almost 60 percent being humanitarian aid
(Figure 2.3).

Figure 2.3 Gross Official Development Assistance, 2013–15

3,000

2,500

2,000
US$ million

1,500

1,000

500

-
Iraq Jordan Lebanon

2013 2014 2015

Source: www.oecd.org.

Forced displacement traditionally has been perceived as a temporary problem during which
those fleeing needed immediate relief until they could return to their homes. Hence, assistance
focused on taking emergency, life-preserving, and largely short-term actions; and tended to
cover only the urgent needs of the displaced. Consequently, financing for forced displacement

22
The analysis captures expenditures by most major organizations operating in the financial development (FD)
space, However, the analysis does not include reporting from FAO, UNDP, UNICEF, USAID, WHO, small NGOs, and
others. Moreover, the note does not include the expenditures that countries spent bilaterally on forced
displacement programs in non-OECD countries.

MENA Economic Monitor October 2017 27

has come primarily from humanitarian budgets, relying on yearly budgeting cycles and short
planning horizons. However, as displacements grow protracted, including those that are decades
long such as the Palestinian and Afghan cases, the needs of the refugees become developmental.
At the same time, the development trajectories of hosting communities also become affected.
This “new normal” has led to an increasing amount of humanitarian assistance being directed
toward refugee situations that have lasted longer than eight years and that, in some instances,
have become parallel providers of basic services and opportunities for livelihoods, separate from
those provided by the hosting state for its own citizens.

UNHCR is the world’s primary provider of support to refugees. From an initial amount of
$300,000 in 1950, the organization’s operating budget has steadily increased to more than $6.5
billion. Most of its funding is channeled through the Refugee Response Plans (RRPs), which is a
UNHCR-led, interagency planning and coordination tool for large-scale or complex refugee
situations. RRPs present the interagency response strategy and the corresponding financial
requirements of all partners to ensure the coherence and complementarity of the humanitarian
response. The first Syrian RRP in March 2012 requested support in the amount of $84 million to
cover an expected 96,000 refugees in Jordan, Lebanon, Turkey, and Iraq (Figure 2.4).

Figure 2.4 Syrian Humanitarian Response, 2012–17

3,500

3,000

2,500
US$ million

2,000

1,500

1,000

500

0
2012 2013 2014 2015 2016 2017
Response plan/appeal funding Unmet requirements

Source: UNHCR.

Burden-Sharing

Due to refugees’ cross-border movements, financing them often is compared to other

phenomena considered global public goods, such as controlling climate change or pandemics.

MENA Economic Monitor October 2017 28

Ensuring adequate burden-sharing, including raising international funding, is hampered by the
same types of challenges encountered by other global public goods to overcome free-riding (see
Section on Welfare of Refugees as a Global Public Good). The 1951 Convention on Refugees was
articulated based on the recognition that, in the future, any country could produce refugees;
hence, hosting refugees is a global responsibility. Because countries of first asylum often are the
hosting countries by default, the Convention also acknowledges that the burden could fall
disproportionately on a few countries.

Recognizing the need for a new look at the implicit burden-sharing model in the 1951 Convention,
in September 2016, the United Nations General Assembly unanimously adopted the New York
Declaration for Refugees and Migrants. The overall aim of the declaration is to improve the way
that the international community responds to large movements of refugees and protracted
refugee situations. To ease the burden on the main receiving countries, the declaration proposes,
through the Comprehensive Refugee Response Framework (CRRF), specific collective actions
needed to (1) ease pressure on hosting countries, (2) enhance refugee self-reliance, (3) expand
access to third-country solutions, and (4) support conditions in countries of origin for refugees to
return in safety and dignity.

The declaration includes commitments to increase burden-sharing such as intentions to improve

the delivery of humanitarian and development assistance to the countries most affected,
including through innovative multilateral financial solutions. The three goals are (1) to close all
funding gaps; (2) to find new homes for all refugees identified by UNHCR as needing
resettlement; and (3) to expand the opportunities for refugees to relocate to other than their
home countries through, for example, labor mobility or education schemes (Box 2.1).

New ideas have emerged on how to increase multilateral financing for refugees. Two main factors
previously impeded systematic engagement by the international financial institutions (IFIs) to
address the challenges stemming from forced displacement. First, the traditional view that
refugees were purely a humanitarian challenge meant that they were seen as being outside the
mandate and comparative advantages of these development organizations. Second, the country-
based model whereby countries take out loans to invest in development for the benefit of their
citizenry led to further underinvestment in the development challenges stemming from hosting
refugees. As non-citizens, refugees were not part of any country’s constituency.

The “humanitarian only” lens effectively has been discarded as the large-scale influx of Syrians
into Jordan and Lebanon forced the recognition that refugee flows do have significant
development aspects, for both refugees and the hosting communities, who face their own
development challenges. This recognition has led to increased efforts to tackle the lack of
incentives for developing countries to borrow for noncitizens.

MENA Economic Monitor October 2017 29

In 2016 a number of international organizations and bilateral donors convened to find an
innovative way to provide concessional funding for Lebanon and Jordan, the two countries with
the world’s highest concentration of refugees. The resulting MENA Global Concessional Financing
Facility (GCFF) focused on helping Jordan and Lebanon address the impact of Syrian refugees
without having to increase their debt levels (Box 2.2). This result was achieved by pooling donor
financing in a financial intermediary fund to provide concessional financing for development
projects that support refugees and hosting countries. Although the need has been most pressing
for Jordan and Lebanon, it is now realized that the same obstacles to finance noncitizens are
faced by other middle-income countries. The GCFF has since been expanded to enable other
countries to become recipients of the facility.

Box 2.1 Resettlement of Refugees in Third Countries

Burden-sharing also comes in the form of resettlement of refugees outside the initial country
of asylum. Such resettlement can happen through the UNHCR, which has the mandate to
transfer refugees from an asylum country to another State (third country) that has agreed to
admit them and ultimately grant the specific refugees permanent settlement.

In 2016 almost 77,000 Syrians were submitted for resettlement from MENA and Turkey,
compared to 53,000 in 2015. The 2016 number includes 30,181 Syrians from Jordan, 23,498
from Lebanon, and 16,682 from Turkey. From MENA and Turkey combined, since 2013, more
than 156,000 Syrian refugees have been submitted for resettlement and humanitarian
admission.a Other refugees make the onward journey to seek asylum status in third countries
on their own. For example, between April 2011 and May 2017, 952,446 individual Syrians
applied for asylum in Europe.b

Note:
a. http://www.unhcr.org/59364f887.pdf.
b. To the extent possible, the numbers reflect first-time applications. However, some of the statistics are likely
to include repeated applications (for the same or a different country).

Even low-income countries have faced obstacles accessing low-cost development finance to
address the needs of hosting communities and refugees. Acknowledging developing countries’
reluctance to use their finite International Development Association (IDA) resources for
noncitizens, the World Bank’s shareholders decided to earmark $2 billion for the 18th IDA
replenishment cycle to be used for this purpose. This change enables countries with more than
25,000 refugees (or more than 0.1 percent of the population) to receive an additional allocation
to their regular IDA envelope.

MENA Economic Monitor October 2017 30

 Box 2.2 Global Concessional Financing Facility (GCFF)

Lebanon and Jordan have borne enormous costs from hosting millions of Syrian refugees who
have fled their homes since war broke out in 2011. To mitigate the burden on these hosting
countries, in April 2016, the World Bank, United Nations, and Islamic Development Bank, in
close collaboration with the donor community and a range of international partners,
launched the Concessional Financing Facility (CFF).

To recognize the global public good that Lebanon and Jordan provide by opening their
borders to Syrian refugees, the facility uses donor grants to reduce the cost of multilateral
development bank loans to concessional levels for these two middle-income countries. These
grants enable them to borrow more affordably for development projects that benefit both
refugees and hosting communities. Despite the facility’s continued focus on Lebanon and
Jordan, whose needs are greatest, at the UN General Assembly in September 2016, partners
expanded the CFF’s scope to the global level so that it could help middle-income countries
address refugee crises wherever they occur. As of August 2017, the renamed Global
Concessional Financing Facility (GCFF) has leveraged more than $1 billion concessional
financing to Lebanon and Jordan for 7 projects.

Data and Monitoring

Insufficiency of data on refugees

Enhancing the availability, accuracy, and reliability of data on refugees is a critical challenge for
the international community in its pursuit of an effective response to the refugee crisis. First,
capturing accurate figures of refugee populations is always difficult. In many cases, original data
stem from a registration process organized by UNHCR. In certain cases, national institutions of
hosting countries also provide data. UNHCR data are very credible, and the organization’s data
collection process is ongoing. However, unless those who fled their countries present themselves
for registration, they will not be recorded in UNHCR data. Indeed, in some countries, a large
number of de facto refugees do not register with UNHCR. For example, the Jordanian government
estimates that the Syrian population in Jordan is close to 1.3 million, whereas in August 2017, the
number of Syrian refugees in Jordan registered with UNHCR is 660,000. Certain wealthy Syrians
in Jordan do not have incentives to register as refugees, and other Syrians come as economic
migrants. On the hosting country side, massive inflows can overwhelm intake systems, making
registration very difficult. At the other end of the process, some people may lack incentives to
deregister as refugees, even when their situation has changed. This lack of deregistering also can
add errors in the data on refugee populations.

MENA Economic Monitor October 2017 31

Second, given the error margins resulting from variations in collection and aggregation methods
across countries and institutions, data on refugees need to be taken with a degree of caution
(World Bank 2017b). Moreover, because the variables and indicators covered in such data are
limited, they often do not project a realistic picture of the welfare or livelihoods of the refugee
population.

Third, disaggregated data on refugees in hosting communities often are difficult to find.
Conventional statistics such as a national census or World Bank poverty statistics cover only
countries’ registered nationals or the resident population, not refugees (Verme and others 2016).
It also is difficult to define which communities are affected by inflows of refugees since “being
affected” is a difficult concept. No specific threshold exists above which a flow is considered large
enough to have a socioeconomic impact on hosting communities (World Bank 2017b).

Assessing and monitoring the impacts of refugee flows

Assessing and monitoring the impacts of refugee inflows are prerequisites to conducting effective
interventions to address refugee crises. Minimizing the negative impacts and optimizing the
opportunities from refugee flows requires systematic assessment of the key areas for which
interventions are needed and the most appropriate modalities through which these
interventions should be delivered. Once interventions are underway, rigorous monitoring is
required to understand whether they are having their desired effect; and, if not, why not.
Assessment and monitoring in the context of refugee situations remains a relatively new area of
economic analysis that requires refinement.

To assess refugee flows and monitor the impacts of the interventions to address them, two
questions should be raised. One is: “Impacts on whom?” The other is: “Impacts from what?”
Regarding the first, a refugee crisis can affect many groups, but the two primary stakeholders
affected are the refugees and the hosting communities. For the second question, there are two
sources of impacts: one is from the inflow of refugees. The other impact is from interventions
intended to address the crisis, such as policy advice or a program of assistance activities.

Despite their importance, assessment and monitoring pose methodological difficulties. The main
difficulties regard the availability, accuracy, and reliability of data, as discussed above. The major
bottlenecks are the limited variables and indicators on the livelihoods of refugees and the lack of
disaggregated data in communities. Another difficulty is separating the impacts from the
displacement from the impacts of the war and violence that caused it. Assistance programs for
refugees could increase the influx of refugees so that the objective of the assessment itself––
documenting the need for additional resources––could impact one critical variable, the number
of refugees.

MENA Economic Monitor October 2017 32

When it comes to assessing the impact of interventions such as policy advice and assistance
programs, concerned institutions have not yet established a robust methodological framework.
In general, the impact of humanitarian assistance is not subject to rigorous assessment, whereas
the assessment of development support for refugees remains in its early stages. In addition,
depending on the projects and institutions involved, the assessment and monitoring frameworks
vary significantly.

Enhancing data and assessment processes

Given the limitations described above, the international community should conduct focused
efforts to enhance refugee data and the process of assessing needs and monitoring the impact
of designed interventions. Data collection and analysis can be expensive. However, they often
result in far lower costs and/or much higher effectiveness in the planning and implementation of
relief and development activities (World Bank 2017b). Looking ahead, efforts could center
around the following four areas.

1. Many institutions are engaged in responding to refugee crises. Concerned institutions can
partner to enhance their joint data collection and develop a concerted methodology to
enhance comparability. UNHCR is the leading institution in collecting refugee data. The World
Food Program (WFP) maintains an expansive database on vulnerable people, including
refugees, and has a strong statistical unit. National institutions and nongovernmental
organizations (NGOs) also compile data on vulnerable populations. Some partnerships
already exist, particularly regarding the Syrian refugee crisis, for which international
organizations and NGOs have launched several initiatives to fill the data gap. For example,
UNHCR has undertaken efforts beyond its registration process, including extensive home visit
surveys and establishing a vulnerability assessment framework. Based on these data, the
World Bank and UNHCR undertook joint research to assess the welfare of Syrian refugees.
This research will be used to design both policies and interventions related to refugees and
their hosts. REACH, in collaboration with international organizations, have conducted
rigorous analyses on the circumstances of refugees in Jordan and Lebanon. These efforts are
laudable and need to be expanded and reinforced.

2. To improve data collection and analysis, governments and international organizations should
create an open data system by disclosing their raw data on refugee and hosting populations.
This system should be set up to enable strong quality control by the users themselves while
anonymizing raw data to protect the privacy and security of refugees and IDPs who have fled
violence and persecution.

3. The data collection and analysis capacity of each participant should be enhanced. There is
significant room to enhance the capacity of national institutions of hosting countries. Hosting

MENA Economic Monitor October 2017 33

 countries and communities often bear significant costs from refugee inflows. Accurately
communicating these costs to the international community could help secure the support
needed to mitigate the burden.

4. The international community needs to establish a methodological framework to assess and

monitor the impact of refugee inflows and the interventions designed to address them. Such
an effort was launched through an international partnership housed at the World Bank group
(WBG) to provide concessional financing to help Jordan and Lebanon address the influx of
Syrian refugees. The GCFF requires agencies that implement projects supported by funding
from the facility to measure the progress and impact of their operations under each project’s
results framework (Box 2.1). In addition, leveraging the strengths and capacities of its diverse
stakeholders, the facility recently inaugurated an effort to develop an aggregate-level
mechanism to measure the specific impacts of supported projects on refugees and hosting
communities. If successful, this mechanism could serve as the basis for efforts to better assess
and monitor the impacts of interventions designed to address refugee crises in other contexts
across the globe.

MENA Economic Monitor October 2017 34

 References

Abdul-Hamid, H., H. Patrinos, J. Reyes, J. Kelcey, and A.D. Varela. 2015. Learning in the Face of
Adversity: The UNRWA Education Program for Palestine Refugees. Washington, DC:
World Bank.

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Country Notes
 ment of imports to the large reduction in

ALGERIA Recent developments export revenues since 2014.

The unemployment rate increased by al-
most 2 percentage points, linked to slug-
Despite low global oil prices, Algeria’s gish non-hydrocarbon growth. It stood at
economic growth got off to a strong start 12.3 percent in the 6 months to April 2017
Strong growth in hydrocarbon production in 2017. Real GDP growth is estimated to and remains particularly high among
and higher than expected public spending have grown by 3.7 percent in the first youth and women. The high level of un-
underpinned solid growth in early 2017. quarter, mainly driven by strong produc- employment among young is partly ex-
tion in hydrocarbon sector, which grew by plained by mismatches between labor
However, structural challenges constrain 7.1 percent. Growth in non-hydrocarbon market demand and supply, and to the
non-hydrocarbon growth and inflation sector slowed down to 2.8 percent from inability of the economy to create suffi-
continues to rise. Substantial twin deficits 4.0 percent during the same period in ciently jobs and promote entrepreneur-
remain, depleting fiscal savings and re- 2016. The decline has been particularly ship. The rise in unemployment under-
marked in the manufacturing sector, mines impressive poverty reduction. Ten
serves. In the medium term, growth and
where growth fell to 3.9 percent compared percent of the population is considered
the twin deficits are expected to decline as to 5.1 percent in the first quarter of 2016; vulnerable to fall back into poverty and
the government implements fiscal consoli- corresponding figures for agriculture are important regional disparities persist with
dation. Associated subsidy reforms will 3.0 and 4.8. Inflation is now above 6 per- some regions double (Sahara) or triple
need careful management to protect pov- cent for the year so far. (Steppe) the national rate.
Substantial fiscal and double-digit exter-
erty reduction achievements. nal current account deficits remained,
depleting fiscal savings and reserves. Pub-
lic spending decreased by less than ex-
Outlook
pected due to difficulties to pursue the
2016 budget target of a 9 percent expendi- Growth is expected to decelerate sharply
ture cut and this pattern carried over to in the second half of 2017 and in 2018 as
2017. On the external front, preliminary fiscal consolidation takes hold. As oil pro-
data indicates that imports slightly de- duction stabilizes, headline growth will
clined by 0.14 percent in the first quarter decline, and the impact of higher taxes
of 2017 due to new import licenses to curb and import duties will weigh on non-
the current account deficit, while exports hydrocarbon growth. As a result, GDP
have significantly increased (by 35.3 per- growth is expected to stand at 2.2 percent
cent). With continued deficits and limited for the full year 2017. GDP growth will
capital inflows, international reserves struggle to breach 2 percent for 2018-19
(while still ample) declined rapidly, while (Figure 1) – anemic for a middle-income
external debt remains very low. Overall, country with a large youth bulge. While
the current account balance (-13 percent of the start of production from new oil wells
GDP) is indicative of the lack of adjust- will provide a boost, non-hydrocarbon
growth will bear the brunt of the pace of

FIGURE 1 Algeria / Real GDP growth FIGURE 2 Algeria / Algeria’s twin deficits

Percent change
8
7
6
5
4
3
2
1
0
2015 2016e 2017p 2018p 2019p 2020p 2021p

Hydrocarbon GDP Non-hydrocarbon GDP

Real GDP

Sources: World Bank Staff estimates and projections. Sources: World Bank Staff estimates and projections.
fiscal consolidation arising from the gov- female labor force participation (LFP), and ber 6, 2017, the government adopted a non
ernment’s aversion to external borrowing. managing the newly adopted non- -conventional monetary policy that allows
The twin deficits should be at sustainable conventional monetary policy. Mounting the central bank to finance directly the
levels by 2020. If fiscal consolidation con- social discontent from government spend- treasury. This new policy is likely to re-
tinues at a slower pace than the 2017-2019, ing cuts, tax hikes and high youth unem- duce public finance constraint in the short
budget trajectory presented in the 2017 ployment levels constitute substantial run, but could lead to delay in adopting
Budget Law, cuts in public spending will risks to the outlook discussed above. and implementing key fiscal and structur-
mainly affect capital expenditure, easing While political will and national consen- al reforms that the Algerian economy bad-
the short-term effect but worsening long- sus to rationalize inefficient, inequitable, ly need currently. In this case, the new
term growth prospects. While the fiscal and generous subsidies are emerging, monetary policy could lead to substantial
deficit will decline (Figure 2), its persis- such reform requires improved safety nets inflationary pressure and to a sharp de-
tence will entail significant erosion of re- such as a well-targeted cash transfer sys- cline of the potential GDP in the medium
maining fiscal buffers, and indirect deficit tem and a comprehensive media cam- run.
finance via recycling of oil revenues in the paign. Some of these accompanying
banking system will be more difficult. The measures are currently under design for
current account deficit is projected to de- implementation in the medium term. Sec-
cline slightly to below 10 percent in 2019, ondly, slow structural transformation is
which is manageable given the level of hampering economic diversification from
reserves albeit still high for a country that hydrocarbons, and consensus is lacking
should be saving more of its resource rev- on key elements of strategy, such as
enues. Although the social safety net will whether to push for export development
remain substantial, fiscal consolidation or import substitution and the role of the
and potential reforms to the subsidy sys- private sector. Thirdly, greater economic
tem could increase poverty and vulnera- decentralization would strengthen the role
bility during 2017-2019. of local authorities, which will improve
access to basic social services, but this
would require a change in focus from the
Risks and challenges current emphasis on accountability to the
center. Fourthly, low female LFP is multi-
dimensional, but likely related to infra-
The economy is confronted with the chal- structure deficiencies, the pattern of job
lenge of social discontent, slow structural creation, the broad scope of the social safe-
transformation, low decentralization, low ty net, and migration. Fifthly, on Septem-

TABLE 2 Algeria / Macro outlook indicators (annual percent change unless indicated otherwise)

2014 2015 2016 e 2017 f 2018 f 2019 f

Real GDP growth, at constant market prices 3.8 3.7 3.3 2.2 2.0 1.5
Private Consumption 4.4 3.9 3.3 3.6 3.3 3.4
Government Consumption 1.1 3.1 1.3 1.2 1.0 -0.5
Gross Fixed Capital Investment 6.4 5.7 3.5 1.1 -4.6 -4.7
Exports, Goods and Services 0.2 0.6 7.9 2.3 3.9 3.6
Imports, Goods and Services 8.4 6.4 -3.0 1.6 1.5 1.0
Real GDP growth, at constant factor prices 4.1 3.8 3.4 2.1 2.0 1.5
Agriculture 2.5 6.0 1.8 2.2 2.5 2.7
Industry 1.5 1.8 6.2 3.2 3.1 2.5
Services 6.6 4.6 1.8 1.2 1.0 0.3
Inflation (Consumer Price Index) 2.9 4.8 6.4 5.5 4.4 4.0
Current Account Balance (% of GDP) -4.4 -16.5 -15.6 -13.0 -10.8 -9.5
Fiscal Balance (% of GDP) -8.0 -15.7 -13.7 -11.5 -7.3 -5.7
Debt (% of GDP) 7.7 8.8 20.6 17.9 17.7 17.0
Primary Balance (% of GDP) -7.8 -15.3 -13.4 -10.8 -6.6 -5.3

So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice.
No tes: e = estimate, f = fo recast.
 were strengthened by the central bank.

BAHRAIN Recent developments However, the lower credit growth of 2.8

percent in 2016, compared to the 9.8 per-
cent average for the five years prior to it
Bahrain’s economy continued to be nega- along with a quarterly drop of more than
tively affected by the lower hydrocarbon 2.5 percent in the total number of em-
Growth continues to moderate as aggre- prices. Bahrain maintained an expansion- ployed in the first quarter of 2017, high-
gate demand remains weak and fiscal defi- ary fiscal stance since 2009 resulting in light the problem of weak demand in the
cits accumulate. The current account general government deficits. However, the economy.
situation worsened in 2016 with a decline The authorities’ emphasis on growth (3
stayed in deficit and international re- in oil revenues by 10 percent and an over- percent in 2016) comes at the expense of
serves continue to decline, putting further all fiscal deficit estimated at 13 percent of fiscal deterioration. While the hydrocar-
pressure on the exchange rate peg. De- GDP (up from 12.8 percent in 2015). The bon sector’s real output stayed almost the
spite austerity measures, Bahrain remains deficit spending helped maintain econom- same, the non-oil sectors grew by an aver-
ic growth at 3 percent, but brought re- age estimated rate of 3.8 percent, a figure
the most vulnerable GCC country in the
serves down to a concerningly low level at that reflects the continued emphasis on
face of low oil and bauxite prices due to its 1.2 months of imports and increased pub- public investments, some of which were
limited savings and high debt levels, leav- lic debt to 65 percent of GDP. Data for the funded by GCC. The downside of this
ing it exposed to financing risks. first quarter of 2017 indicates a slight up- approach, however, has been manifested
tick in growth especially in the non-oil in persistently high fiscal deficits, estimat-
sector growing 4.4 percent annually com- ed at 13 percent in 2016. A large portion of
pared to 2016 as a whole (3.7 percent). the 2016 deficit was covered by debt issu-
Bahrain has introduced some initiatives ances, despite the sovereign downgrade
for fiscal consolidation. Revenue enhanc- reflecting increasing pressures on govern-
ing measures such as higher tobacco and ment finances. In July, the Shura Council
alcohol taxes and government services once again approved the increase of the
fees were introduced. The proposed GCC- debt ceiling to BD 13 billion (accounting
wide VAT introduction, which is expected for slightly more than the country’s esti-
to be implemented from the beginning of mated GDP in 2017) for the 2017-18 budg-
2018, could further contribute to improv- et.
ing government balances. Inflation has In 2017, the non-oil GDP expanded by an
gradually picked up in 2016 primarily due annual 4.4 percent in real terms in the first
to the ongoing subsidy reform and in spite quarter, which was mainly driven by pri-
of weakening demand: the headline CPI vate sector. The country produced an av-
rose by 2.8 percent, but it will remain sub- erage of 203,000 b/d oil in the first half of
dued in 2017. The financial sector assess- 2017 (most from the shared field with Sau-
ment by IMF indicates that the banking di Arabia).
sector has remained resilient with ade- Little comprehensive welfare analysis is
quate capitalization and liquidity levels as available due to restricted access to house-
regulation and supervision of the sector hold survey data and limited capacity.

FIGURE 1 Bahrain / Growth in GDP and its components FIGURE 2 Bahrain / Government balances

Percent Percent of
change GDP
16 40
14 30
12
10
20
8 10
6
0
4
2 -10
0 -20
-2 2013 2014 2015 2016 2017 2018 2019
2013 2014 2015 2016 2017 2018
Overall fiscal balance
Hydrocarbon GDP Non-Hydrocarbon GDP Real GDP Total revenue
Total expenditure
Sources: Bahraini Authorities and World Bank staff estimates. Sources: Bahraini Authorities and World Bank staff estimates.
According to the 2014/15 household sur- Average inflation is expected to decrease could trigger additional sovereign rating
vey, average consumption expenditure in to 1.5 percent in 2017 reflecting the cooling downgrades making access to external
the Kingdom was about US$780 per capita off in economic activity and phasing out financing harder and intensifying pres-
per month (about US$800 for Bahraini of temporary price boosting effects of sub- sure on reserves and the peg. Fiscal sol-
households). Among Bahraini nationals’ sidy reforms. The current account deficit vency and liquidity risks are high, and
labor force participation is low, and peo- will partially narrow to 3.5 percent of outcomes remain vulnerable to shocks to
ple work predominantly in the public GDP in 2017 and remain about there for growth, commodity prices, and interest
sector, where wages are high and produc- the next year, with the exception of a rates. Saudi Arabia backstops the coun-
tivity low. Immigrant workers constitute small adjustment. International reserves try’s fiscal resilience, but this comes with
about a half of the resident population are expected to follow a declining trend in the expectation that Bahrain closely aligns
and typically command lower incomes. 2018. Public debt is projected to exceed 80 its positions with Saudi Arabia; the associ-
percent of the GDP in 2017, and reach ated vulnerability is left implicit.
about 96 percent of GDP in 2018, with Key elements of the social contract—
Outlook fiscal deficits in the 7 percent range con-
tributing to rapid debt accumulation.
public employment and subsidies—are
becoming less affordable in the context of
subdued oil prices. Bahrain aims to gain
Economic growth is expected to decline in from upgrading its capacity for welfare
the forecast period. Real GDP growth pro-
jections have been revised to 2.4 percent in
Risks and challenges measurement that would support design-
ing policies aimed at mitigating the im-
2017 and 2 percent 2018, as continuing pact of the necessary adjustment.
low oil prices depress private and govern- Ensuring fiscal sustainability, while pre-
ment consumption. Some infrastructure serving a healthy growth rate, has become
investments are also likely to be put on an important challenge and highlights the
hold, driven by fiscal sustainability con- need for a medium-term fiscal framework
cerns. In addition, the high oil production to bring external debt levels to sustainable
in the first quarter of 2016 is not likely to levels. Despite efforts to diversify and
continue after the withdrawal of the inter- boost non-oil fiscal revenues, hydrocar-
national oil companies from the Awali bons account for about 76 percent of gov-
oilfield in May. In the absence of signifi- ernment revenues in Bahrain. In addition,
cant upfront fiscal adjustments, Bahrain subsidies still absorb more than 20 percent
will remain vulnerable to fiscal risks as oil of the fiscal budget. Delays in implement-
prices remain well below fiscal break-even ing fiscal consolidation and structural
levels. reforms or a further decline in oil prices

TABLE 2 Bahrain / Macro outlook indicators (annual percent change unless indicated otherwise)
 The banking sector remains weak with

DJIBOUTI Recent developments

deteriorating loan portfolio
commercial banks and rising non-
of

performing loans (NPLs). The ratio of

GDP growth is projected at 7.1 percent in NPLs to total loans increased from 14 per-
2017 reflecting an acceleration from the cent in 2013 to 23 percent in 2016. The
Economic growth remains strong in 2017, estimated 6.5 percent in 2016. Growth is authorities attribute this increase to the
fueled mainly by construction and rising mainly driven by construction and rising introduction of stricter loan classification
transit trade and transshipment for Ethio- transit trade and transshipment for Ethio- requirements.
pia with improved port and transport
pia with improved port and transport infrastructure. Inflation is expected to
infrastructure. Although fiscal and exter- remain at 3.5 percent, driven mainly by
nal positions are improving gradually, demand for housing and services. The
debt and fiscal sustainability risks remain. latest official unemployment rates show
weak links between growth and employ-
Outlook
With more than a fifth living in extreme
ment generation: the rate was 39 percent
poverty and nearly 40 percent of the labor in 2015, with women (49 percent) and The medium-term outlook remains favor-
force unemployed, reforms to make rural areas (59 percent) showing higher able with the expectation that debt-
growth more inclusive, with increased job rates. Meanwhile, the labor force partici- financed mega-infrastructures are effi-
creation and improved productivity and pation rate is less than 25 percent. ciently managed to generate sufficient
The fiscal deficit is projected to significant- revenues for debt servicing. The fiscal
human capital will be critical. ly narrow to 3.8 percent of GDP in 2017, deficit is projected to gradually improve,
from an estimated 15.2 percent in 2016, narrowing to low single digits in 2017-19.
given that mega-infrastructure projects for This would materialize with rationaliza
port development and railways construc- tion of expenditures and effective imple-
tion, which triggered large capital ex- mentation of tax reform to enlarge the tax
penditure, have ended. The external defi- base and increase revenues from activities
cit is also projected to improve to 15.4 generated by megaprojects.
percent of GDP in 2017 from 22.2 percent The current account deficit is projected to
in 2016, as capital imports wind down. FDI decline to 12.3 percent of GDP by 2018 and
is expected to rise to 10.8 percent of GDP further down to 10.2 percent in 2019, with
in 2017 from 9.1 percent in 2016. Foreign a gradual pick up in exports growth over
exchange reserves are projected to remain imports. FDI inflows and capital transfers
sufficient for coverage of broad money and should continue to finance the deficit. Re-
currency board at 3.4 months of imports. serves are expected to sustain the peg of
The Real Effective Exchange Rate is the Djibouti Franc to the US Dollar at
expected to further appreciate, reflecting 177.72. Inflation is projected to remain at
the combined effects of the supply side 3.5 percent in 2017-18, furthering pressure
constraints and the relatively high on competitiveness.
consumer prices.

FIGURE 1 Djibouti / Growth and public debt

Sources: World Bank staff estimates.

With infrastructure-led growth and
corresponding demand for foreign labor,
mega-projects on their own are not Risks and challenges
likely to have a significant positive
spillover on job creation and poverty
reduction. Stronger monitoring of Economic diversification for job creation,
welfare is expected in the future as a strengthening institutional capacity for
new National Strategy for Development macroeconomic management and better
of Statistics is being developed, and the quality of public services delivery, and
first results of a nationally repre- governance system reform to improve
sentative household consumption survey accountability, rule of law, government
are expected to be available in the Fall of effectiveness and citizens’ engagement
2017. remain the top challenges of the Govern-
ment. Addressing these challenges remain
imperative to solve the country’s en-
trenched issues of poverty, unemploy-
ment, and low human capital quality, and
to put the macro fundamentals on a sus-
tainable path. Macroeconomic stability
remains subject to high risks, including
debt distress and vulnerability to trade
and finance shocks. Social discontent over
growing poverty, unemployment and
inequality as well as regional instability
and acute climate challenges pose addi-
tional risks to the growth prospects.

TABLE 2 Djibouti / Macro outlook indicators (annual percent change unless indicated otherwise)

2014 2015 2016 e 2017 f 2018 f 2019 f

Real GDP growth, at constant market prices 6.0 6.5 6.5 7.1 7.0 7.0
Private Consumption 6.4 7.1 6.0 7.8 7.7 7.9
Government Consumption 1.6 5.7 5.8 6.5 2.3 1.7
Gross Fixed Capital Investment 19.3 32.9 -24.2 -9.3 -0.4 0.5
Exports, Goods and Services 5.4 17.6 4.5 6.5 8.0 8.1
Imports, Goods and Services 11.9 28.9 -5.0 -2.0 2.3 3.0
Real GDP growth, at constant factor prices 6.4 6.5 6.5 7.1 7.0 7.0
Agriculture 3.0 3.0 2.1 2.5 3.0 3.0
Industry 5.4 5.4 5.5 5.8 6.0 6.1
Services 6.8 6.9 6.9 7.6 7.4 7.4
Inflation (Consumer Price Index) 2.9 2.2 3.5 3.5 3.5 3.1
Current Account Balance (% of GDP) -25.2 -30.4 -22.2 -15.4 -12.3 -10.2
Fiscal Balance (% of GDP) -10.7 -20.7 -15.2 -3.8 -2.6 -1.4
Debt (% of GDP) 48.5 69.4 84.8 83.4 81.9 80.5
Primary Balance (% of GDP) -10.4 -19.1 -13.4 -1.7 -0.4 0.9

So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice.
No tes: e = estimate, f = fo recast.
 the rise in net FDI (reaching 3.3 percent of

ARAB REPUBLIC Recent developments projected GDP, from 2.1 percent a year
earlier) as well as a surge in portfolio in-

OF EGYPT
Egypt’s economy is estimated to have flows that were encouraged by Egypt’s
grown at 4.1 percent in FY2016/17 (July/ improved outlook and attractive returns
June), slightly lower than the 4.3 percent on EGP-denominated assets. The ex-
real growth achieved in the previous year. change rate adjustment has helped in free-
Following two quarters of slowdown in ing up resources to pay part of the accu-
Macroeconomic conditions are showing growth, economic activity is picking up, mulated arrears to international oil com-
signs of stabilization following the liberal- driven primarily by the resilient private panies, which currently stand at US$2.3
ization of the exchange rate. Important and (to a lesser extent) public consump- billion in end-June 2017 down from
tion, as well as by an uptick in invest- US$3.5 billion in end-2016. Net interna-
fiscal reforms are underway, with energy
ments with net exports contributing posi- tional reserves spiked to a record level of
subsidy cuts and containment of the wage tively for the first time in two years, albeit US$36 billion (7.5 months of merchandise
bill contributing to fiscal consolidation. still marginally. imports) in end-August 2017, compared to
However, inflation has spiked to record The liberalization of the exchange rate in US$19 billion in end-October 2016.
November 2016 has eased shortages in Egypt has also embarked on an ambitious
high levels with negative implications on
foreign currency, eliminated the parallel fiscal consolidation program, notably
social conditions. The Central Bank of market and kick-started an improvement through cuts in energy subsidies, contain-
Egypt (CBE) has tightened monetary in Egypt’s external accounts. The Balance ment of the wage bill and implementation
policy and the Government has increased of Payments (BoP) achieved a of the VAT. These fiscal reforms have
spending on social protection to mitigate US$13.7 billion surplus (5.8 percent of the helped avail resources to scale up social
year’s projected GDP); 90 percent of spending whilst achieving a fiscal consoli-
the impact on living conditions. which was realized only following the dation in the magnitude of 1.7 percent of
November exchange rate floatation. This GDP resulting in a projected fiscal deficit
compares to a BoP deficit of of 10.9 percent of GDP in FY2016/17.
US$2.8 billion (-0.8 percent of GDP) a year However, inflation continues to be a major
earlier,1 with the large improvement in concern, spiking to a record high of 33
FY2016/17 resulting from a narrowing percent in July 2017, before receding
current account deficit (albeit in absolute somewhat to 31.9 percent in August. The
terms only), and a surge in capital and sharp currency depreciation, along with
financial inflows. The current account the introduction of the VAT (followed by
deficit fell to US$15.6 billion in FY2016/17 the increase of 1 percentage-point in its
from US$19.8 billion a year earlier, due to rate), the two rounds of hikes in energy
higher oil and non-oil exports, contained prices, in addition to non-competitive
imports, an uptick in tourism and re- practices in domestic markets have all
mittances. The capital and financial ac- exerted upward pressure on domestic
count jumped to US$29 billion in prices. Notwithstanding the CBE’s efforts
FY2016/17, from US$21.2 billion due to to tighten monetary policy (cumulative
increased external borrowing as well as policy rate hikes worth 700 basis points

FIGURE 1 Arab Republic of Egypt / Real GDP Growth, FIGURE 2 Arab Republic of Egypt / Inflation rates, July
demand-side, FY2011-17 2013-July 2017

Contributions in Percentage-Point Annual Percent Growth

Private Consumption Public Consumption Core Headline Urban Food

40%
Investments Exports 40%

30% Imports GDP Growth

30%
20%
20%
10%

0% 10%

-10%
q1 q2 q3 q4 q1 q2 q3 q4 q1 q2 q3 q4 q1 q2 q3 q4 q1 q2 q3 q4 q1 q2 q3 q4 q1 q2 q3 0%
Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

Source: Authors’ calculations based on Ministry of Planning data. Source: Central Bank of Egypt.
between November 2016 and June 2017), licensing law and further improvement in
real interest rates remain negative. the regulatory framework are expected to
The acceleration of inflation is weighing improve the business climate and foster Risks and challenges
on social conditions, with the impact growth over the medium term.
affecting both the middle-class and low The economy is forecast to grow by
income groups. While unemployment has 4.5 percent in FY2017/18 driven by a resili- Policy slippage and delays in real sector
started to decline, it remains elevated at ent private consumption, albeit partially reforms may jeopardize the restoration of
around 12 percent in FY2016-17 diluted by high inflation over the short macroeconomic balances. Egypt’s total
(compared to 12.7 percent a year earlier), term. As Egypt sustains the momentum of government debt to GDP ratio was 102.8
and continues to be higher among the reforms, further pick-up in investment percent in end-FY2015/16, and is expected
youth and the educated. Social protection and a recovery in merchandise exports to increase further in FY2016/17 with the
measures were scaled up to mitigate the and tourism are expected to contribute sharp depreciation and increased foreign
impact of the recent inflation spike. These positively to growth. The operationaliza- borrowing. Thus, any slowdown/reversal
include the expansion in amount and cov- tion of new gas fields is set to boost the in fiscal reform efforts or slowdown in
erage of the cash transfer programs extractives sector and improve fiscal and growth can undermine debt sustainability.
(Takaful and Karama), an increase in the external balances. High inflation, i f persistent, can warrant
allotment in food smartcards from EGP 21 The budget deficit is expected to decrease monetary tightening and challenge eco-
to EGP 50 per person per month, in addi- to 8.8 percent of GDP by FY2017/18, sup- nomic growth.
tion to higher income tax threshold, lower ported by energy subsidies reform and Additionally, regional and domestic secu-
income taxes and an exceptional cost of increase in tax revenues. The current ac- rity risks can exert an adverse impact on
living bonus for state workers. count deficit is expected to narrow to 4.6 the recovery of foreign investments,
percent of GDP in FY2017/18. tour-ism and remittances, all
Outlook Poverty could decrease in part through
the strengthened social protection
considered im-portant sources of
government revenues and foreign
measures embedded in the approved exchange resources.
As Egypt sustains the momentum of re- budget for FY2017/18, including the in-
forms, economic activity is expected to creased allocations for food smartcards
improve, and imbalances are projected to and for cash transfer programs.
narrow further through the elimination of
distortions in foreign currency markets
and the government’s commitment to
fiscal consolidation. If properly imple-
mented, the recently adopted industrial

TABLE 2 Arab Republic of Egypt / Macro outlook indicators (annual percent change unless indicated otherwise)

2014 2015 2016 e 2017 f 2018 f 2019 f

Real GDP growth, at constant market prices 2.9 4.4 4.3 4.2 4.5 5.3
Private Consumption 4.4 3.1 4.6 2.2 3.1 4.0
Government Consumption 8.4 7.0 3.9 0.8 1.1 1.6
Gross Fixed Capital Investment 1.5 13.8 12.0 8.2 10.1 10.9
Exports, Goods and Services -11.9 -0.6 -14.5 3.2 5.4 7.6
Imports, Goods and Services 0.2 0.6 -1.9 -3.0 1.6 3.8
Real GDP growth, at constant factor prices 2.9 3.4 2.3 4.2 4.5 5.3
Agriculture 3.0 3.1 3.1 3.0 3.0 3.0
Industry 1.5 1.1 0.2 1.9 3.6 4.5
Services 3.9 5.0 3.7 6.0 5.4 6.3
Inflation (Consumer Price Index) 10.1 10.9 10.2 23.3 22.1 14.0
Current Account Balance (% of GDP) -0.9 -3.7 -6.0 -6.6 -4.6 -3.9
Fiscal Balance (% of GDP) -12.0 -11.4 -12.5 -10.8 -8.8 -7.1
.. 16.1 15.0 15.1 14.6 14.0

So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice.
No tes: e = estimate, f = fo recast.
It is worth noting that the current account deficit to GDP ratio has actually increased to 6.6 percent, from 6 percent a year
earlier. The deterioration is due to the sharp drop in the US$-denominated GDP following the exchange rate depreciation.

1
 although the declining trend in 2015 has

IRAN, ISLAMIC Recent developments ended. The fiscal deficit further widened
to 2.2 percent of GDP in 2016, but the debt

REPUBLIC In 2016, the economy registered a strong

to GDP ratio fell to around 35 percent due
to a higher GDP.2 The current account
oil-based bounce back, with an annual surplus increased by more than 80 percent
headline growth rate of 13.4 percent, com- to reach around 4 percent of GDP, up
pared to a contraction of 1.3 percent in from 2.3 percent in 2015, primarily as a
The Iranian economy strongly recovered 2015.1 The largest contribution to growth result of increase in oil exports. However,
in 2016, on the back of a significant rise was from the industry sector (at about 25 non-oil merchandise exports declined by 9
in oil production and exports, following percent) as oil and gas production in- percent in 2016 and recent data for the
creased by a staggering 62 percent, mainly first four months of the new fiscal year
the removal of nuclear related interna-
as a result of sanctions relief. Recovery in indicates a negative growth in non-oil
tional sanctions. However, unemploy- non-oil GDP however was limited at 3.3 exports (-10 percent year over year).
ment remains high and non-oil sector percent, although this represents the high- The universal cash transfer program ap-
activity remains subdued, as anticipated est growth rate in the last 5 years. Recent pears to have more than compensated for
foreign investment flows have not materi- data suggests that growth in crude oil the likely increase in energy expenditures
production in the first quarter of 2017 de- of less-well-off households, thus contrib-
alized, in the absence of a full integration clined to 17 percent year over year. On the uting to positive consumption growth of
of the banking sector with the global bank- demand side, all components except in- the bottom 40 percent of the population,
ing system and continued uncertainties vestment registered improvements over with overall consumption growth be-
regarding full implementation of the the previous year. Investment continued tween 2009 and 2013 being negative. Pov-
to contract in 2016, albeit at a much lower erty increased in 2014 to 10.5 percent
JCPOA. Growth prospects in the medium
rate of 3.7 percent (compared to 12 percent though and this may be associated with a
term are modest. a year earlier). The reduction in invest- declining social assistance in real terms.
ment was primarily driven by the contin-
ued contraction in the construction sector
since 2012 following a boom in specula-
tive demand for housing. Despite the Outlook
growth in the non-oil sector, unemploy-
ment increased to 12.6 percent in Spring
2017 up from 12.4 percent six months ear- In the medium term, the economy is ex-
lier, which suggests a very limited em- pected to undergo a significant modera-
ployment generation capacity in the sec- tion in growth as spare capacity in the oil
tors spearheading growth. The CBI to- sector is utilized. Growth in 2018-19 is
gether with the Money and Credit Council expected to be slightly stronger than 2017
have implemented measures to increase as investment growth turns positive and
investment and non-oil growth. The aver- accelerates along with more political and
age interbank interest rate was reduced by economic stability, following the re-
around 6 percent to 18.6 percent in 2016, election of President Rouhani for a second

FIGURE 1 Islamic Republic of Iran / Fiscal outlook FIGURE 2 Islamic Republic of Iran / GDP growth decom-
position

Percent
20
15
10
5
0
-5
-10
-15
2000 2003 2006 2009 2012 2015 2018
Gov. cons. GFCF
Private cons. Statistical disc.
Exports Inventories
Imports GDP
Sources: Iranian authorities and World Bank staff calculations. Sources: Iranian authorities and World Bank staff calculations.
4-year term in May 2017. With some indi- wider range of structural reforms includ-
cations of inflationary pressures due to the ing improving the business
closing output gap as well as exogenous Risks and challenges environment, productivity, labor market
commodity price shocks, headline CPI flexibility, and further diversification of
inflation is expected to remain high but exports. Such reforms would also facilitate
below 12 percent in the next three years The main risk to the economy is the politi- investment (both domestic and foreign) in
especially considering the high unemploy- cal uncertainty around the continued im- order to achieve a more resilient medium-
ment rate and absence of demand pull plementation of the nuclear agreement, in term growth performance.
factors. The Central Bank of Iran (CBI) is the wake of new non-nuclear sanctions
expected to use activist monetary policy, introduced by the US. This increases risk
especially in reducing deposit rates to perceptions of the country and deters fur-
redirect credit towards the productive ther improvement in foreign investment
sectors and increase non-oil growth. The in the oil and non-oil sectors. At the same
CBI remains committed to implementing time, the delays in the banking sector rein-
the unification of the official and market tegration with global banking combined
exchange rates, although this may be fur- with the challenge of fully implementing
ther delayed from the revised target date banking sector reforms create further risks
of end 2017. The overvalued real ex- for the medium term. Although the CBI
change rate may put pressure on the mon- has succeeded in reining in shadow bank-
etary authorities to allow the rial to depre- ing operations considerably, the issue of
ciate to promote export competitiveness high deposit rates, banks’ frozen assets
and reduce pressure on foreign currency and non-preforming loans are yet to be
reserves. Falling real value of cash trans- adequately addressed and are major inter-
fers may continue to have negative impact related challenges facing the economy in 1. The CBI has published a new base year (2011) nation-
on poverty, while moderate economic the foreseeable future. On the fiscal side, al accounts series. This has resulted in some revisions
growth and planned improved targeting the Ministry of Finance’s attempts in de- to growth rates from the previous version of this
of benefits may contribute to lower pov- termining the real levels of government report. The old series had reported growth rates of 5.4
erty after 2016. debt and securitization of arrears high- and 9.2 percent for Q1 and Q2 2016 whereas the new
lights the need for a more comprehensive series corresponds to 7.5 and 12.9 percent growth for
debt management framework comple- those two periods.
mented by prudent fiscal policy. The fu-
ture prospects of the economy will also be 2. IMF Article 4 (2017).
conditional on the implementation of a

TABLE 2 Islamic Republic of Iran / Macro outlook indicators (annual percent change unless indicated otherwise)

2014 2015 2016 e 2017 f 2018 f 2019 f

Real GDP growth, at constant market prices 4.6 -1.3 13.4 3.6 4.0 4.3
Private Consumption 2.0 -3.5 3.8 3.4 3.5 3.8
Government Consumption 4.2 4.8 3.7 3.8 3.0 2.9
Gross Fixed Capital Investment 7.8 -12.0 -3.7 1.7 8.4 9.2
Exports, Goods and Services 7.2 12.1 41.3 7.1 5.3 5.1
Imports, Goods and Services -4.5 -20.2 6.1 6.0 7.0 6.6
Real GDP growth, at constant factor prices 3.2 -1.6 12.5 3.5 3.9 4.1
Agriculture 5.4 4.6 4.2 4.0 4.1 4.1
Industry 5.1 -1.4 24.7 4.6 4.7 4.8
Services 1.4 -2.5 3.7 2.3 3.0 3.4
Inflation (Consumer Price Index) 15.6 11.9 9.0 11.5 10.9 10.6
Current Account Balance (% of GDP) 3.1 2.3 3.9 4.1 4.0 3.8
Fiscal Balance (% of GDP) -1.1 -1.7 -2.2 -2.2 -2.3 -2.1
Debt (% of GDP) 11.5 41.2 34.7 30.4 29.2 28.0
Primary Balance (% of GDP) -1.1 -1.6 -2.1 -2.1 -0.9 -0.7

Sources: World Bank, Macroeconomics and Fiscal Management Global Practice, and Poverty Global Practice.
Notes: e = estimate, f = forecast.
 to a small recovery in oil prices and

REPUBLIC OF Recent developments measures to increase non-oil revenues

and to contain salaries and pensions. The

IRAQ
GOI is prioritizing its limited investment
The ISIS insurgency and low oil prices expenditure for reconstruction in areas
have severely impacted Iraq’s growth, liberated from ISIS, and to increase elec-
which decelerated in 2014-15, with gov- tricity. KRG is also implementing
ernment non-oil investment declining by measures to contain expenditure and im-
The ISIS war and low oil prices since mid two-thirds and rapid contraction of agri- prove non-oil revenue. KRG fiscal deficit
-2014 have severely impacted the econo- culture, manufacturing and construction. decreased by 80 percent from 2014 to
my. Contraction in oil production is re- Strong oil production sustained economic 2016. Spending pressures remain high to
growth in 2016, while the OPEC agree- assist IDPs and refugees.
sulting in negative overall growth in
ment to cut production until March 2018 The government financed the deficit main-
2017, but owing to improved security the is expected to lead to a contraction in ly through domestic short-term bank fi-
non-oil growth will turn positive after growth in 2017. Non-oil growth has been nancing. GOI’s public debt-to-GDP ratio
three year decline, despite the ongoing negative since 2014, but a better security increased from 32 percent in 2014 to 67
situation and the benefits of an initial re- percent in 2016. Over the same period,
fiscal consolidation. The government’s
construction effort are expected to sustain domestic debt increased from 7 to 27 per-
reform effort – but not reconstruction – is non-oil growth at 1.5 percent in 2017. The cent of GDP. Public debt is estimated to
supported by a large international financ- drivers are construction and services on decline to 64 percent in 2017. The GOI has
ing package. Growth will accelerate in the supply side, and pick-up in govern- accumulated large contingent liabilities,
2018, sustained by higher oil production. ment consumption and investments on by issuing 11 foreign-currency denominat-
the demand side. Owing to the pegged ed guarantees (US$36 billion) for inde-
despite persistent security risks. exchange rate and subdued aggregate pendent power producers.
demand, inflation has averaged 0.4 per- GOI’s structural reforms are supported
cent in 2016 and is estimated at 2 percent by a large international financing pack-
in 2017. age. In 2016, the World Bank provided
The low oil prices and higher security and US$1.44 billion DPF loans and the IMF
humanitarian outlays rapidly deteriorat- provided US$1.2 billion financing under a
ed the fiscal and external balances since three-year SBA. In January 2017, the gov-
2014 in the Federal Government of Iraq ernment issued a US$1 billion bond guar-
(GOI) and the Kurdistan Regional Gov- anteed by the U.S. government. JICA and
ernment. GOI’s overall fiscal deficit in- France have provided parallel budget
creased to 14 percent of GDP in 2016 support financing. In August 2017, fol-
mainly because of a 22 percent fall in oil lowing the successful conclusion of the
prices in the previous year; in response, second review of the IMF program, the
GOI is implementing a fiscal consolida- government issued a US$1 billion bond
tion program to reduce the non-oil prima- maturing in 2023, its first independent
ry deficit. In 2017, the fiscal deficit is esti- issuance since 2006. In the first half of
mated to reach 5.1 percent of GDP owing 2017, the government introduced a flat

FIGURE 1 Republic of Iraq / Fiscal Accounts (% of GDP)

Percent of GDP 10
60
5
55
0
50
-5
45

40 -10

35 -15

30 -20

25 -25
2010 2011 2012 2013 2014 2015 2016 2017e 2018f 2019f
Overall Fiscal Balance, excl grants (right)
Revenues (left)
Expenditures (left)

Sources: Ministry of Finance; and World Bank staff projections.

income tax, successfully stabilized current in 2016 was more than twice that of resi- framework.
expenditure, and started reducing arrears dents.
to domestic and external creditors. It also
adopted a social database based on a
Risks and challenges
proxy-means testing system and reduced
gas flaring.
Outlook
In 2017, the current account deficit is ex- Downside risks include lingering security
pected to decline by 2.4 percentage points Iraq’s economic outlook is expected to challenges, which are likely to continue to
of GDP thanks to fiscal consolidation and improve assuming a more favorable secu- disrupt reconstruction efforts after the
higher oil revenues. The strong reserve rity environment, continued fiscal consol- liberation of Mosul, and lower oil prices,
accumulation during 2010–2013 provided idation and reforms. Overall GDP growth which could renew pressures on Iraq’s
a buffer to smooth the fiscal policy adjust- is projected to return positive in 2018 fol- twin deficits and require further fiscal
ment required to maintain external sus- lowing the end of production cuts agreed adjustment or additional external financ-
tainability. Foreign reserves financed most by OPEC. Oil production in the medium ing. The external debt remains highly vul-
of the balance of payment deficit, declin- term is expected to increase only margin- nerable to a further reduction in oil prices
ing from US$77.8 billion at end-2013 (or 10 ally as GOI cannot afford to increase in- or a real exchange rate depreciation. Risks
months of imports) to US$41.4 billion at vestments in the oil sector. Sustained by are also related to the capacity of GOI to
end-2017 (or 6 months of imports). agriculture, construction and services, provide public services even in regions
Jobs were not providing a pathway out non-oil economic growth is conservative- not affected by violence and start recon-
of poverty even before the crisis. Iraq has ly projected to recover to about half its struction. Tensions between Baghdad and
one of the lowest employment-to- pre-2014 average growth to 4 percent as Erbil could re-ignite following KRG deci-
population ratios in the region, even recurrent violent outbursts and lingering sion to hold a referendum of independ-
among men, and the 2014 crisis has led to presence of ISIS could delay investment ence in September 2017. The escalating
an estimated reduction in employment and reforms. The fiscal deficit is expected political tensions and terrorist attacks
by 800,000 jobs. The Public Distribution to improve owing to consolidation in non ahead of the general and provincial elec-
System provides the only safety net for -oil primary current expenditure, while tions in April 2018 add additional risks.
the vast majority of the poor, and is cur- still protecting social spending at around
rently stretched to its limits. Many IDPs 22 percent of non-oil expenditure. The
are left largely uncovered by any public external current account is expected to
safety net. Although the overall food remain negative but to improve owing to
insecurity rate in the country is low and higher oil prices. Public debt is expected
falling, food insecurity rate among IDPs to peak at 65 percent of GDP in 2018, but
reconstruction costs are not in the fiscal

TABLE 2 Republic of Iraq / Macro outlook indicators (annual percent change unless indicated otherwise)

2014 2015 2016 e 2017 f 2018 f 2019 f

Real GDP growth, at constant market prices 0.7 4.8 11.0 -0.5 3.0 1.7
Private Consumption 7.6 20.0 13.2 2.1 3.1 3.4
Government Consumption -13.2 29.1 5.7 9.4 -3.9 -3.5
Gross Fixed Capital Investment 22.3 -2.1 -30.2 1.0 -0.4 -1.3
Exports, Goods and Services 10.7 28.3 13.1 -2.0 4.4 1.5
Imports, Goods and Services -7.2 11.2 -5.3 13.0 -2.1 -1.1
Real GDP growth, at constant factor prices 0.7 4.8 11.0 -0.4 2.9 1.7
Agriculture -11.2 -49.3 59.6 0.0 7.0 7.0
Industry 4.1 9.3 18.6 -1.0 3.5 1.3
Services -3.9 2.4 -7.2 1.2 1.1 2.2
Inflation (Consumer Price Index) 2.2 1.4 0.4 2.0 2.0 2.0
Current Account Balance (% of GDP) 2.6 -6.5 -8.7 -6.3 -6.7 -4.1
Fiscal Balance (% of GDP) -5.3 -12.3 -14.1 -5.1 -4.8 -1.7
Debt (% of GDP) 32.1 55.1 66.7 63.8 65.3 64.3
Primary Balance (% of GDP) -5.0 -11.7 -13.4 -3.8 -3.7 -0.5

So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice.
No tes: e = estimate, f = fo recast.
 of GDP. On the external front, despite a

JORDAN Recent developments larger energy import bill reflecting higher

international oil prices, the large current
account deficit is expected to narrow driv-
Real GDP growth for 2017 is expected to en mainly by the growth in tourism.
be 2.3 percent, a tepid increase of 0.3 per- Jordan’s monetary policy continues to
Amidst a challenging regional backdrop, centage points (pp) over the 2016 rate. target the exchange rate dollar peg with
Jordan’s economy remains sluggish, Services continued to be the principal the Central Bank of Jordan (CBJ) having
driver of GDP growth in 2017 (Figure 1) raised interest rates four times since De-
though it is undergoing a modest pick-up
propelled by a robust performance in cember 2016—once by 50 basis points
in 2017, owing to a resurgence in tourism tourism, which posted double digit (bps) and three times by 25 bps each—in
and mining and quarrying. Yet this is growth in receipts and arrivals in the first attempts to maintain an attractive risk
overlaid on continued uncertainty regard- half of the year. The tourism sector has premium over the Federal Reserve Board
more than made up for declines from (FED) rates. Lower foreign inflows, ex-
ing the crises in Syria and Iraq, and the GCC countries by attracting visitors from change market pressure and higher dollar-
duration of the slowdown in the Gulf Co- other parts of the world, especially Asia. ization rates all put downward pressures
operation Council (GCC) countries on the Jordan’s industrial sector is regaining mo- on central bank’s foreign reserves, which
mentum based on a recovery in mining declined to US$11.2 billion in end-July
one hand, and the slow pace of structural and quarrying, which grew by 14.7 per- (covering 7.2 months of imports, exclud-
reforms on the other. cent in the first quarter of 2017 (Q1-2017) ing re-exports). Meanwhile, headline con-
in contrast to a contraction of 8.4 percent sumer prices rebounded from a two-year
yoy in Q1-2016. Because of these develop- deflationary period in tandem with the
ments, and a resurgence in potash prices global recovery in oil and food prices. The
net exports of goods and services are pro- average inflation rate for January – July
jected to lead GDP growth on the demand 2017 reached 3.4 percent.
side, as they did in 2016. Structurally, While the economy is in a low growth
while industry accounts for one quarter of equilibrium, the job market is facing sig-
GDP, it provides the main source of buoy- nificant stress. In Q1-2017, the unemploy-
ancy in GDP growth. ment rate averaged 18.2 percent, while
In 2017, Jordan’s fiscal position is expected labor force participation averaged 40.5
to improve as a result of government’s percent, both reflecting acute gender-
fiscal consolidation efforts in line with the based heterogeneity (Figure 2) as female
International Monetary Fund program. labor force participation in Jordan signifi-
However, the narrowing of fiscal imbal- cantly lags MENA and non-MENA aver-
ances is likely to materialize at a slower ages.
pace than initially anticipated by the pro-
gram due to weaker economic growth.
The projected overall fiscal deficit, exclud-
ing (including) grants, will be largely un-
varied from 2016 levels at 6 (3.3) percent

FIGURE 1 Jordan / Albeit sluggish, growth is fueled by a

range of sectors from the supply side

Supply Side Contribution to Real GDP Growth (yoy)

Percent (%)
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
-1.0 2010 2011 2012 2013 2014 2015 2016 2017
-1.5
Net Taxes On Product Services
Industry Agriculture
GDP
Sources: Department of Statistics and World Bank Staff Calculations.
 imports (mirroring higher oil prices). Cur- bility stems from sizable internal and ex-
rent transfers and capital inflows are an- ternal imbalances that generate large fi-
Outlook ticipated to remain sluggish given sub- nancing needs, which are typically met via
dued growth forecasted in the GCC econ- international assistance and transfers from
omies. the region. When these sources of finance
Jordan’s baseline is expected to remain Jordan is expected to maintain a contrac- are reduced, financial and economic sta-
significantly affected by regional events in tionary fiscal and monetary stance. Fiscal bility can be compromised.
Iraq and Syria and the slowdown in consolidation will continue to focus on
GCC’s economic performance. If the pace revenue-enhancing and expenditure-
of economic reforms remains sluggish, we limiting measures as the government ad-
expect only a marginal pick-up in the heres to the IMF program. Monetary poli-
economy. Services and industry are ex- cy tightening is also expected in order to
pected to continue nudging the economy preserve the attractiveness of the Jordani-
forward. On the demand side, private an Dinar in light of Fed rate hikes and in
consumption and private investment (real support of the dollar exchange rate peg.
estate) are expected to regain momentum
in the medium term after periods of stag-
nation. This is despite CBJ’s contraction-
ary monetary efforts which have been
Risks and challenges
mitigated by government’s efforts to limit
crowding out by using external financing With a difficult regional outlook, sluggish
to cover its fiscal needs. In addition, the economic reforms, and contractionary
recent (end-August) reopening of the fiscal and monetary policies in place, it is
Karameh trade route between Jordan and difficult to foresee a strong recovery in
Iraq is expected to have a positive impact growth. While the reopening of trade
on international trade over the medium routes with Iraq bodes well for improving
term, especially through trade corridor consumption and investment sentiments,
spillovers. given that the Jordanian economy is out-
Jordan’s current account deficit is ex- ward looking and geared to supporting
pected to narrow gradually over the medi- markets in GCC, Syria, and Iraq, the re-
um term mainly on the back of improving gional violent conflict and displacement
merchandise and tourism exports, outpac- will continue to affect the economy. Jor-
ing import growth due to higher energy dan’s long-term macroeconomic vulnera-

TABLE 2 Jordan / Macro outlook indicators (annual percent change unless indicated otherwise)

2014 2015 2016 e 2017 f 2018 f 2019 f

Real GDP growth, at constant market prices 3.1 2.4 2.0 2.3 2.4 2.5
Private Consumption -2.6 8.5 -0.3 0.1 1.1 1.8
Government Consumption 6.5 3.6 8.1 -1.6 0.8 1.3
Gross Fixed Capital Investment 2.1 -8.0 -7.3 2.2 3.1 4.0
Exports, Goods and Services 7.5 -9.0 -2.8 6.7 6.7 4.5
Imports, Goods and Services -0.9 -3.0 -7.1 0.7 3.1 3.1
Real GDP growth, at constant factor prices 3.2 2.6 2.2 2.3 2.3 2.5
Agriculture 7.6 5.0 3.8 1.5 1.5 1.8
Industry 3.9 2.2 1.0 2.0 2.8 2.7
Services 2.7 2.7 2.6 2.4 2.1 2.5
Inflation (Consumer Price Index) 2.9 -0.9 -0.8 3.1 1.9 2.2
Current Account Balance (% of GDP) -7.3 -9.1 -9.3 -8.7 -8.6 -8.5
Financial and Capital Account (% of GDP) 4.3 7.3 8.6 8.1 10.1 8.6
Net Foreign Direct Investment (% of GDP) 5.8 4.3 4.0 3.9 3.9 3.8
1/
Fiscal Balance (% of GDP) -9.3 -3.6 -3.2 -3.3 -1.6 -0.5
Debt (% of GDP)2/ 89.0 93.4 95.1 95.6 94.1 91.8
Primary Balance (% of GDP) 1/ -5.7 -0.1 -0.2 0.1 2.1 3.2

So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice.
No tes: e = estimate, f = fo recast.
1/ Includes fiscal gap o f 1.5% o f GDP in 2018 and 3.0% o f GDP in 2019.
2/ Go vernment and guaranteed gro ss debt. Includes WA J estimated bo rro wing fo r 2017-2019.
 growth in lending to “productive” busi-

KUWAIT Recent developments ness sectors (this excludes real estate and
securities lending) remained resilient at
8.4 percent y/y in July.
OPEC-related oil production cuts have External positions remain strong and sup-
weighed on growth, with GDP anticipated portive of Kuwait’s currency peg, backed
OPEC related oil production cuts have to shrink by 1 percent in 2017, following a by an SWF estimated at over US$500 bil-
weighed down growth. However, output 3.6 percent increase in 2016. Hydrocar- lion and supported by a modest recovery
should gradually recover supported by bons account for nearly half of GDP, and in oil prices over the past year. Kuwait
the OPEC’s June decision to extend pro- posted a current account deficit of 4.5 per-
still buoyant non-oil activity and infra- duction cuts until the first quarter of 2018 cent of GDP in 2016, a significant deterio-
structure spending, and as oil output is has weighed on oil output and exports. ration from a surplus of 45 percent in
ramped up. Pressure on fiscal and cur- Outside the oil sector, activity has re- 2013. Quarterly data show the current
rent account balances is easing. Key chal- mained supported by the implementation account balance shifting back into a mod-
of the five-year Development Plan est surplus on rising oil receipts. Import
lenges include hydrocarbon dependence
(2015/16-2019/20) which contains several growth has also remained robust, with
and parliamentary opposition to deep large infrastructure, transport and refinery capital goods imports rising by 25 percent
structural reforms. projects. In January, the government re- y/y in Q1, reflecting healthy domestic de-
leased the New Kuwait 2035 Strategic mand related to government infrastruc-
Plan, which aims to transform the country ture projects.
into a regional, financial and commercial Although improving, the fiscal position
hub as part of long-term economic diversi- remains constrained, reflecting depend-
fication efforts. ence on oil revenues for nearly 90 percent
Incoming data suggest that non-oil activi- of government income. With low oil prices
ty is continuing to expand. Consumer persisting, the government has posted
confidence rose in July to its highest level consecutive deficits of the order of 17 per-
in almost two years, although it remains cent of GDP (excluding investment in-
well below 2014 levels prior to the fall in come from the SWF and after transfers to
global oil prices. Consumer spending, as the SWF) over the past two years, a far cry
reflected in point-of-sale transactions, from double-digit surpluses prior to 2014.
strengthened in Q2, rising 9 percent y/y. However, on a general government basis,
The correction in property markets over public sector finances are in a modest sur-
the past two years appears to have run its plus. Despite expenditure rationalization
course: real estate prices have stabilized in efforts, fiscal reforms remain contentious.
recent months, and residential sector sales The government began raising utility pric-
rose by a robust 43 percent y/y in July. es in September 2016; however, rate in-
While the banking sector remains well creases in the second round of electricity
capitalized and generally healthy, bank and water tariff reforms currently being
lending to both firms and households has implemented are lower than initially pro-
slowed over the past year. However, posed. Plans to introduce a corporation

FIGURE 1 Kuwait / Government balances, percent of GDP FIGURE 2 Kuwait / Domestic interest rates

Sources: Ministry of Finance, World Bank, Haver. Sources: Central Bank of Kuwait, Haver.
tax, at a fixed rate of 10 percent, have also Additional concerns for immigrant
been shelved. Accordingly, the govern- workers include unpaid or delayed wages,
ment has been forced to look for cost- difficult working conditions and fear of a Risks and challenges
savings elsewhere, including to PPPs crackdown.
(public private partnerships) to finance
infrastructure projects, the implementa- Key external risks include spillovers from
tion of a VAT (expected in January 2018) geo-political tensions and conflict. A
and privatization of state assets. Kuwait strong resurgence of US hydrocarbon out-
issued an inaugural US$10 billion interna-
tional bond in March, but gross public
Outlook put as business regulations are loosened
under a new US presidency could weigh
debt remains low at close to 20 percent of on global oil prices, particularly if the US
GDP. emerges as a major energy exporter.
Despite fuel price increases implemented Growth is expected to rebound to 3.5 per- Longer-term challenges relate to Kuwait’s
in September 2016, inflation has remained cent in 2019, as OPEC related production dependence on the hydro-carbon sector.
muted, averaging 1.7 percent since the cuts are tapered off and oil output and A poor business environment and the
start of the year due to declining housing exports increase. The government plans to large size of the public sector have ham-
costs and persistently weak food inflation. invest US$115 billion in the oil sector over pered the development of the private non-
The peg to an undisclosed basket of cur- the next five years, which should also oil sector. Comprehensive reforms are
rencies, in which the US Dollar has a boost oil production. With additional sup- needed to rebalance the economy away
heavy weighting, has meant that the Cen- port coming from public investment from the energy sector to a more diversi-
tral Bank of Kuwait (CBK) has raised in- spending, growth should rise to about 2.7 fied growth path underpinned by innova-
terest rates in tandem with the US Federal percent over the medium term. Current tion, private sector entrepreneurship and
Reserve. However, in June, the CBK opted account and budgetary pressures are ex- job creation, and the quality of its labor
to keep its key policy rate on hold despite pected to ease on the back of a partial re- force.
the US Federal Reserve hike. covery in oil prices and rising output. The
Kuwait is an oil-rich country, where abso- baseline assumes gradual implementation
lute involuntary unemploy-ment are of spending and revenue reforms includ-
virtually nonexistent. Eighty percent of ing the introduction of a VAT in 2018,
employed Kuwaiti nationals work in the which Kuwait is on track to implement.
public sector. In contrast, immigrants,
who make up two-thirds of the
population, constitute the bulk of
lower-income residents.

TABLE 2 Kuwait / Macro outlook indicators (annual percent change unless indicated otherwise)

2014 2015 2016 e 2017 f 2018 f 2019 f

Real GDP growth, at constant market prices 0.5 0.6 3.6 -1.0 1.9 3.5
Private Consumption 4.9 1.5 1.0 2.0 2.0 3.0
Government Consumption 0.8 0.5 0.4 3.4 -1.8 0.2
Gross Fixed Capital Investment 2.7 -0.7 4.3 12.1 8.2 13.9
Exports, Goods and Services 1.4 1.0 5.2 -3.2 2.8 2.3
Imports, Goods and Services 8.0 1.4 6.0 4.5 5.0 5.0
Real GDP growth, at constant factor prices 0.9 -1.4 3.4 -0.9 1.8 3.4
Agriculture 7.3 2.9 2.5 0.7 2.3 3.4
Industry -0.5 -1.8 4.0 -3.5 2.0 1.6
Services 3.5 -0.8 2.5 3.7 1.6 6.4
Inflation (Private Consumption Deflator) 2.9 3.2 2.6 1.7 1.8 1.8
Current Account Balance (% of GDP) 32.5 4.5 -4.5 0.1 1.8 2.8
Financial and Capital Account (% of GDP) -36.1 -8.1 0.8 -3.7 -5.4 -6.5
Net Foreign Direct Investment (% of GDP) -9.0 -12.7 -5.0 -3.0 -2.0 -2.0
Fiscal Balance (% of GDP) 18.7 0.0 0.5 1.7 1.6 2.5
Debt (% of GDP) 3.1 5.2 10.0 22.3 27.6 31.7
Primary Balance (% of GDP) 18.8 0.1 0.5 1.8 1.9 2.9

So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice.
No tes: e = estimate, f = fo recast.
 subdued GDP growth and high interest

LEBANON Recent developments payments mean that the debt-to-GDP ratio

will continue its unsustainable path to-
ward a projected 155 percent by end-2017.
For 2017, the real GDP growth rate is pro- On the external front, a pickup in mer-
jected at 2 percent, unchanged from 2016, chandise exports combined with stagnat-
The prolonged political stalemate in Leba- with the main driver being services, and ing imports are expected to narrow the
non ended with the election of President tourism in particular. During the first five current account deficit by about 2 pp to
Aoun in October 2016 and the subse- months of 2017 (5-M 2017), tourist arrivals around 18 percent of GDP in 2017. Despite
rose by 12.8 percent (yoy), while hotel the improvement, Lebanon’s external defi-
quent formation of a unity government.
occupancy rates averaged 65.2 percent, cit remains among the largest in the
Since then political leaders have agreed on with the latter registering an increase of world, imposing heavy dependence on
the long-disputed parliamentary election 8.4 percentage points (pp) over 2016 and short-term capital inflows, and exposing
law, salary scale adjustment and the pub- the highest rate since 2012. From the de- the country to significant refinancing
lic-private partnership law. The protract- mand side, the three-year (2014-2016) de- risks. To reinforce confidence, the Central
cline in the contribution of private con- Bank, the Banque du Liban (BdL), sought
ed Syrian crisis and the slow pace of sumption to GDP growth seems to be to reverse its declining external reserves
structural reforms are critical impedi- abiding, as is the offsetting three-year im- and decelerating deposit growth rates in
ments to achieving potential growth. Sig- provement in the contribution of gross banks by initiating a large and very gener-
nificant macro-financial risks remain. fixed capital formation. For 2017, growth ous (to commercial banks) swap operation
seems to be solely driven by net exports of in 2016. The benefits were short lived and
goods and services; this is due to a recov- began to reverse in Spring 2017; from
ery in exports, a low base effect, and stag- March 2017 until May, BdL reserves de-
nation in imports (Figure 1). Structurally, clined by US$2.7 billion, a loss of almost
the economy remains heavily based on half of BdL’s gains during the June 2016–
services (especially real estate, retail and February 2017 period. In response, BdL
financial services) and oriented towards initiated another financial swap operation,
the region, rendering it vulnerable to vola- helping a June recovery for reserves in the
tility in growth and sizable macroeconom- amount of US$1.8 billion. This, however,
ic imbalances. was sourced from a repatriation of banks’
After five years of debate, salary scale foreign assets. In fact, the economy’s net
adjustments for the civil service, military foreign asset position in H1-2017 contract-
personnel and public sector teachers were ed by US$1.1 billion, highlighting the frag-
finally enacted, with cost estimated at ile dynamic.
almost 2 percent of GDP. Commendably,
government aimed for a fiscally neutral
reform, which forced broad revenue
Outlook
measures. The overall fiscal deficit for
2017 is expected to remain at around 9 Lebanon’s medium-term economic pro-
percent of GDP, with a slight improve- spects remain sluggish. Projections of an-
ment in the primary balance. However, nual growth persist to be around 2 percent

FIGURE 1 Lebanon / Net exports to lead growth in 2017

Percent (%)
8

-1

-2

-3

-4

-5

-6
2013 2014 2015 2016 2017 f
Private consumption Government consumption Gross fixed capital formation
Net exports Statistical discepancy GDP

Sources: Lebanese authorities and WB staff calculations.

over the medium term, and 2.5 percent in net foreign asset accumulation in the face to be paid to the issue of household lever-
2018 due to expected increase in spending of persistent and sizable fiscal and current aging and repayment capacity.
(public and private) motivated by the account deficits. More generally, a frail One of the key challenges to improving
forthcoming parliamentary elections macro-fiscal framework, underpinned by empirically informed policy is to strength-
scheduled in May. This is arrived at as- unsustainable debt ratios and persistent en the data and analytical base of the gov-
suming (i) the Syrian war continues and and sizable fiscal and current account ernment, especially in the Central Admin-
that spillovers into Lebanon, while signifi- deficits, within the context of a fixed ex- istration of Statistics for poverty measure-
cant, remain contained; and (ii) a reform change rate regime, exposes the country to ment and monitoring. An improved data
program to boost potential growth will significant foreign exchange and refinanc- system would better inform understand-
not materialize. Moreover, exports of ing risks. The reliance on deposits to fi- ing of the micro-implications of the refu-
goods and services are projected to contin- nance these imbalances could prove chal- gee crisis.
ue recovering from a low base effect, leav- lenging based on recent commercial
ing the external sector acting as a drag on banks’ deposit growth data.
growth. Critical structural reforms in public fi-
On the fiscal side, the election-induced nances, energy, safety nets and the busi-
boost to public spending in 2018 and high- ness environment still elude the govern-
er interest payments, will be partially off- ment, though some very important deci-
set by the revenue-generating measures sions have recently been made. In addi-
enacted in 2017, leaving the overall fiscal tion, the new parliament is working to
deficit with only a marginal increase. The pass its first official budget since 2005.
external balance, on the other hand, will Nonetheless, in the place of a sustained
deteriorate more significantly as imports reform effort, the Central Bank activism is
begin rebounding and remittances finally facing macro-financial risks. First, the ex-
show the lagged negative effects of low oil pected normalization of global interest
prices. rates will make it harder to attract hard
currency deposits unless domestic interest
rates also rise, which is inconsistent with
Risks and challenges the objectives of BdL’s interventions to
date. Second, the enthusiastic response to
BdL subsidized loans has helped boost
Security and political challenges continue economic activity but after several years
to be Lebanon’s primary concern. Leba- of such lending, more attention will need
non is also vulnerable to a slowdown in

TABLE 2 Lebanon / Macro outlook indicators (annual percent change unless indicated otherwise)

2014 2015 2016 e 2017 f 2018 f 2019 f

Real GDP growth, at constant market prices 2.0 0.8 2.0 2.0 2.5 2.0
Private Consumption 8.0 3.1 -2.9 -0.2 2.3 3.0
Government Consumption -1.6 6.0 10.9 -2.9 3.2 5.1
Gross Fixed Capital Investment -6.8 -2.6 17.8 -1.7 5.0 -0.5
Exports, Goods and Services -9.5 7.2 -5.0 4.4 3.6 1.4
Imports, Goods and Services -0.4 6.9 0.2 -2.2 3.9 2.8
Real GDP growth, at constant factor prices 2.1 0.3 4.6 2.2 2.0 2.0
Agriculture 14.7 -14.0 1.5 -8.5 2.5 0.0
Industry -3.4 -5.5 -2.8 -13.8 3.4 2.5
Services 2.5 2.2 6.1 5.2 1.8 2.1
Inflation (Private Consumption Deflator) 0.2 -3.1 -0.8 3.8 2.5 1.5
Current Account Balance (% of GDP) -24.3 -16.3 -19.8 -17.9 -19.4 -19.5
Financial and Capital Account (% of GDP) 26.6 22.3 18.8 14.0 14.1 12.3
Net Foreign Direct Investment (% of GDP) 3.5 3.4 4.0 4.0 4.0 4.0
Fiscal Balance (% of GDP) -6.3 -7.8 -9.6 -9.2 -9.6 -9.8
Debt (% of GDP) 138.7 142.2 151.0 155.1 158.9 162.7
Primary Balance (% of GDP) 2.5 1.2 0.0 0.8 0.9 1.2

So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice.
No tes: e = estimate, f = fo recast.
 ties. Budget revenues are expected to

LIBYA Recent developments jump strongly in 2017 thanks to the higher

hydrocarbon output. They will reach LYD
24.6 billion or 34.6 percent of GDP. How-
Despite strong growth performance driv- ever, revenues are just enough to cover
en by the oil sector, the Libyan economy is public wages (33.3 percent of GDP), which
Despite limited improvements, the Libyan still suffering from political strife that hin- are still high despite efforts to remove
economy still remains far below potential, ders it from reaching its potential. Follow- duplicate payments from the payroll
hindered by the persistence of violent po- ing four years of recession, the Libyan through extending and enforcing the use
economy recovered in 2017-H1, thanks to of the national identification system. Sub-
litical conflict. The twin deficits remain
the resumption in the production of hy- sidies (8.9 percent of GDP) continue to
large and lacking any framework for cor- drocarbon products after the repossession absorb a significant amount of budget
rective measures, exacerbating the insta- from militias of the main oil fields last resources, while capital expenditures re-
bility of the macroeconomic framework. year. The non-hydrocarbon sectors re- main weak. Overall, the budget deficit is
Inflation accelerated, eroding further the mained sluggish inhibited by lack of expected to remain high at 22 percent of
funds and security. GDP is expected to GDP (63.9 percent of GDP in 2016). The
purchasing power of the population. Over increase by 25.6 percent in 2017, allowing deficit is being financed mainly through
the medium term, the challenges go income per capita to substantially im- borrowing from the CBL. The domestic
beyond reconstruction to addressing prove to 65 percent of its 2010 level after debt has quickly increased to reach LYD
pre-2011 development gaps, diversifying losing more than half of its value. 53.7 billion end March 2017.
Prices of almost all commodities contin- The balance of payments is also improv-
the economy, and promoting private
ued to increase over the first half of 2017, ing, but continues to suffer from the ongo-
sector development. which further depleted the purchasing ing political deadlock and low oil prices.
power of the population. Inflation hit a The relative improvement of security
record level of 28.5 percent over 2017-H1 around the main oil facilities allowed Lib-
following the 25.9 percent registered last ya to substantially increase oil export to
year. Inflation is mainly driven by acute an average 0.62 million bpd over the first 7
shortages in the supply chains of basic months of 2017, but 1 million barrels per
commodities, speculation in the expand- day is achievable with better security con-
ing black markets, the de facto removal of ditions. However, production is still en-
food subsidies due to lack of funds, and couraging when compared to just 0.27
the strong devaluation of the LYD in the million bpd in the same period of 2016.
parallel markets. High inflation coupled Thus, revenues are expected to triple in
with weak performance of non- 2017 to reach US$20.8 billion. This perfor-
hydrocarbon sectors are likely to have mance is not enough for a sustainable
increased poverty and exacerbated socio- current account considering the high de-
economic exclusion. pendence of Libya on imports to meet
Although improving, public finances are consumption and intermediate goods re-
expected to remain strained in 2017, im- quirements. Indeed, imports are expected
pacted by continued political uncertain- to recover strongly this year, which will

FIGURE 1 Libya / Low revenues, exacerbated by high wage FIGURE 2 Libya / Turmoil in the hydrocarbon sector and
bill and subsidies are deteriorating public finance, in % of GDP consumption driven imports deteriorating the balance of pay-
ments, in % of GDP

80.0 100.0
60.0 80.0
40.0 60.0
20.0
40.0
0.0
20.0
-20.0
0.0
-40.0
-60.0 -20.0

-80.0 -40.0
-100.0 -60.0
2010 2011 2012 2013 2014 2015 2016 2017 -80.0
2009 2010 2011 2012 2013 2014 2015 2016 2017
Budget Balance Total Revenue
Wages and salaries Subsidies and transfers Current account balance Exports Imports

Sources: Government of Libya and World Bank staff estimates. Sources: Government of Libya and World Bank staff estimates.
keep the current account deficit high at an budget and the current account running provision of services. According to the
estimated 8.3 percent of GDP. To finance surpluses expected from 2020 onwards. IOM, in June 2017 there were 226,164
the deficit, Libya will need to draw further Foreign reserves will average around IDPs, 33 percent displaced in 2011-14.
on foreign reserves. The latter will drop to US$60 billion during 2018-20. Host communities have absorbed the bulk
around US$67.5 billion by end 2017, com- of the IDPs, however, as the situation be-
pared to US$ 123.5 billion by end 2012. comes protracted, their resources and
The official exchange rate of the Libyan
Dinar against the US$ has been kept stable
Risks and challenges basic services have become scarce and
overstretched. Potential for return is mini-
around its SDR peg, while the LYD in the mal in safe areas because the overall secu-
parallel market lost 82.5 percent of its val- The baseline macroeconomic scenario rity situation has not allowed for interna-
ue due to weak monetary-fiscal incon- presented above is very fragile because it tional assessment and assistance. For most
sistency and lack of policy credibility. reflects coping through rapid depletion of of the internally displaced communities —
buffers. This calls for immediate actions to including people displaced since the onset
bring current expenditures under control, of the crisis in 2011 — there is no immedi-
Outlook especially the wage bill and subsidies, and
improve governance of the financial sec-
ate prospect to return given the prevailing
inter-community tensions.
tor, which will also contribute to price
A more favorable economic outlook de- stability. Over the medium term, the
pends crucially on the progress in resolv- country needs broader and deeper struc-
ing the political stalemate, which has di- tural reforms to stabilize the macroeco-
vided the country, and improved security. nomic framework and promote private
The status quo will eventually lead the sector-led job creation. In particular, there
Libyan economy to insolvency. At the is a need to improve tax revenues and the
current pace of spending, if the context of management of public financial and hu-
conflict and insecurity persists, foreign man resources, promoting the develop-
exchange reserves will continue towards ment and diversification of the private
exhaustion, a prospect which is already sector, reforming the financial sector, and
affecting expectations. Over the medium improving the business environment.
term, subject to resumed peace and securi- The focus on Libya as a transit route for
ty, growth is projected to continue and migrants has obscured an IDP crisis in the
become more broad-based over 2019-20. country. The high number of internally
Both the fiscal and current account balanc- displaced persons (IDPs) with limited
es will significantly improve, with the prospects of return is creating a strain on

TABLE 2 Libya / Macro outlook indicators (annual percent change unless indicated otherwise)

2014 2015 2016 e 2017 f 2018 f 2019 f

Real GDP growth, at constant market prices -24.0 -6.1 -17.2 15.8 20.1 20.1
Private Consumption -24.0 -6.1 -0.7 2.6 2.8 2.8
Government Consumption -32.1 -4.6 -32.3 -28.0 -10.9 -10.9
Gross Fixed Capital Investment 9.2 9.7 -8.0 23.6 89.8 89.8
Exports, Goods and Services -67.8 -27.1 -18.1 112.4 44.6 44.6
Imports, Goods and Services -24.2 3.4 -3.5 8.7 4.8 4.8
Inflation (Consumer Price Index) 2.4 9.2 3.5 3.0 2.7 2.7
Current Account Balance (% of GDP) -48.1 -64.9 -94.5 -119.1 -86.4 -58.1
Fiscal Balance (% of GDP) -43.5 -77.1 -87.1 -53.1 -16.3 13.7
Debt (% of GDP) 39.3 127.0 286.1 313.4 235.2 176.5
Primary Balance (% of GDP) -41.8 -76.4 -85.1 -51.0 -14.7 14.9

So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice.
No tes: e = estimate, f = fo recast.
 enue transfers by the Government of Isra-

PALESTINIAN Recent developments el (GoI). The PA also managed to reduce

its spending in the first half of 2017 mainly

TERRITORIES
due to lower transfers and the initial im-
The latest war in Gaza had severe social pact of decisions to cut spending in Gaza.
and economic consequences and caused As a result, the total deficit (before grants)
the Palestinian economy to slip into reces- dropped by 16 percent year-on-year. In
sion in 2014. Reconstruction efforts al- parallel, aid to the PA treasury declined
Following a period of recovery after the lowed growth to recover to an annual by 19 percent resulting in a US$167 mil-
2014 Gaza war, growth in the Palestinian average of 3-4 percent in 2015-16. Howev- lion financing gap and further arrears
territories dropped to 0.7 percent in Q1 er, aid receipts for reconstruction have accumulation to the private sector and
significantly slowed in 2017 leading to a public pension fund.
2017 as reconstruction efforts decelerated
sharp deceleration in reconstruction activ- The external current account deficit
and private consumption slowed down. ities. This, along with a slowdown in pri- (including official transfers) is estimated
At 29 percent, unemployment continues vate consumption in the West Bank due to to have declined in 2016 to 10.4 percent as
to be stubbornly high. Given the ongoing political tensions pushed real GDP growth the trade deficit dropped and private
down to a mere 0.7 percent in the first transfers increased. The trade deficit
constraints to economic competitiveness,
quarter of the year. reached 38.6 percent of GDP in 2016 down
medium term growth is projected at 3 At 29 percent, the unemployment rate in from 41.0 percent in 2015 following a drop
percent. Lower than expected aid and the the Palestinian territories remains stub- in imports from Israel—the Palestinian
possibility of further conflict pose down- bornly high. Unemployment in Gaza, at territories’ main trading partner—due to
side risks to growth and employment. 44 percent, is more than twice as high as lower fuel prices and a trend among Pal-
that in the West Bank; more than 60 per- estinian consumers to boycott Israeli prod-
cent of those aged between 15 and 29 in ucts. Exports continue to be constrained
Gaza are out of work. by the ongoing trade restrictions and have
Following a slight deflation of 0.2 percent remained low and stagnant at around 18
in 2016, price trends picked up in the first percent of GDP. Private transfers as a
months of 2017 before a return to deflation share of GDP doubled in 2016 reaching
mid-year. Overall prices declined by 0.7 12.1 percent due to an increase in re-
percent in June 2017 (year-on-year), main- mittances from Palestinians working
ly reflecting a decline in food prices and abroad.
deflation in Israel driven by the appreciat-
ing New Israeli shekel – the main curren-
cy in circulation in the Palestinian territo-
ries. Outlook
The Palestinian Authority’s (PA) fiscal
situation remained tight in the first half of The economic outlook for the Palestinian
2017 due to lower than needed aid. Public territories remains unfavorable. Assuming
revenues performed well due to better tax that the current restrictions remain in
administration by the PA and one-off rev- place, the security situation stays relative-

FIGURE 1 Palestinian territories / Estimates and outlook: Public finances

Sources: Palestinian MoF and World Bank staff estimates.

ly calm and aid disbursements accelerate cent. Consequently, the current account could destabilize the political situation in
throughout the year to reach their project- deficit is expected to remain high in the the West Bank.
ed level, the real GDP growth rate of the coming years at about 13 percent of GDP.
Palestinian economy in 2017 is projected
at 3.0 percent: 2.7 percent in the West
Bank and 4.0 percent in Gaza. This modest
growth implies a stagnation in real per
Risks and challenges
capita income and an increase in unem-
ployment. A sustainable economic recovery in the
The fiscal deficit (before grants) is project- Palestinian territories is not possible given
ed to reach 3.8 percent of GDP (US$1.2 the stalemate in the peace process, ongo-
billion) in 2017. At the same time, foreign ing restrictions imposed by Israel on
aid in 2017 could fall to about US$666 trade, movement, and access to resources
million. After accounting for external debt alongside internal political divisions and a
repayment, this results in a financing gap challenging business environment. As a
in excess of US$580 million (4 percent of result, downside risks to growth and em-
GDP). PA actions alone will not be ployment remain significant. First, clashes
enough to fully close the gap. Unless do- recently witnessed in the West Bank may
nor aid is significantly stepped up, the gap erupt again, and if this happens, the secu-
will mostly be financed through arrears to rity situation will significantly worsen
the private sector and borrowing from negatively impacting economic activity.
local banks. Also, growth in the West Bank may be
The Palestinian territories’ current account worse than expected if the decline in
is expected to remain unfavorable in the donor support is sharper than current
coming years due to the persistently large projections. As for Gaza, setbacks to the
trade deficit. The share of Palestinian ex- reconstruction process are possible and
ports in the economy is expected to re- under such a scenario, the resumption of
main stagnant at about 17-18 percent in armed conflict cannot be ruled out which
the medium term due to the ongoing GoI may cause the economy to slip back into
restrictions on trade. With heavy depend- recession. Recent expenditure cuts by the
ence on imports to meet even some of PA in Gaza may also lead to social
their basic needs, the share of imports in tensions. While there is upside potential in
the economy will hover around 55 per- Gaza if relations with Egypt improve, this

TABLE 2 Palestinian territories / Macro outlook indicators (annual percent change unless indicated otherwise)

2014 2015 2016 e 2017 f 2018 f 2019 f

Real GDP growth, at constant market prices -0.2 3.4 4.1 3.0 3.0 2.9
Private Consumption 3.5 6.2 3.6 4.5 4.5 4.3
Government Consumption 3.7 5.8 0.1 3.5 3.2 3.2
Gross Fixed Capital Investment -10.1 8.1 -0.2 3.0 -1.3 -1.6
Exports, Goods and Services 9.6 2.6 5.5 -5.2 1.2 4.0
Imports, Goods and Services 4.1 9.5 1.8 2.9 3.4 4.1
Real GDP growth, at constant factor prices -2.3 1.6 3.3 3.1 3.0 2.9
Agriculture -7.6 -7.2 -11.0 0.5 1.4 1.6
Industry -13.8 -2.6 6.6 4.0 4.0 4.0
Services 3.1 3.8 3.0 2.9 2.7 2.5
Inflation (Consumer Price Index) 1.7 1.4 -0.2 0.5 1.6 2.0
Current Account Balance (% of GDP) -7.4 -16.3 -10.4 -13.1 -13.2 -13.4
Financial and Capital Account (% of GDP) 4.4 19.4 8.7 10.9 11.2 11.5
Net Foreign Direct Investment (% of GDP) -0.2 0.2 1.2 1.1 1.1 1.1
Fiscal Balance (% of GDP) -2.8 -5.1 -2.4 -3.8 -3.3 -3.2

So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice.
No tes: e = estimate, f = fo recast.
 edly postponed and the international re-

MOROCCO Recent developments serves dropped by almost 20 percent in

the period leading up to the envisaged
reform. However, the new Head of the
After a severe drought in 2016, the Moroc- Government postponed it the day before
can economy, which still has a sizable the launching press conference. The social
After a poor performance in 2016, a agriculture cycle, is expected to rebound crisis taking place in Al Hoceïma and ex-
strong rebound in agriculture output is in 2017. Driven by a better-than-average pectations of a further deterioration in
expected to push economic growth up in cereal harvest, economic growth picked public finances and macroeconomic bal-
up at 4.3 percent in the first semester of ances may have been behind the postpone-
2017. Meanwhile, non-agricultural activ-
2017 (compared to 1.6 percent during the ment. The fall of international reserves due
ity and inflation remain subdued. Alt- same period in 2016). The growth of non- to commercial banks speculations also
hough the fiscal deficit has declined slight- agricultural activity remained less pro- influenced the authorities’ decision.
ly to 4 percent, the external current ac- nounced however, at 3.3 percent. Services,
count deficit widened. The new govern- and to a lesser extent extractives, were the
ment is committed to pursue fiscal adjust-
main drivers of non-agricultural growth.
The unemployment rate rose to 9.3 per-
Outlook
ment and key program objectives. Yet, cent in the second quarter of 2017, espe-
much remains to be done to reduce cially prevalent among the young (23.5 Growth is expected to slow down in 2018
structural unemployment, increase labor percent) and educated (17 percent). Aver- and job creation will remain weak. The
age inflation in the first half of 2017 re- good harvest in 2017 will lead to a base
force par-ticipation, and secure higher
mained low at 0.3 percent, reflecting the effect deceleration in 2018. Estimated
and more inclusive growth. decline in food prices. growth of the non-agricultural sector at
Prudent fiscal policy helped to further around 3 percent will not be enough to
reduce the fiscal deficit in 2017, stabilizing substantially increase the growth rate. Job
the public debt at around 65 percent of creation in the new industrial sectors and
GDP. On the external front, the trade defi- services is not sufficient to absorb the new
cit deteriorated in the first half of 2017. entrants.
The 6.6 percent increase in exports as re- Although fiscal deficit is expected to pro-
sult of the recovery in phosphates and gressively decline, the current account
derivatives could not offset the 7.3 percent deficit is likely to widen. The fiscal deficit
rise in imports. The bulk of imports con- will continue to decline as the authorities
sisted of energy products due to higher seek to move it to below 3 percent of GDP
energy prices while food and capital and bring public debt down to 60 percent
goods imports slowed down. Thus, the in 2021. Key fiscal measures include boost-
trade deficit reached almost 20 percent of ing VAT revenues and reducing tax ex-
GDP. Tourism and remittance flows re- emptions (in the agricultural sector), to
mained steady. consolidate the corporate tax regime and
The transition towards a more flexible better enforce tax payments by the self-
exchange rate regime has been unexpect- employed and liberal professions. The

FIGURE 1 Morocco / Fiscal balance and public debt FIGURE 2 Morocco / External deficits

Percent of GDP Percent of GDP Percent of GDP

-8.0 70
-25.0
-7.0
65 -20.0
-6.0
60 -15.0
-5.0

-4.0 55 -10.0

-3.0 -5.0
50
-2.0 0.0
45 2012 2013 2014 2015 2016
-1.0

0.0 40
Trade Balance Current account
2009 2010 2011 2012 2013 2014 2015 2016 2017e
Budget Balance Public Debt RHS

Sources: Ministry of Economy and Finance, World Bank staff estimates. Source: Exchange Office.
government is determined to reduce the bined with poor coordination between tivity sectors. In addition, the quality of
civil service wage bill, including social central and local agencies, results in the education that hinders these changes
contributions, to bring it back to 10.5 per- provision of services lagging in many re- needs to be improved to support Moroc-
cent of GDP in the medium term. The de- gions, especially poor areas resulting in a co’s future prosperity.
pendence on energy imports will be felt widening gap across areas.
even more strongly as the energy bill is The risks to the outlook are titled to the
expected to increase. The new export in- downside. Delays in implementing key
dustries are not projected to expand at a reforms including fiscal and structural
higher pace and thus will remain depend- reforms could increase social discontent
ent on imports of inputs, limiting their and adversely impact the external sector.
current account impact. In sum, even if The protracted exchange rate transition
the transfers from abroad and the tourism could lead to market pressures and poten-
receipts remain dynamic, the financial tially weakening the current account and
deficit will remain large at around 5 per- reserves levels. Weak economic prospects
cent of GDP. in the euro area and the continued possi-
Over the medium term, the new govern- bility of adverse geopolitical development
ment is committed to implement structur- in the region could slow economic activity
al reforms to raise potential growth and through lower exports, FDI flows, and
promote more inclusive growth, reinforce remittances.
the business environment, modernize the Morocco’s growth model suffers from low
public administration, and improve access productivity and low investment returns.
to quality public services. Morocco aims at Morocco’s growth path is characterized
joining the top 50 of the World Bank’s first by low returns on capital accumula-
Doing Business ranking by 2021. tion related to the inefficient public sector
investment. Secondly, the allocation of
labor by sector, which partially reflects
Risks and challenges government policy objectives, tended
therefore to hamper productivity gains.
Sustaining productivity growth requires
Spatial disparities in access to services and increasing labor and capital mobility from
infrastructure persist despite the regional- low to high value added firms and reallo-
ization and decentralization program. cating capital and labor from stagnant
Uneven economic development, com- agricultural subsectors to higher produc-

TABLE 2 Morocco / Macro outlook indicators (annual percent change unless indicated otherwise)

2014 2015 2016 e 2017 f 2018 f 2019 f

Real GDP growth, at constant market prices 2.7 4.5 1.2 4.1 3.1 3.2
Private Consumption 3.0 2.2 3.4 4.0 2.9 2.5
Government Consumption 2.0 2.4 2.5 1.6 1.7 1.8
Gross Fixed Capital Investment -1.3 0.2 9.3 4.4 3.1 3.1
Exports, Goods and Services 9.0 5.4 5.1 6.3 7.1 7.3
Imports, Goods and Services 3.8 -1.1 15.4 5.1 4.9 4.8
Real GDP growth, at constant factor prices 2.0 3.2 0.3 4.1 2.4 3.2
Agriculture -2.3 11.6 -11.3 14.3 -0.5 2.3
Industry 0.7 1.8 1.2 2.1 2.5 2.7
Services 3.7 1.7 3.1 2.5 3.1 3.6
Inflation (Consumer Price Index) 0.4 1.8 1.6 1.0 1.6 1.6
Current Account Balance (% of GDP) -5.7 -3.1 -4.3 -5.2 -5.3 -5.1
Fiscal Balance (% of GDP) -4.7 -4.2 -4.0 -3.5 -3.5 -3.0
Debt (% of GDP) 63.6 63.7 64.7 64.9 65.3 65.2
Primary Balance (% of GDP) -2.0 -1.4 -1.0 -0.5 -0.4 -1.0

So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice.
No tes: e = estimate, f = fo recast.
 Bank alternatively implemented a gradual

OMAN Recent developments rate increase to match the US. Inflation is

estimated to increase from 1.1 percent in
2016 to 2.0 percent in 2017 reflecting the
Growth in Oman continues to be held ongoing subsidy reform.
back this year by lower oil production and Fiscal outturns in the first half of 2017 in-
Compounded by participating in OPEC weaker consumption and investment. dicate that the deficit is expected to nar-
oil production cuts in 2017, protracted Real GDP growth is projected to slow row to 13.5 percent from 20.8 percent in
low oil prices and fiscal austerity continue down to 0.1 percent in 2017 from 2.8 per- 2016. This improvement reflects higher oil
cent in 2016. Record high oil production revenue receipts due to higher oil prices,
to weigh on Oman’s economy. Fiscal and levels (1 million bd) drove overall growth and savings coming from higher electrici-
current account deficits remain large, and in both 2015 and 2016. In 2017, Oman ty tariffs for large consumers and a slight
with Oman increasingly resorting to ex- joined most OPEC non-members in partic- uptick in government service fees (such as
ternal borrowing to finance its deficits, ipating in oil production cuts, leading to a visa fees). To finance the 2017 budget,
contraction of the hydrocarbon sector by Oman has raised US$5 billion from inter-
public debt is rising rapidly. However,
2.8 percent. Non-hydrocarbon GDP national debt markets in March and US$2
growth is expected to pick up over the growth is estimated to continue to slow billion from sukuk (Islamic Bond) in May
medium term following a boost in oil and down to 2.5 percent in 2017 from 3.4 per- 2017.
gas and from expected gains in the non-oil cent in 2016 as public spending declines The main social concern for Oman is the
sector resulting from the government’s with knock-on effects on consumption and lack of jobs. ILO estimates unemployment
investment. According to the national to be about 20 percent on average, but
economic diversification plan. consumer confidence survey, the confi- about 50 percent for the youth—a pressing
dence index slowed to 78.8 percent in 2016 problem in a country where almost 40
from 95.3 percent in 2015. The current percent of the population is younger than
account deficit is estimated to slightly 25 years old. Young Omanis have a strong
improve to 15.7 percent in 2017 from 17.4 preference for public sector jobs, where
percent of GDP in 2016 on the back of pay is higher and working hours are
higher oil prices. shorter, while the private sector continues
The ongoing Gulf sanctions on Qatar had to rely on expatriate labor. Oman will
raised concerns over the possibility of the have to generate 45,000 jobs annually to
disruption of gas supply to Oman from address the problem, and the ongoing
the Qatari pipeline, however, Qatari offi- effort to replace expatriates with Omanis
cials have confirmed they do not plan on are insufficient without an improvement
closing the pipeline. In fact, Oman has in the environment for private sector job
benefitted from this Gulf crisis with its creation.
ports increasingly used as a conduit for The National Diversification Program
exports to Qatar. (Tanfeedh) provides a roadmap for in-
Oman did not follow the recent US policy creasing private sector participation—
rate hikes like the other GCC states, but focusing on logistics, manufacturing and
given its peg to the US Dollar the Central tourism. However, some diversification

FIGURE 1 Oman / Real annual GDP growth FIGURE 2 Oman / General government operations
(in percent of GDP)

% change % change
7 6.0 0 60
6
5 5.0 50
-5
4
3 4.0 40
-10
2
3.0 30
1
-15
0 2.0 20
-1
-2 1.0 -20
10
-3
-4 0.0 -25 0
2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019
Hydrocarbon GDP Non-Hydrocarbon GDP Real GDP Overall Fiscal balance Total expenditure
Total revenue
Sources: Omani Authorities, World Bank Staff estimates. Sources: Omani Authorities, World Bank Staff estimates.
reforms such as the removal of subsidies tinue to rise. Owing to the hike in electrici- reforms. The massive infrastructure
would have negative short-term effects on ty tariffs and the VAT, inflation is ex- spending program under the 9th Develop-
the population. The government thus fac- pected to inch up to 2.6 percent in 2018 ment Plan is likely to encounter delays as
es the challenge of ensuring adequate so- before moderating to 1.8 percent in 2019 the government continues to be fiscally
cial protection and mitigation policies. as cost push pressures from subsidy re- strained. The government will look to-
Existing beneficiary identification, welfare form dissipate. wards increasing public-private partner-
measurement and analysis methods and In January 2017 electricity subsidies were ships which might prove difficult in the
institutions may need to be updated and removed for large consumers, who collec- short term due to falling investor confi-
revalidated. tively consume over 30 percent of the total dence in the region. The government is
energy supply. Moreover, the adoption of also likely to continue to face social unrest
a 5 percent VAT expected in 2018 and in response to subsidy reform.
Outlook higher corporate income tax are expected
to narrow the fiscal deficit to 11.4 percent
The overall economic outlook is vulnera-
ble to several risks. If the planned consoli-
by 2019. Oman’s accumulated resource dation does not materialize, the govern-
Economic growth is set to modestly recov- revenue savings are estimated at US$38 ment’s fiscal policy risks losing credibility
er over the medium term. In 2018, a boost billion and have been used to partially with negative consequences for financing.
in the hydrocarbon sector will drive the finance the fiscal deficit. However greater External risks include further oil price
recovery—as the “OPEC plus” restrictions reliance on foreign borrowing will raise shocks and the US interest rate hikes. The
on oil supply are lifted and the Khazzan public debt dramatically over the forecast possible weakening of the US Dollar could
gas project expands production capacity. period, estimated at over 50 percent of raise import costs and deteriorate the ex-
As the gradual recovery of oil prices im- GDP by 2020 from 5 percent in 2014. The ternal balance. A continued slowdown in
proves confidence and encourages private current account deficit is projected to im- China, Oman’s main trading partner,
sector investment, overall GDP growth is prove to 9.2 percent by 2019 as oil prices would add to downside risks. Financing
projected to rebound to 2.9 percent by rise and non-oil exports grow. By 2020, the conditions may become more challenging
2019. The government’s policy reform gas pipeline with Iran is also expected to given the expansion in debt, especially if,
agenda remains focused on economic di- increase LNG exports. with higher U.S. rates, investor sentiment
versification and fiscal consolidation. Over shifts from emerging markets. These
the longer term, pro-business reforms stresses are already evident in the recent
such as the foreign ownership law and the
FDI law, and the lifting of sanctions on
Risks and challenges change in leadership at the Central Bank,
which followed a banking system ratings
Iran are expected to increase trade and downgrade by Moodys.
investment opportunities. Monetary poli- Inclusive economic growth hinges on the
cy will remain tight as interest rates con- timely implementation of diversification

TABLE 2 Oman / Macro outlook indicators (annual percent change unless indicated otherwise)

2014 2015 2016 e 2017 f 2018 f 2019 f

Real GDP growth, at constant market prices 2.5 5.7 2.8 0.1 3.4 2.9
Private Consumption 5.6 2.9 1.9 1.5 2.5 3.0
Government Consumption 9.6 0.8 -2.2 -3.8 0.9 2.4
Gross Fixed Capital Investment 0.8 2.5 1.8 1.7 2.1 2.6
Exports, Goods and Services -2.1 -9.4 2.3 -1.6 2.5 4.1
Imports, Goods and Services -9.8 -3.2 -1.5 -1.1 2.3 3.5
Inflation (Consumer Price Index) 1.0 0.1 1.1 2.0 2.6 1.8
Current Account Balance (% of GDP) 5.2 -15.5 -17.4 -15.7 -11.1 -9.2
Fiscal Balance (% of GDP) -3.6 -16.5 -20.8 -13.5 -12.2 -11.4

Sources: World Bank, Macroeconomics and Fiscal Management Global Practice, and Poverty Global Practice.
Notes: e = estimate, f = forecast.
 debt. The hydrocarbon sector, which con-

QATAR Recent developments stitutes 80 percent of export earnings and

90 percent of government revenues, has
been largely unaffected. Fiscal consolida-
Growth in 2017 is anticipated to slow to 2 tion is continuing, albeit, according to
percent from 2.2 percent in 2016, on some reports, at a slower pace. The fiscal
Growth prospects have weakened due to weaker activity and sentiment in the non- deficit is projected to decline to 5.7 percent
hydrocarbon sector, reflecting the sever- in 2017 from over 8 percent in 2016.
the diplomatic rift with GCC neighbors.
ing of diplomatic and trade ties by sever- The banking system remains well capital-
However large financial buffers are an- al Arab countries, including the King- ized, and asset quality strong. Liquidity
choring confidence in the economy, and dom of Saudi Arabia, Bahrain, UAE and injections by the Central Bank and rising
Egypt. These countries constitute a small government deposits are also helping to
good infrastructure has provided space to
share of destination markets for Qatar’s ease liquidity pressures that emerged mid
blunt the impact of sanctions. In the me- exports and a relatively small proportion -summer. Non-resident deposits at Qatari
dium term, growth will be supported by of financial and FDI flows. Nevertheless, banks—the bulk in the form of foreign-
rising gas output and continued spending the boycott and the disruption of eco- currency deposits, which account for near-
nomic ties led initially to a sharp drop in ly a quarter of total banking sector depos-
on the 2022 FIFA World Cup. Reforms imports, requiring a (costly) diversion of its—fell by 14 percent during June and
protecting foreign household workers and merchandise and services trade and fi- July. However, these outflows were fully
introducing permanent residency rights nancial flows through other neighboring offset by a more than doubling of govern-
countries. It has also dampened investor ment deposits (particularly foreign cur-
for expats will help with longer-term di- sentiment, reflected in the stock market rency deposits), so that total deposits in
versification efforts. being down 11 percent at end August the banking system rose.
relative to early June levels. In August, Inflation decelerated to just 0.2 percent y/
Fitch became the third major credit rating y in July from 1.2 percent at the start of
agency to downgrade the country’s debt the year, despite the disruption to im-
one notch to AA- (on par with Belgium ports, including food (40 percent of which
and South Korea) due to the uncertain was sourced from KSA). The country
economic outlook. posted a current account deficit of 7.6
High frequency data suggest that the percent of GDP in 2016, its first in 17
economy is adjusting. In September, Qatar years. This is expected to shift into a small
inaugurated the US$7.4 billion Hamad surplus in 2017, given the partial recovery
seaport, thereby securing alternative trad- in global energy prices at the start of the
ing routes. Investor confidence in the cur- year has lifted export earnings, and the
rency peg remains anchored by the coun- sharp 38 percent m/m drop in imports in
try’s large stock of liquid external assets June (which has since recovered only par-
worth nearly US$180 billion (of a total tially) that has further lifted the goods
stock of close to US$300 billion), which trade balance.
have helped to contain the increase in risk In the context of the National Develop-
premiums on sovereign and corporate ment Strategy 2011-16 the authorities have

FIGURE 1 Qatar / Goods trade balances FIGURE 2 Qatar / Banking sector claims and liabilities

% change, Trade Balance, QR, Bn percent, year-on-year percent, year-on-year

yoy Exports 35 140
40 Total claims
Imports
30 30 Private sector deposits 120
Public sector deposits, RHS
20 25 100

10 20 80
0 15 60
-10 10 40
-20 5 20
-30 0 0
-40 -5 -20
-50
-10 -40
Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17
Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Source: Haver. Sources: Qatar Central Bank, Haver.

adopted a national relative poverty line
and a welfare measurement methodology
Outlook financial buffers and the diversification of
trade ties. Over the medium term, the
to track living standards of the population emergence of new LNG suppliers in the
and identify vulnerable households. This Growth will remain subdued by the eco- United States, East Asia and Africa poses
threshold is equal to the half of the medi- nomic boycott. Nevertheless, a multi-year downside risks to global LNG prices.
an household’s income, and about 8 per- US$130 billion infrastructure upgrade Other external risks include regional insta-
cent of Qataris in 2013 lived on an income ahead of the FIFA World Cup and the bility risks, and global financial volatility
less than that—a share broadly unchanged launch of the US$10 billion Barzan natural that affects capital flows and cost of fund-
from 2007. Lower incomes correlated with gas facility will help to offset these head- ing at a time of weak growth and greater
household dependency ratio, job market winds, with growth expected to average 2 economic uncertainty in Qatar. Qatar’s
status, educational attainment, female percent in 2017 and 2018, before rising to 3 investment-driven growth strategy over
headship, and disability. percent in 2019. Qatar’s peg to the US Dol- the past decade has helped to transform
Spatial differences in welfare exist, both lar means that monetary policy will grad- standards of living for citizens, but has
for monetary and non-monetary ually tighten in tandem with the US. also given rise to concerns including sus-
measures, notably between more urban- Alongside gradual consolidation of recur- tainability in an environment of persis-
ized and less urbanized areas. Expatriate rent spending, key tax policy and admin- tently low energy prices, signs of excess
workers face additional challenges, com- istration measures, including the intro- capacity and demographic imbalances.
plaining about delays or withholding of duction of a VAT and excises during 2018 The development of the non-hydrocarbon
wages, poor working conditions, sub- are expected to further contain the fiscal sector is critical. Recent permanent resi-
standard employer-provided accommoda- deficit. A recovery in imports, in particu- dency reforms are an important step, and
tion, irregular recruitment practices, and lar capital goods related to infrastructure the first among GCC countries, to help
lack of information on how to enforce spending, should keep the current account attract and retain highly skilled foreign
their rights. During the summer, Qatar surplus modest in the near term. workers needed to achieve long-term ob-
announced major labor reforms strength- jectives become a knowledge economy. In
ening protections afforded to domestic addition, Qatar will also need to raise the
expat workers, and approved a law allow- productivity of its investments, in both
ing permanent residency to some expatri- human and physical capital, and under-
ates . Risks and challenges take structural reforms to improve the
business environment.
In the near term, downside risks stem
from the ongoing diplomatic crisis, alt-
hough these are mitigated by substantial

TABLE 2 Qatar / Macro outlook indicators (annual percent change unless indicated otherwise)

2014 2015 2016 e 2017 f 2018 f 2019 f

Real GDP growth, at constant market prices 4.0 4.0 2.2 2.0 1.7 3.0
Private Consumption 8.0 8.1 3.5 1.2 1.3 2.0
Government Consumption 8.9 1.1 -21.0 -1.5 0.2 -2.4
Gross Fixed Capital Investment 11.4 1.8 8.0 3.4 5.6 10.3
Exports, Goods and Services 0.5 -0.9 1.7 -0.5 1.0 1.6
Imports, Goods and Services 6.5 -8.9 -3.9 -5.0 4.0 6.0
Real GDP growth, at constant factor prices 4.1 4.0 2.1 1.9 1.7 3.1
Agriculture 25.1 8.7 4.0 0.3 1.1 1.8
Industry 1.9 2.0 2.0 0.4 1.3 2.3
Services 9.4 8.6 2.2 5.3 2.4 4.8
Inflation (Consumer Price Index) 3.1 1.9 2.9 0.6 2.0 2.0
Current Account Balance (% of GDP) 23.9 8.4 -7.6 3.9 3.5 1.9
Financial and Capital Account (% of GDP) -23.1 -7.6 6.5 -5.0 -4.6 -2.8
Net Foreign Direct Investment (% of GDP) -2.8 -2.8 -3.0 -2.9 -3.1 -3.2
Fiscal Balance (% of GDP) 12.6 1.4 -8.3 -5.7 -4.3 -2.7

So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice.
No tes: e = estimate, f = fo recast.
 by more than 75 percent throughout 2016.

SAUDI ARABIA Recent developments Furthermore, the strong decline in imports

in both real and nominal terms in the
same year meant that the current account
The Saudi Arabian economy grew at a deficit almost halved in 2016 reaching 3.9
more moderate rate of 1.7 percent in 2016 percent of GDP. Higher frequency data for
The mediocre oil price outlook invigorated as oil prices continued to remain below the first quarter of 2017 suggests a further
the Vision 2030 reform agenda. In 2017, $50 for almost the entire year. The data for favorable trend with current account bal-
the first half of 2017 suggests that GDP in ance moving into the green territory after
the authorities showed commitment to
the first quarter deteriorated, registering a two years of deficits.
last year’s OPEC deal by restricting oil 0.5 percent contraction on a year over year Though CPI inflation picked up to 3.7
production and introduced major reform basis. The crude oil production index de- percent in 2016, data for the first two quar-
initiatives. With unfolding fiscal consoli- clined by 4.4 percent due to the OPEC ters of 2016 show a deflationary trend on a
dation efforts, improvements in medium agreement on curbing production. How- year over year basis, which may be associ-
ever, non-oil GDP grew by around 0.7 ated with weaker demand in light of re-
fiscal outlook were achieved at the expense cent reforms. The Kingdom has
percent in the same period. Though offi-
of growth, which closely relies on public cial GDP data for the second quarter of maintained its currency to USD, which
spending. 2017 has not been released, other indica- contributed to a significant appreci-ation
tors suggest continued subdued economic since the Global Financial Crisis. The
activity. Saudi Riyal has unrolled previous real
The fiscal deficit slightly deteriorated to appreciations by more than 4 percent in
16.6 percent of GDP in 2016 compared to the 7 months since December 2016 with
the 15.8 percent a year earlier. In Septem- US dollar losing value, which could help
ber 2016, the authorities introduced the rebalance pressures on non-oil exports
biggest measure towards fiscal consolida- and reign in imports, albeit at a limited
tion within the Fiscal Balance Program by extent.
a cut to civil service remuneration apply- On the labor market side, latest available
ing to around two thirds of employed data suggests that between the second
nationals. However, a decision was taken quarter of 2015 and the same quarter in
in April 2017 to reverse some of the cuts 2016 around 459,000 jobs were created.
(including all allowances, financial bene- This figure is the highest number of job
fits, and bonuses, but not including the creation in the last three years signaling
thirteenth month salary payments) after 6 positive developments for job seekers and
months and reports of better than antici- the economy. However, the unemploy-
pated effects of other measures of fiscal ment rate remained unchanged in 2016 at
consolidation that had also been imple- 5.6 percent for the overall population and
mented. increased to slightly above 12 percent for
On the external side, negative growth in Saudi nationals (up from 11.5 percent a
exports reduced significantly despite the year earlier) given the structural labor
OPEC agreement since oil prices increased

FIGURE 1 Saudi Arabia / Oil and non oil sectors FIGURE 2 Saudi Arabia / Oil production

SAR, Trillions Crude Oil Production (bbl/d)

3.0 11.0

2.5 10.5
0.43
0.43
0.41
0.40
0.38

2.0
0.36

10.0

1.5
1.00
1.00
0.97
0.86

9.5
0.92
0.81

1.0
9.0
0.5
0.99

1.04

1.02

1.04

1.10

1.14

8.5
0.0
2011 2012 2013 2014 2015 * 2016 8.0
2010-01
2010-05
2010-09
2011-01
2011-05
2011-09
2012-01
2012-05
2012-09
2013-01
2013-05
2013-09
2014-01
2014-05
2014-09
2015-01
2015-05
2015-09
2016-01
2016-05
2016-09
2017-01
2017-05

Oil Sector Private Non-Oil Sector

Public Non-Oil Sector Import Duties
Sources: KSA General Authority for Statistics. Sources: US Energy Information Agency and OPEC.
market issues, including high reservation in 2017 as the reduction in imports is ex-
wages for Saudi nationals.
While no official information is available,
Outlook pected to outpace the negative growth in
exports. The CAB is also projected to in-
the Kingdom likely experiences sizable The Saudi economy is projected to under- crease to above 2 percent in the subse-
poverty pockets. As in other GCC coun- go a significant moderation growing by quent years with gradual recovery in oil
tries, the bulk of low-income residents are around 0.3 percent in 2017, mainly due to prices.
migrant workers, but as the citizen popu- a modest outlook in oil prices, OPEC pro- Inflation is projected to be more volatile in
lation crosses the 20 million mark, inade- duction quota reduction and the dampen- the coming years, reducing to 1.2 percent
quate access to economic opportunities is ing effect of the Fiscal Balance Program. in 2017 and then increasing to below 5
also an issue for nationals. With the pro- However, as the negative short term percent in 2018 as more distortions in pric-
spect of low oil prices for longer, the old effects of structural reforms dissipates and es are removed. In 2019 the effects of these
social contract—one based on government government balances improve, it is pro- adjustments and weaker demand is ex-
employment, generous subsidies, and free jected that growth will rise to over 2 per- pected to reduce inflation back down to
public services—is no longer sustainable. cent by 2019. Moreover, the designation of 1.9 percent.
The reform agenda in Vision 2030 envis- Prince Salman, the champion of Vision
ages deep structural changes that will
profoundly impact the population in all
2030, as the crown prince provides a
strong signal of a longer-term commit-
Risks and challenges
aspects of their livelihoods. ment of the government to continue the
The authorities are serious about mitigat- path of reforms of reducing dependence Despite assurances by the highest level of
ing the negative impact of reforms. They on oil and increasing the role of the pri- the authorities, in the medium term the
are launching a new social program to vate sector. main challenge of the Saudi economy is
compensate the people for the effect of The fiscal deficit is expected to narrow as the credibility of the Vision 2030 reform
subsidy removal. However, identifying a share of GDP in 2017 to around 10 per- commitment. Timely and adequate policy
poor and vulnerable groups outside of cent and continue to fall to under 7 per- responses in order to continue reform
traditional characteristics (widow, disa- cent as the result of reforms in petroleum signals while not discouraging the private
bled, etc) has been difficult, and little evi- product prices, introduction of VAT, fur- sector through fiscal management pose
dence exists to inform policies about the ther fiscal austerity measures continue important risks in this path. For example,
level of support to be provided. In that and a forecasted gradual increase in glob- the reduction in net foreign assets held by
respect, the authorities are currently al energy prices. This should cap the pub- SAMA in the recent years due to contin-
building capacity and institutions for wel- lic debt ratio at around 25 percent of GDP ued deficits, could induce overly rapid
fare measurement and analysis. in the medium term. fiscal consolidation before growth-
The external balance is expected to im- friendly structural reforms are in place.
prove and register a surplus of 1.7 percent

TABLE 2 Saudi Arabia / Macro outlook indicators (annual percent change unless indicated otherwise)

2014 2015 2016 e 2017 f 2018 f 2019 f

Real GDP growth, at constant market prices 3.7 4.1 1.7 0.3 1.2 2.1
Private Consumption 6.1 6.8 2.3 1.8 2.6 2.5
Government Consumption 12.0 -1.8 -18.8 2.0 1.1 1.4
Gross Fixed Capital Investment 7.5 3.6 -15.9 5.5 -0.4 3.8
Exports, Goods and Services -1.9 0.7 1.4 -0.5 1.9 1.7
Imports, Goods and Services 6.6 1.5 -24.3 2.2 2.6 2.8
Real GDP growth, at constant factor prices 3.6 3.5 1.8 0.3 1.2 2.1
Agriculture 2.5 0.6 0.6 0.0 0.2 0.6
Industry 3.1 5.0 2.5 -0.3 1.4 2.0
Services 4.5 1.4 0.9 1.2 1.0 2.4
Inflation (Consumer Price Index) 2.7 2.2 3.7 1.2 4.9 1.9
Current Account Balance (% of GDP) 9.8 -8.7 -3.9 1.7 2.4 2.3
Fiscal Balance (% of GDP) -3.4 -15.8 -16.6 -10.0 -6.3 -4.9

So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice.
No tes: f = fo recast.
 tially offset by increased dividends from

UNITED ARAB Recent developments GREs and higher fees. For example, Dubai
increased parking fees and introduced

EMIRATES
fees for hotels and airport passengers.
Overall real GDP growth is estimated to Abu Dhabi introduced a 4 percent munici-
further moderate to 1.4 percent in 2017, pality fee on hotel bills and a 3 percent
down from 3 percent in 2016. Hydrocar- municipality fee on the annual value of
bon GDP growth is estimated to contract expatriates’ rental contracts. This is ex-
Non-oil growth is estimated to remain by 2.9 percent in 2017 from 3.8 percent in pected to improve the fiscal deficit slightly
resilient in 2017 while OPEC-mandated 2016 in compliance with the OPEC agree- to 3.2 percent of GDP in 2017. The current
oil production cuts limit oil growth. How- ment to cut supply. The non-oil sector is account surplus also fell from 19.1 percent
estimated to grow by 3.3 percent in 2017 of GDP in 2013 to an estimated 2.6 percent
ever, in the medium term firmer oil prices, reflecting higher public investment and a of GDP in 2017 owing to rising nonoil
a rebound in global trade and easing of pickup in global trade. The average rate of exports.
fiscal consolidation are expected to inflation increased slightly to 2.2 percent Monetary policy continues to track the US
strengthen economic activity, especially in 2017 from 1.6 percent in 2016 partly and growth in bank deposits is trending
reflecting utility and gasoline price adjust- upwards. The Central Bank continues to
as investments ramp up ahead of Dubai’s
ments, and higher imported inflation, in maintain the peg to the US Dollar, and
Expo 2020. This rebound is faced with addition to an uptick in activity. The cur- thus mirrored the US Federal Reserve
several downside risks including lower oil rent account surplus is expected to im- movements—the interest rate on certifi-
prices and tighter global financial condi- prove to 2.6 percent of GDP this year cates of deposit were raised three times
tions. mainly owing to rising nonoil exports. since December, by 75 basis points in total
Fiscal consolidation efforts in the emirates to 2 percent. Growth in bank deposits
began in 2015 and continued at a slower continues to trend upward, logging a
pace in 2016. Electricity and water tariffs growth rate of 7.1 percent y/y in April,
were increased, fuel subsidies were re- surpassing lending growth for the first
moved, and capital transfers to Govern- time in two years. Growth in broad mon-
ment Related Entities (GREs) were re- ey supply (M2) gradually improved—
duced. Despite these measures, the de- from 4.4 percent y/y in March to an over-
cline in hydrocarbon revenues has pushed two-year high of 5.9 percent y/y in April.
the consolidated fiscal balance down from After a sharp decline in 2015 amid tighter
a comfortable surplus of 10.4 percent of regulations, higher housing supply and
GDP in 2013 to 4.3 percent deficit in risk aversion, Dubai’s residential property
2016.The deficit was financed through prices have begun to stabilize. In another
withdrawals from the sovereign wealth positive development, Moody’s upgraded
funds, bank borrowing and, increasingly, its outlook for UAE from negative to sta-
by foreign capital raising. More recently ble in May 2017 citing an effective policy
the scaling back of capital transfers to response to the low oil prices and im-
GREs bore the brunt of spending cuts. The proved economic performance.
decline in hydrocarbon revenues was par-

FIGURE 1 United Arab Emirates / Annual GDP growth rate FIGURE 2 United Arab Emirates / General government
(percent per annum) operations (in percent of GDP)

% change % of GDP % of GDP

8 3 40

7 2 35

6 1 30
0 25
5
-1 20
4
-2 15
3
-3 10
2
-4 5
1
-5 0
0 2014 2015e 2016p 2017p 2018p 2019p
2011 2012 2013 2014 2015 2016 2017 2018 2019
Overall Fiscal balance Total expenditure
Real GDP growth Total revenue
Sources: UAE authorities and IMF/World Bank Staff estimates. Sources: UAE authorities and IMF/World Bank Staff estimates.
Each Emirate has an independent statistics 2018 due to the VAT but is projected to tourism, weaken trade and asset prices,
agency, and while the federal-level statis- moderate thereafter. Rent inflation is ex- while increased issuance by others to fi-
tical bureau was established in 2009, the pected to remain low if supply continues nance deficits could raise costs of funding.
harmonization of statistical agendas for a to increase and demand remains subdued. A faster rise in U.S. interest rates or higher
country-level welfare measurement is yet The current account is projected to im- financial market volatility could increase
to be accomplished. prove to 3.8 percent by 2022, as oil reve- borrowing costs for banks and GREs, po-
nues rise with increased oil production, tentially affecting liquidity in the domestic
Outlook complemented by nonoil exports and
tourism.
banking system. Contingent liabilities
continue to be a risk and if megaprojects
The diplomatic rift with Qatar is not ex- are not managed prudently, risks for
Beyond 2017, overall GDP growth is ex- pected to affect the economic outlook for GREs, banks, and sovereigns would rise.
pected to recover to above 3 percent in the the UAE significantly. The direct impact The Expo 2020 also presents risks related
medium term. Non-oil growth is projected on the UAE economy through airline to overcapacity, property prices and debt.
to rebound (i) as the expected improve- traffic, tourism, real estate investment,
ment in oil prices and its positive effects and the financial sector is expected to be
on confidence and financial conditions limited as trade with Qatar accounts for
dampen the effects of fiscal consolidation; less than 1 percent of the UAE’s total
and (ii) as megaproject implementation trade.
ramps up ahead of Dubai’s hosting of
Expo 2020—expected to draw in many
visitors, boosting private consumption
and services exports. Real oil GDP growth Risks and challenges
is projected to recover in 2018 and contin-
ue to improve over the medium term. The The outlook is expected to improve over
VAT is not expected to adversely affect the medium term, but risks are skewed
growth significantly, but will increase towards the downside.
revenues by 1 percent of GDP (according Further declines in oil prices, for instance,
to the Minister of Economy). The real es- due to a faster recovery of the US shale
tate market is reported to expect head- production or reduced compliance with
winds because of rising supply, govern- OPECs oil production cuts, could reduce
ment’s fiscal restraint, higher interest fiscal revenues, and consequently invest-
rates, and a stronger exchange rate. Infla- ment, and confidence. Negative spillovers
tion is projected to rise to 2.9 percent in from other oil exporters could impact

TABLE 2 United Arab Emirates / Macro outlook indicators (annual percent change unless indicated otherwise)

2014 2015 2016 e 2017 f 2018 f 2019 f

Real GDP growth, at constant market prices 3.1 3.8 3.0 1.4 3.1 3.3
Private Consumption 25.3 -12.0 2.1 1.0 3.2 3.5
Government Consumption 5.8 16.6 -0.9 -0.5 2.5 2.5
Gross Fixed Capital Investment 8.3 10.6 3.0 2.8 7.9 10.3
Exports, Goods and Services 0.2 3.4 1.3 2.5 4.0 4.0
Imports, Goods and Services 12.3 -1.2 1.7 3.0 3.2 3.2
Real GDP growth, at constant factor prices 3.1 3.8 3.0 1.4 3.1 3.3
Agriculture 1.9 3.1 3.0 2.0 3.0 3.2
Industry 1.6 4.6 2.3 2.1 2.3 3.0
Services 4.8 2.8 3.8 0.6 4.0 3.6
Inflation (Consumer Price Index) 2.4 4.1 1.6 2.2 2.9 2.5
Current Account Balance (% of GDP) 13.3 4.7 2.4 2.6 2.7 2.9
Fiscal Balance (% of GDP) 1.9 -3.4 -4.3 -3.2 -1.9 -1.0

So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice.
No tes: e = estimate, f = fo recast.
 and to 31.6 percent in 2016 (31.2 percent in

TUNISIA Recent developments Q2 2017), while female graduate unem-

ployment reached 40.4 percent. Unem-
ployment rates are also much higher in
In 2016, the economy grew by 1.0 percent the hinterland compared to coastal re-
following a 1.1 percent in 2015, anemic for gions.
Low economic growth and a sharp rıse in a middle-income country. Growth was Tunisia faces large fiscal and external defi-
public spending including wages, com- driven mainly by the services sector (4.0 cits. The central government deficit
bined with delays in implementing key percent) while industrial output contract- (excluding grants) reached 6.1 percent of
ed by 6.6 percent and non-manufacturing GDP in 2016, up from 5.6 percent of GDP
reforms have kept fiscal and current ac-
industries (i.e., phosphate, oil) contracted in 2015. As a result public debt has risen
count deficits elevated. The unemploy- by 1.9 percent, with extractives below to 62.9 percent of GDP in 2016, up from
ment remain high, particularly for the historical levels due to social movements 57.2 percent in 2015 and from 45.5 percent
youth, women, and in the interior in mining regions. First-half 2017 growth in 2012. In 2016, the current account was
was 1.8 percent, largely driven by the agri- estimated at 8.4 percent; combined with
regions. The national unity government
cultural and services sectors which ex- the deterioration of the capital and finan-
—a coalition of the main po-litical parties panded by 3.8 percent each, while non- cial accounts, this is eroding the country’s
and social partners—was formed a year manufacturing industries contracted by foreign reserves buffer. The Dinar has
ago, to tackle the needed reforms, but 2.6 percent. depreciated gradually in the last twelve
identifying a first move has proven Inflation rose from to 5.6 percent (yoy) in months by 18 percent against the Euro
July 2017 - with core inflation (which ex- and 10 percent against the US Dollar. Tu-
difficult. cludes food and energy items most of nisia’s gross official reserves were estimat-
which have administered prices) rising to ed at US$5.9 billion in 2016, which is
6.7 percent due to the rise of imported equivalent to 3.4 months of imports
goods and energy prices in line with the (down from US$7.4 billion and 4.1 months
depreciation of the Dinar. In the face of of imports in 2015).
these inflationary pressures, the Central The national unity government—a coali-
Bank has increased its policy rate in two tion of the main political parties, the larg-
instances since April 2017 to 5 percent est worker’s and trade union formed a
from 4.5 percent. year ago—has set its priorities as strength-
Unemployment has declined from its peak ening security, improving the business
of 19 percent in 2011 to 15.5 percent in environment, ensuring macroeconomic
2016 (15.3 percent in Q2 2017) despite a stability, fiscal sustainability and restart-
low labor force participation, at about 50 ing growth. While the new government
percent, mainly due to a very weak partic- was expected to lead to greater political
ipation of women (26 percent). Most of the stability due to its inclusive composition,
unemployed are low-skilled workers, but it has undergone two cabinet reshuffles
university graduates have the highest involving key ministries, such as finance,
unemployment rate, which increased from investment, and education.
15 percent in 2005 to 23 percent in 2010

FIGURE 1 Tunisia / Sectoral value added and GDP growth FIGURE 2 Tunisia /Unemployment rate
(y-o-y)

20.0 Agriculture Manufacturing 3.5

40.0%
Non-manufacturing industries Services
15.0 GDP growth (right axis)
3.0 35.0%

10.0 30.0%
2.5

5.0 25.0%
2.0
0.0 20.0%
1.5
-5.0
15.0%

1.0 10.0%
-10.0

5.0%
-15.0
0.5

0.0%
-20.0 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Q2

Graduates National average Female

Sources: Institut national de statistiques, Banque centrale de Tunisie and staff Sources: Institut national de statistiques, Banque centrale de Tunisie and staff
computation. computation.
Outlook Risks and challenges
Growth is projected to expand modestly While the Government is deploying re-
by 2.3 percent in 2017 through the gradual sources to improve the security situation,
recovery of agriculture, phosphate, and the high level of youth unemployment
manufacturing. In the medium term, notably in the lagging regions may result
growth is projected to pick up gradually in social tensions, which remain one of the
to 3.5 percent in 2019 against a backdrop main risks in the country since the revolu-
of improved business climate through tion. The Government is also facing the
structural reforms and greater security challenges of balancing between social
and social stability. stability and the need for fiscal consolida-
The fiscal deficit is expected to remain tion, notably in the civil service, pension,
high at 6.2 percent of GDP in 2017. Fiscal subsidy, SOE, and competition reforms.
sustainability will require reining in the Moreover, reform implementation to stim-
public wage bill and the growing subsidy ulate job creation and entrepreneurship is
bill while expanding the tax base. It would key to unleash private sector dynamism
also be important to reform the pension and recharge growth. The most pressing
system and improve the design of the cash near-term risk is debt sustainability, given
transfer programs to create space for in- that the baseline path for already high
creased investment and social spending. debt assumes delivery of fiscal consolida-
On the external side, the current account tion.
deficit is projected to slightly widen to 8.8
percent of GDP in 2017. In the medium
term, the current account is likely to bene-
fit from the gradual recovery of industry
and services trade, and competitiveness
gains from the depreciation of the Dinar.

TABLE 2 Tunisia / Macro outlook indicators (annual percent change unless indicated otherwise)

2014 2015 2016 e 2017 f 2018 f 2019 f

Real GDP growth, at constant market prices 2.3 1.1 1.0 2.3 3.0 3.5
Private Consumption 1.8 2.3 0.8 1.8 2.1 2.4
Government Consumption 4.2 8.8 8.9 3.2 3.4 3.5
Gross Fixed Capital Investment 1.2 -4.5 2.2 4.1 6.0 6.2
Exports, Goods and Services 3.9 -3.2 3.2 2.1 4.5 4.7
Imports, Goods and Services 2.2 2.7 3.9 0.0 0.0 0.0
Real GDP growth, at constant factor prices 2.3 1.1 1.0 2.3 3.0 3.5
Agriculture 2.8 8.5 2.6 2.8 2.9 3.1
Industry -1.1 -1.0 -6.6 -6.9 -3.7 -1.4
Services 3.8 1.0 4.0 5.7 5.3 5.1
Inflation (Consumer Price Index) 4.9 4.9 3.7 5.1 5.0 4.7
Current Account Balance (% of GDP) -9.1 -8.9 -8.4 -8.8 -8.5 -7.9
Fiscal Balance (% of GDP) -5.0 -5.6 -6.1 -6.2 -5.9 -4.4
Debt (% of GDP) 49.0 57.2 62.9 69.7 71.9 72.0
Primary Balance (% of GDP) -3.2 -3.7 -3.9 -3.9 -3.3 -1.9

So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice.
No tes: e = estimate, f = fo recast.
 country. These hurdles are particularly

YEMEN
challenging given that Yemen had previ-
Recent developments ously imported approximately 90 percent
of its food, and the conflict has exacerbat-
Since the escalation of violent conflict in ed the need for fuel and imported medical
March of 2015, Yemen’s economy has de- equipment.
teriorated sharply. Although official sta- UN OCHA estimates that a total of 20.7
The violent conflict in Yemen has caused tistics are no longer available, evidence million Yemenis are in need of hu-
a dramatic deterioration of the economic suggests that Yemen’s GDP contracted by manitarian assistance, of which 9.8 million
and social conditions in the country. Out- about 37.5 percent cumulatively since Yemenis are in acute need of assistance to
2015 while employment opportunities in sustain their lives. There has been signifi-
put has contracted sharply. FAO
the private sector have significantly di- cant damage to vital infrastructure and
estimates that over 7 million people are at minished. Economic activity in agricul- private residences, contributing to a de-
risk of famine in 2017, and cholera ture services, and oil and gas produc- cline in service deliveries and quality (like
outbreaks are ravag-ing the country with tion—the largest components of GDP, water), crippled civilian health and educa-
nearly 450,000 sus-pected cases having remains limited due to the ongoing con- tion facilities, and to an internal displace-
flict. Furthermore, the commensurate dra- ment over 10 percent of the population.
resulting in nearly 2,000 deaths per end The advent of cholera and other infectious
matic decrease in government revenues,
of August. especially from the much reduced oil and diseases on a context of prevailing poor
gas production, have contributed to the health and malnutrition, has further di-
implosion of the formal social safety net minished peoples’ welfare and eroded
and infrequent payment of public salaries. their ability to lead productive lives.
In addition, the conflict has led to increas- Households’ ability to cope is at a break-
ing inflation and pressure on the exchange ing point and large swaths of the country
rate, which further undermined house- are facing famine and cholera outbreaks.
hold income at a time when approximate- According to FAO estimates, approxi-
ly 40 percent of households reported to mately 7 million people are on the verge of
have lost their primary income source famine in 2017. There have been 443,166
(according to the 2016 Gallup World Poll). suspected cholera cases and 1921 associat-
Imports have greatly contracted given the ed deaths reported as of August 1st, 2017.
dwindled foreign reserves of the Central The humanitarian response in Yemen con-
Bank of Yemen (CBY). Critical food and tinues to support the basic needs of a sig-
energy imports are facilitated exclusively nificant share of the population in difficult
through private channels without support circumstances. There are approximately
from financial trade services offered earli- 122 humanitarian partners on the ground,
er by the CBY. Additionally, the involve- 84 national non-government organizations
ment of Yemen’s key ports in the conflict (NGO’s), 30 international NGO’s, and 8
have further undermined the ability to UN agencies. The World Bank supports
import key commodities including food, the most vulnerable groups with approxi-
fuel, and medical supplies to parts of the mately US$800 million through three large

FIGURE 1 Yemen / Public Finances FIGURE 2 Yemen People in need of humanitarian

assistance (in millions)

In % of GDP In % of GDP
35 0
3.0
30 -2 2.6
2.5 2.4
25 -4
2.0
20 -6 1.6 1.6
1.5
1.5
15 -8
1.0 1.0
1.0 0.8 0.9
0.7
10 -10 0.7
0.5 0.6 0.5
0.4 0.4 0.4
0.5 0.3 0.3
5 -12 0.1 0.0
0.0
0 -14
Al-Hodeida
Abyan

Aden

Sana'a
Al-Mahweet

Hadramout

Laheg

Mareb

Shabwah
Saadah
Al-Maharh

Socatra

Taiz
Al-Jawf

Remah
Amran

Hajja
Dhamar
Al-Baida

Ibb
Al-Dhale

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Total domestic revenues Grants Current expenditure Capital expenditure Fiscal deficit excl. grants (Right Axis)

Sources: Yemen Ministry of Finance/Yemen Statistical Office World; staff of the Sources: 2017 United Nations Humanitarian Response Plan.
IMF and the World Bank.
emergency operations providing for criti-
cal health services and complementary
income opportunities to combat famine Outlook Risks and challenges
and impoverishment while maintaining
Economic prospects in 2018 and beyond Making peace sustainable in Yemen will
critical institutional capacity.
will critically depend on rapid improve- require diversifying the economy, making
However, coverage by humanitarian part-
ments in the political and security situa- employment more productive, designing
ners is not uniform across the country,
tion, and ultimately whether an end to the fiscal and other policies, which will sup-
where only 200 out of 322 districts in the
on-going conflict will allow for rebuilding port investment to create jobs and income
country are classified as “relatively acces-
the economy and Yemen’s social fabric. If for the large share of Yemenis who were
sible” by the humanitarian response. Ap-
violence can be contained by the end of unemployed and excluded even before
proximately 51 districts are classified as
2017, GDP is projected to begin recovering the conflict. Leveraging support for recov-
having “high or extremely high access
in 2018 and 2019, with projected GDP ery and reconstruction to improve eco-
constraints.” Thus, there are pockets
growth to be about 9 and 14 percent annu- nomic and social inclusiveness could help
where people in need cannot be reached.
ally, respectively. Restoration of more mitigate the risk of conflicts arising in the
peaceful conditions will likely allow for future.
resumption of hydrocarbon production,
which will help restore government reve-
nues. Given the bleak outlook in
Yemen, massive foreign assis-tance
would continue to be required
for recovery and reconstruction in a
post-conflict period. In particular, foreign
assis-tance would be needed to
help restore basic services and
rebuild confidence in Yemen’s
institutions .

TABLE 2 Yemen / Macro outlook indicators (annual percent change unless indicated otherwise)

2014 2015 2016 e 2017 f 2018 f 2019 f

Real GDP growth, at constant market prices -0.2 -28.1 -9.8 -2.0 8.5 13.5
Private Consumption 0.1 -19.4 -0.8 -2.8 0.1 4.5
Government Consumption -7.1 -22.4 -8.8 -14.6 16.7 14.2
Gross Fixed Capital Investment -3.6 -83.7 -22.7 53.4 182.1 62.2
Exports, Goods and Services -4.1 -65.7 -71.0 27.0 265.0 86.1
Imports, Goods and Services -6.1 -43.0 0.7 -5.0 37.4 28.8
Real GDP growth, at constant factor prices -0.4 -28.8 -10.6 -2.0 8.5 13.5
Agriculture 1.0 -25.0 -6.0 -3.0 3.0 8.0
Industry -3.2 -36.3 -21.6 1.7 28.4 29.2
Services 1.0 -25.0 -6.0 -3.5 0.2 5.0
Inflation (Consumer Price Index) 8.2 39.4 5.0 20.0 29.5 21.0
Current Account Balance (% of GDP) -1.7 -5.5 -5.6 -2.3 -2.4 -2.1
Fiscal Balance (% of GDP) -4.1 -10.6 -13.5 -9.9 -6.6 -2.5
Debt (% of GDP) 48.7 66.7 85.4 83.5 71.0 55.0
Primary Balance (% of GDP) 1.5 -3.1 -5.3 -2.4 1.0 4.9

So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice.
No tes: e = estimate, f = fo recast.
WORLD BANK MIDDLE EAST AND NORTH AFRICA REGION

MENA ECONOMIC MONITOR, OCTOBER 2017

Refugee Crisis in MENA: Meeting the Development Challenge

http://www.worldbank.org/en/region/mena/publication/mena-economic-monitor