## menap0419

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---

### The Reported Social Unrest Index (RSU): definition, trends, and economic correlates
- Overview
  - The Reported Social Unrest Index (RSU) tracks reported protests, demonstrations, and other forms of social unrest across selected countries in the Middle East and North Africa.
  - Coverage: January 2005 to February 2019; last observation: February 2019.
  - Current country coverage: Algeria, Egypt, Jordan, Lebanon, Morocco, Tunisia, and Sudan; "will be expanded further in the future."
  - RSU "hit multiyear highs in some countries" during the "past 18 months."
- Measurement and data
  - RSU "calculates the share of articles in major news sources that include key terms relating to protests, demonstrations, and other forms of social unrest."
  - Headline index uses English-language media; results hold using Arabic and French sources.
  - Social media excluded due to "trends in usage, data constraints, and concerns about bias."
  - Index smoothing: presented as a "12-month moving average."
- Recent trends and country peaks
  - RSU "increased recently following a steady decline during 2015–16."
  - RSU "has hit multiyear highs in nearly all countries."
  - "Recent protests have hit an all-time record in Sudan" (February 2019 is the highest on record for Sudan since January 2005).
  - "Shorter intervals in Morocco, Lebanon, and Egypt indicate, for different reasons, fewer reported expressions of social discontent than in the recent past."
  - A plot of intervals between RSU peaks: "longer intervals mean reported protests are high relative to the recent past."
- Economic correlates and patterns
  - Reported motivations frequently include "joblessness, limited opportunities, corruption, and poor public services."
  - Economic constraints highlighted:
    - "Constrained access to credit" limiting entrepreneurs and small businesses.
    - "Large and inefficient public sectors crowd out private activity."
    - Social spending (health and education) "is often low relative to peers."
    - Weaknesses in business‑friendly legal indicators (e.g., time to resolve insolvency or enforce contracts).
  - Progress on inclusive growth limited:
    - "Unemployment has remained stubbornly high across the region—particularly in oil importers."
    - "Control of corruption—as measured by the World Governance Indicators—has barely changed."
  - Empirical association: "Recent RSU highs are largest relative to the past in countries with the lowest rates of per capita GDP growth in the past few years."
  - Caution: "this association is not evidence of a causal link" because "other noneconomic factors may also contribute to social unrest."
- Policy implication (from RSU)
  - The increase in reported social unrest "underscores the urgency for structural reforms that create inclusive and job-rich growth."

### Fiscal stance, breakeven oil prices, and debt dynamics
- Fiscal vulnerability and indicators
  - Fiscal breakeven oil prices shown for 2014 and 2019 (US$ a barrel) highlight fiscal vulnerability to oil price movements.
  - Total General Government Debt (Percent of GDP) reported for 2014 and 2018 shows rising debt levels across many countries.
  - Lower oil prices, fiscal stimulus, or slower consolidation may be counterproductive, especially for countries with weak fundamentals (Bahrain, Oman).
- Fiscal consolidation recommendations
  - Design adjustment strategies to minimize short-term growth impacts: mix expenditure consolidation with revenue reforms, reinforce VAT implementation progress, and reduce public wage bills where appropriate.
  - Revenue mobilization:
    - Oman’s plan to introduce a VAT following Saudi Arabia, the United Arab Emirates, and Bahrain is welcome.
    - Consider introducing direct taxes, such as on incomes, and property tax.
    - Fight tax avoidance and evasion to bolster revenue in the medium term.
  - Expenditure reforms:
    - Strengthen public investment management frameworks to ensure high-quality public investment.
    - Further streamline public wage bills and subsidies while increasing social spending.
    - Increase the efficiency and improve the composition of spending, especially in countries with little fiscal space.
    - Increase fiscal transparency and strengthen public financial management systems to support consolidation.
  - Anchor fiscal policy in a strong medium-term fiscal framework with a clear objective (such as a debt ratio, an intermediary target based on the non-oil primary balance, or a multiyear budgeting rule).
  - Ensure a more sustainable fiscal framework to support improvements in current account balances given a modest near-term oil price outlook.

### Diversification, private-sector development, and labor markets
- Need for diversification and private-sector-led growth
  - Intensify efforts to diversify economies away from hydrocarbon dependence; state-led growth models have not delivered broad-based, sustainable growth or sufficient job creation.
  - Enhance private-sector-driven growth to spur domestic investment and attract nonhydrocarbon foreign investment.
  - IMF staff calculations (Purfield and others 2018): GCC region will need about 1 million new jobs a year for at least the next five years to absorb new entrants.
- Policy priorities to support inclusive, private-sector-led growth
  - Improve quality of education.
  - Reform labor markets and integrate nationals into private employment while maintaining competitiveness.
  - Improve the business environment through legal frameworks for dispute prevention and resolution and further liberalize foreign ownership regulations.
  - Address governance weaknesses and corruption (implement anti-bribery and integrity measures, address conflicts of interest).

### SME development: constraints and a holistic reform agenda
- Current role and constraints
  - SMEs account for more than 90 percent of businesses but contribute relatively little to output and employment.
  - Key constraints: limited access to financing, weak credit information, limited bank competition, underdeveloped capital markets, human capital gaps, and infrastructure shortfalls (for example, broadband).
- Holistic reform agenda
  - Increase access to financing: ensure adequate funding adapted to SME needs; support enhanced credit information and bank competition; develop capital markets.
  - Enhance human capital and infrastructure through efficient expenditures on education, technology, and key infrastructure.
  - Deliver a more favorable business environment: robust legal, regulatory, and taxation frameworks; level playing field; improve governance (tax administration and public procurement); reduce the public sector’s role as a competitor.

### Financial and Monetary Conditions Indices (FMCI) in GCC countries
- Purpose and components
  - FMCI could serve as an early indicator of future non-oil economic activity.
  - FMCI includes: Money growth, M2 (year over year); Stock market (year over year); Real policy rate—latest annual inflation rate used as a proxy for inflation expectations; Real effective exchange rate; House prices (Qatar, United Arab Emirates).
- Data and methodological challenges
  - Lack of timely data reduces variables: house price data available only for Qatar and the United Arab Emirates; absence of inflation expectations data; monthly industrial production index not available for some; bond markets not liquid enough.
  - Variables with the highest volatility are given the lowest weight.
  - Series standardized by subtracting the FMCI’s mean and dividing by its standard deviation.
  - FMCI value above (below) zero implies a tightening (loosening) in financial conditions.
- Empirical findings
  - Loosening (tightening) in the FMCI is followed by an increase (decrease) in non-oil activity with a one-quarter lag where quarterly GDP is available.
  - Correlation between FMCI and non-oil GDP growth is particularly strong in Saudi Arabia and Qatar.
  - The tightening in the FMCI, which started in late 2017 and continued through the last observation December 2018, is likely to be a drag on non-oil growth in early 2019.
  - Main drivers of tightening: higher policy rates; declines in real estate (Qatar, United Arab Emirates) and equity prices (Bahrain, Dubai, Oman); slowdown in liquidity growth driven in part by capital outflows.
- Reported correlations (Figure 1.1.1, last observation December 2018)
  - Saudi Arabia: Correlation = 0.90
  - UAE: Dubai: Correlation = 0.89
  - Qatar: Correlation = 0.73
  - Bahrain: Correlation = 0.45
  - Kuwait: Correlation = 0.34

### MENAP region macroeconomic indicators and projections (selected figures)
- MENAP (Average 2000–15; 2016; 2017; 2018; 2019; 2020)
  - Real GDP (annual growth): 4.6; 5.2; 2.2; 1.8; 1.5; 3.2
  - of which non-oil growth: 5.7; 2.3; 3.1; 2.3; 2.7; 3.3
  - Current Account Balance: 8.2; –3.9; –0.6; 2.3; –0.9; –0.7
  - Overall Fiscal Balance: 2.9; –9.5; –5.5; –3.1; –4.9; –4.0
  - Inflation (year average; percent): 6.5; 5.1; 7.0; 9.6; 9.5; 9.0
- MENAP oil exporters
  - Real GDP (annual growth): 4.8; 5.9; 1.3; 0.6; 0.4; 2.8
  - of which non-oil growth: 6.2; 1.6; 2.5; 1.2; 2.1; 2.9
  - Current Account Balance: 11.6; –3.1; 1.6; 5.3; 0.9; 1.0
  - Overall Fiscal Balance: 5.7; –10.4; –5.1; –1.9; –4.2; –3.1
  - Inflation (year average; percent): 6.9; 4.0; 3.6; 9.2; 9.0; 8.8
- MENAP oil exporters excl. conflict countries
  - Real GDP (annual growth): 4.2; 5.3; 1.0; 0.4; 0.0; 2.0
  - of which non-oil growth: 5.9; 2.3; 2.7; 0.9; 1.7; 2.6
  - Current Account Balance: 12.1; –2.5; 1.5; 5.5; 1.7; 1.6
  - Overall Fiscal Balance: 6.2; –9.2; –4.9; –2.5; –4.0; –2.9
  - Inflation (year average; percent): 6.8; 4.5; 3.5; 9.8; 9.6; 9.6
- Gulf Cooperation Council (GCC)
  - Real GDP (annual growth): 4.8; 2.3; –0.3; 2.0; 2.1; 2.8
  - of which non-oil growth: 6.7; 1.9; 1.9; 2.3; 2.9; 3.3
  - Current Account Balance: 15.3; –2.8; 2.5; 7.3; 3.9; 3.4
  - Overall Fiscal Balance: 8.6; –10.7; –5.5; –1.7; –3.1; –2.2
  - Inflation (year average; percent): 2.7; 2.1; 0.2; 2.1; 0.4; 2.4
- MENAP oil importers
  - Real GDP (annual growth): 4.3; 3.7; 4.1; 4.2; 3.6; 4.0
  - Current Account Balance: –2.2; –5.6; –6.7; –6.5; –6.1; –5.3
  - Overall Fiscal Balance: –5.6; –7.2; –6.5; –6.7; –6.8; –6.5
  - Inflation (year average; percent): 6.0; 7.5; 14.4; 10.4; 10.5; 9.5
- MENA
  - Real GDP (annual growth): 4.6; 5.3; 1.8; 1.4; 1.3; 3.2
  - of which non-oil growth: 5.8; 2.0; 2.8; 1.9; 2.6; 3.3
  - Current Account Balance: 8.8; –4.2; –0.3; 3.1; –0.5; –0.4
  - Overall Fiscal Balance: 3.6; –10.0; –5.5; –2.8; –4.7; –3.6
  - Inflation (year average; percent): 6.3; 5.4; 7.4; 10.5; 9.8; 9.3
- Arab World
  - Real GDP (annual growth): 5.0; 3.6; 1.4; 2.6; 2.8; 3.8
  - of which non-oil growth: 6.2; 1.8; 2.4; 3.0; 3.5; 3.8
  - Current Account Balance: 9.8; –5.6; –1.0; 2.9; –0.6; –0.4
  - Overall Fiscal Balance: 4.0; –11.4; –6.2; –2.6; –4.8; –3.5
  - Inflation (year average; percent): 3.9; 4.5; 6.9; 6.2; 4.9; 5.5

### MENAP oil-importing countries: near-term vulnerabilities and medium-term challenges
- Growth and fiscal constraints
  - Growth in MENAP oil importers projected to remain relatively modest, constrained by persistent structural rigidities.
  - Elevated public debt limits fiscal space for social and infrastructure spending and increases vulnerability to less favorable financial conditions.
  - Outlook clouded by mounting global trade tensions and financial market uncertainty.
  - Social tensions rising as unemployment remains high and socioeconomic conditions worsen.
- Policy prescriptions
  - Continued growth-friendly fiscal consolidation to rebuild buffers and enhance resilience.
  - Intensified structural and governance reforms to improve competitiveness, boost private investment, and generate jobs.
  - Increased regional integration to help support medium-term growth.
- Labor market pressures and demographics
  - Youth unemployment: 24.4 percent in 2018.
  - Female unemployment: 18.9 percent in 2018.
  - Female labor force participation: 26 percent in 2018.
  - MENAP OI projected to add 25.9 million new entrants into the labor force by 2025.
- External and maturity risks
  - Policymakers face a trade-off between rebuilding buffers to strengthen resilience and addressing growth challenges as a large amount of foreign currency debt matures over the next years.

### Growth outlook, risks, and structural reform priorities
- Regional growth projections and revisions
  - Regional real GDP growth projected at 3.6 percent in 2019, before rebounding to 4.3 percent during 2020–23.
  - Pakistan growth expected to slow from 5.2 percent in 2018 to 2.9 percent in 2019, pulling down the regional aggregate.
  - Growth projections revised down in several countries: Jordan, Lebanon, Morocco, Pakistan, Sudan.
  - Regional growth for 2019 was projected at 4.0 percent in the October 2018 Regional Economic Outlook, compared with the current projection of 3.6 percent.
- Downside risks and external exposure
  - Global trade tensions may increase investors’ risk aversion toward emerging markets.
  - MENAP oil importers have large shares of exports to China, the European Union, and the United States (examples: Jordan, Mauritania, Morocco, Pakistan, Tunisia).
  - Heavy reliance on tourism exposes Egypt and Jordan to risks from slower global growth.
  - Regional uncertainty from ongoing conflicts and security concerns (Afghanistan, Jordan, Lebanon, Somalia, Syria).
- Inflation and monetary policy
  - Regional inflation projected to pick up slightly to 11.3 percent in 2019, primarily due to higher inflation in Egypt (fuel subsidy reform) and Pakistan (weaker exchange rate).
  - Most countries projected at single-digit inflation, below 3 percent for Afghanistan, Jordan, Lebanon, and Morocco.
  - Monetary policy scope varies: limited in peg or currency board arrangements (Djibouti, Jordan, Lebanon); greater exchange rate flexibility provides more shock absorption.
  - Recommendation: strengthen banking sectors, regulatory and supervisory frameworks, insolvency regimes, and frameworks against money laundering and financing of terrorism (Sudan, Tunisia).
- Structural reform priorities
  - Improve access to credit: address deficiencies in property rights, contract enforcement, credit information, insolvency framework, collateral enforcement, and property registration.
  - Business environment and governance: continue legislation to ease doing business (examples: Egypt, Jordan, Morocco, Tunisia); strengthen anti-corruption and anti-money-laundering implementation.
  - Skills and labor market reforms: raise educational attainment and learning outcomes; more efficient education spending; address labor cost issues (example: expensive employee contributions in Jordan).
  - Product market reforms: reduce administered prices and subsidies (Jordan, Lebanon, Sudan, Tunisia); improve state-owned enterprise efficiency (Pakistan, Tunisia).
  - Regional integration benefit: Greater Maghreb integration could create a regional market of almost 100 million people with an average income of about $4,000 per capita in nominal terms and could raise growth in each Maghreb country by 1 percentage point on average over the long term.

### Key statistics and projections (selected, reiterated)
- MENAP Real GDP (annual growth): Average 2000–15 = 4.6; 2016 = 5.2; 2017 = 2.2; 2018 = 1.8; 2019 = 1.5; 2020 = 3.2.
- MENAP non-oil growth (selected): 2016 = 5.7; 2017 = 2.3; 2018 = 3.1; 2019 = 2.3; 2020 = 2.7; 2021 = 3.3.
- MENAP Current Account Balance (selected): 2016 = 8.2; 2017 = –3.9; 2018 = –0.6; 2019 = 2.3; 2020 = –0.9; 2021 = –0.7.
- MENAP Overall Fiscal Balance (selected): 2016 = 2.9; 2017 = –9.5; 2018 = –5.5; 2019 = –3.1; 2020 = –4.9; 2021 = –4.0.
- MENAP Inflation (year average): 2016 = 6.5; 2017 = 5.1; 2018 = 7.0; 2019 = 9.6; 2020 = 9.5; 2021 = 9.0.
- MENAP oil importers Real GDP (annual growth): 2016 = 4.3; 2017 = 3.7; 2018 = 4.1; 2019 = 4.2; 2020 = 3.6; 2021 = 4.0.
- MENAP oil importers Current Account Balance: –2.2; –5.6; –6.7; –6.5; –6.1; –5.3.
- MENAP oil exporters Real GDP (annual growth): 2016 = 4.8; 2017 = 5.9; 2018 = 1.3; 2019 = 0.6; 2020 = 0.4; 2021 = 2.8.
- MENAP oil exporters Current Account Balance: 11.6; –3.1; 1.6; 5.3; 0.9; 1.0.
- GCC Real GDP (annual growth) series: 4.8; 2.3; –0.3; 2.0; 2.1; 2.8.

_Italicized source: Middle East and Central Asia Department — REO Update, April 2019 (selected chapter and figures)._

### Box 1. The Reported Social Unrest Index: A New Measure of Social Unrest in

### Box 1. The Reported Social Unrest Index: A New Measure of Social Unrest in Countries of the Middle East and North Africa

### Overview
- The Reported Social Unrest Index (RSU) is a new measure prepared by the authors to track reported protests, demonstrations, and other forms of social unrest across selected countries in the Middle East and North Africa.
- The index covers January 2005 to February 2019 and has "hit multiyear highs in some countries" during the "past 18 months."
- The current RSU includes Algeria, Egypt, Jordan, Lebanon, Morocco, Tunisia, and Sudan and "will be expanded further in the future."

### Measurement and data
- The RSU "calculates the share of articles in major news sources that include key terms relating to protests, demonstrations, and other forms of social unrest."
- Headline index uses English-language media due to data availability; results hold using Arabic and French sources.
- Social media are excluded due to "trends in usage, data constraints, and concerns about bias."
- Index smoothing: presented as a "12-month moving average" (Figure 1).
- Last observation reported: "February 2019."

### Recent trends and country peaks
- The RSU "increased recently following a steady decline during 2015–16."
- The RSU "has hit multiyear highs in nearly all countries."
- Figure-based findings described in text:
  - A plot of intervals between RSU peaks over the past 18 months and the previous higher value shows that "longer intervals mean reported protests are high relative to the recent past."
  - "Recent protests have hit an all-time record in Sudan" (February 2019 is the highest on record for Sudan since January 2005).
  - "Shorter intervals in Morocco, Lebanon, and Egypt indicate, for different reasons, fewer reported expressions of social discontent than in the recent past."

### Economic correlates and patterns
- Economic factors are often cited as motives for protests; the RSU evidence "bear[s] out these concerns."
- Reported motivations frequently include "joblessness, limited opportunities, corruption, and poor public services."
- Economic constraints highlighted:
  - "Constrained access to credit" limiting entrepreneurs and small businesses.
  - "Large and inefficient public sectors crowd out private activity."
  - Social spending (health and education) "is often low relative to peers."
  - Weaknesses in business-friendly legal indicators (e.g., time to resolve insolvency or enforce contracts).
- Progress on inclusive growth has been limited:
  - "Unemployment has remained stubbornly high across the region—particularly in oil importers."
  - "Control of corruption—as measured by the World Governance Indicators—has barely changed."
- Empirical association reported:
  - "Recent RSU highs are largest relative to the past in countries with the lowest rates of per capita GDP growth in the past few years."
  - Figure 3 maps "Months between latest highest value of the RSU and previous highest peak" against "Average annual per capita GDP growth, 2016–18" illustrating this association.
  - The text cautions that "this association is not evidence of a causal link" because "other noneconomic factors may also contribute to social unrest."

### Implications and policy recommendations
- The increase in reported social unrest "underscores the urgency for structural reforms that create inclusive and job-rich growth."
- Recommended policy priorities:
  - Lower inflation and "create fiscal space for investment and social spending."
  - Structural reforms to lift "inclusive and job-creating growth," including:
    - Improving infrastructure and access to health care and education.
    - Strengthening governance and public services.
    - Tackling corruption.
    - Expanding access to credit, particularly for SMEs.
  - Foster "private-sector-led growth, creating jobs, and strengthening social safety nets."
- Trade-offs and urgency:
  - "Sustained growth requires macroeconomic stability," creating a difficult trade-off between "rebuilding fiscal buffers and addressing medium-term growth challenges."
  - Delayed implementation of reforms "risks less favorable medium-term outcomes."

*Prepared by Philip Barrett and Jorge de León Miranda. Last observation, February 2019.*

### 19. The cyclical components were calculated using the

### 19. The cyclical components were calculated using the Hodrick‑Prescott filter with a smoothing parameter of 100.

### Fiscal stance, breakeven oil prices, and debt dynamics
- Fiscal breakeven oil prices shown for 2014 and 2019 (US$ a barrel) highlight fiscal vulnerability to oil price movements.  
- Total General Government Debt (Percent of GDP) reported for 2014 and 2018 shows rising debt levels across many countries.  
- Lower oil prices, efforts to boost growth through fiscal stimulus, or a slower pace of consolidation may be counterproductive, especially for countries with weak fundamentals (Bahrain, Oman).

### Policy recommendations for fiscal consolidation and resilience
- Design adjustment strategies to minimize short-term growth impacts by mixing expenditure consolidation with revenue reforms, reinforcing VAT implementation progress, and reducing public wage bills where appropriate.  
- Revenue mobilization efforts should continue:
  - Oman’s plan to introduce a VAT following Saudi Arabia, the United Arab Emirates, and Bahrain is welcome.
  - Consider introducing direct taxes, such as on incomes, and property tax.
  - Fight tax avoidance and evasion to bolster revenue in the medium term.
- Expenditure reforms should focus on:
  - Strengthening public investment management frameworks to ensure high-quality public investment.
  - Further streamlining public wage bills and subsidies while increasing social spending.
  - Increasing the efficiency and improving the composition of spending, especially in countries with little fiscal space.
  - Measures to increase fiscal transparency and strengthen public financial management systems to support consolidation.
- Anchor fiscal policy in a strong medium-term fiscal framework with a clear objective (such as a debt ratio, an intermediary target based on the non-oil primary balance, or a multiyear budgeting rule) to resist spending pressures and avoid procyclical fiscal policies.
- Ensure a more sustainable fiscal framework to support improvements in current account balances given a modest near-term oil price outlook.

### Diversification, private-sector development, and labor markets
- Intensify efforts to diversify economies away from hydrocarbon dependence; state-led growth models have not delivered broad-based, sustainable growth or sufficient job creation.
- An enhanced private-sector-driven growth engine is needed to spur domestic investment and attract nonhydrocarbon foreign investment.
- IMF staff calculations (Purfield and others 2018) suggest the GCC region will need about 1 million new jobs a year for at least the next five years to absorb new entrants.
- Priorities to support inclusive, private-sector-led growth:
  - Improve quality of education.
  - Reform labor markets and integrate nationals into private employment while maintaining competitiveness.
  - Improve the business environment through legal frameworks for dispute prevention and resolution and further liberalize foreign ownership regulations.
  - Address governance weaknesses and corruption (implement anti-bribery and integrity measures, address conflicts of interest) to reduce fiscal costs of corruption.

### SME development: constraints and a holistic reform agenda
- SMEs account for more than 90 percent of businesses but contribute relatively little to output and employment.
- Reforms across countries are at varying stages; a more holistic and concerted approach is needed, including:
  - Increasing access to financing by ensuring availability of adequate funding adapted to SME needs, providing a supporting framework for enhanced credit information and bank competition, and developing capital markets to broaden access to new sources of financing.
  - Enhancing human capital and physical infrastructure through efficient expenditures on education, technology, and key infrastructure, such as broadband.
  - Delivering a more favorable business environment by establishing robust legal, regulatory, and taxation frameworks, ensuring a level playing field, improving governance (tax administration and public procurement), and reducing the public sector’s role as a competitor in the economy.

### Financial and Monetary Conditions Indices (FMCI) in GCC countries
- Purpose: A well-designed FMCI could serve as an early indicator of future non-oil economic activity.
- Challenges in building an FMCI for GCC countries:
  - Lack of timely data reduces variables that could be included.
  - House price data are available only for Qatar and the United Arab Emirates.
  - Absence of data on inflation expectations makes it difficult to determine inflation-adjusted real returns.
  - Monthly industrial production index not available; Dubai’s quarterly GDP figures end in 2017; quarterly GDP not available for Oman.
  - Bond markets not liquid enough to incorporate yield curve changes or term spread.
- FMCI includes:
  - Money growth, M2 (year over year), as a measure of liquidity.
  - Stock market (year over year).
  - Real policy rate—latest annual inflation rate used as a proxy for inflation expectations.
  - Real effective exchange rate (appreciation = tightening; depreciation = loosening).
  - House prices (Qatar, United Arab Emirates).
- Methodology notes:
  - Variables with the highest volatility are given the lowest weight.
  - Series standardized by subtracting the FMCI’s mean and dividing by its standard deviation.
  - FMCI value above (below) zero implies a tightening (loosening) in financial conditions.
  - FMCI used as an early indicator of non-oil GDP growth.
- Empirical findings:
  - Loosening (tightening) in the FMCI is followed by an increase (decrease) in non-oil activity with a one-quarter lag where quarterly GDP is available.
  - Correlation between FMCI as an early indicator and non-oil GDP growth is particularly strong in Saudi Arabia and Qatar.
  - The tightening in the FMCI (reversed in Figure 1.1.1), which started in late 2017, has continued and is likely to be a drag on non-oil growth in early 2019.
  - Main drivers of tightening: higher policy rates, declines in real estate (Qatar, United Arab Emirates) and equity prices (Bahrain, Dubai, Oman), and a slowdown in liquidity growth driven in part by capital outflows.
- Reported correlations (Figure 1.1.1, last observation December 2018):
  - Saudi Arabia: Correlation = 0.90
  - UAE: Dubai: Correlation = 0.89
  - Qatar: Correlation = 0.73
  - Bahrain: Correlation = 0.45
  - Kuwait: Correlation = 0.34

### MENAP region macroeconomic indicators and projections (selected figures)
- MENAP (Average 2000–15; 2016; 2017; 2018; 2019; 2020)
  - Real GDP (annual growth): 4.6; 5.2; 2.2; 1.8; 1.5; 3.2
  - of which non-oil growth: 5.7; 2.3; 3.1; 2.3; 2.7; 3.3
  - Current Account Balance: 8.2; –3.9; –0.6; 2.3; –0.9; –0.7
  - Overall Fiscal Balance: 2.9; –9.5; –5.5; –3.1; –4.9; –4.0
  - Inflation (year average; percent): 6.5; 5.1; 7.0; 9.6; 9.5; 9.0
- MENAP oil exporters
  - Real GDP (annual growth): 4.8; 5.9; 1.3; 0.6; 0.4; 2.8
  - of which non-oil growth: 6.2; 1.6; 2.5; 1.2; 2.1; 2.9
  - Current Account Balance: 11.6; –3.1; 1.6; 5.3; 0.9; 1.0
  - Overall Fiscal Balance: 5.7; –10.4; –5.1; –1.9; –4.2; –3.1
  - Inflation (year average; percent): 6.9; 4.0; 3.6; 9.2; 9.0; 8.8
- MENAP oil exporters excl. conflict countries
  - Real GDP (annual growth): 4.2; 5.3; 1.0; 0.4; 0.0; 2.0
  - of which non-oil growth: 5.9; 2.3; 2.7; 0.9; 1.7; 2.6
  - Current Account Balance: 12.1; –2.5; 1.5; 5.5; 1.7; 1.6
  - Overall Fiscal Balance: 6.2; –9.2; –4.9; –2.5; –4.0; –2.9
  - Inflation (year average; percent): 6.8; 4.5; 3.5; 9.8; 9.6; 9.6
- Gulf Cooperation Council (GCC)
  - Real GDP (annual growth): 4.8; 2.3; –0.3; 2.0; 2.1; 2.8
  - of which non-oil growth: 6.7; 1.9; 1.9; 2.3; 2.9; 3.3
  - Current Account Balance: 15.3; –2.8; 2.5; 7.3; 3.9; 3.4
  - Overall Fiscal Balance: 8.6; –10.7; –5.5; –1.7; –3.1; –2.2
  - Inflation (year average; percent): 2.7; 2.1; 0.2; 2.1; 0.4; 2.4
- MENAP oil importers
  - Real GDP (annual growth): 4.3; 3.7; 4.1; 4.2; 3.6; 4.0
  - Current Account Balance: –2.2; –5.6; –6.7; –6.5; –6.1; –5.3
  - Overall Fiscal Balance: –5.6; –7.2; –6.5; –6.7; –6.8; –6.5
  - Inflation (year average; percent): 6.0; 7.5; 14.4; 10.4; 10.5; 9.5
- MENA
  - Real GDP (annual growth): 4.6; 5.3; 1.8; 1.4; 1.3; 3.2
  - of which non-oil growth: 5.8; 2.0; 2.8; 1.9; 2.6; 3.3
  - Current Account Balance: 8.8; –4.2; –0.3; 3.1; –0.5; –0.4
  - Overall Fiscal Balance: 3.6; –10.0; –5.5; –2.8; –4.7; –3.6
  - Inflation (year average; percent): 6.3; 5.4; 7.4; 10.5; 9.8; 9.3
- Arab World
  - Real GDP (annual growth): 5.0; 3.6; 1.4; 2.6; 2.8; 3.8
  - of which non-oil growth: 6.2; 1.8; 2.4; 3.0; 3.5; 3.8
  - Current Account Balance: 9.8; –5.6; –1.0; 2.9; –0.6; –0.4
  - Overall Fiscal Balance: 4.0; –11.4; –6.2; –2.6; –4.8; –3.5
  - Inflation (year average; percent): 3.9; 4.5; 6.9; 6.2; 4.9; 5.5
- Notes:
  - 1 2011–20 data exclude Syrian Arab Republic.
  - Arab World includes Algeria, Bahrain, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Tunisia, United Arab Emirates, and Yemen.
  - MENAP oil importers include Afghanistan, Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Pakistan, Somalia, Sudan, Syria, and Tunisia.
  - GCC countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates.
  - MENAP oil exporters: Algeria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, the United Arab Emirates, and Yemen.
  - Data refer to the fiscal year for several countries (specifics listed in notes).

### MENAP oil-importing countries: near-term vulnerabilities and medium-term challenges
- Growth in MENAP oil importers projected to remain relatively modest, constrained by persistent structural rigidities.
- Elevated public debt limits fiscal space for social and infrastructure spending and increases vulnerability to less favorable financial conditions.
- The outlook is clouded by mounting global trade tensions and financial market uncertainty.
- Social tensions are rising as unemployment remains high and socioeconomic conditions worsen.
- Continued growth-friendly fiscal consolidation is needed to rebuild buffers and enhance resilience, along with intensified structural and governance reforms to improve competitiveness, boost private investment, and generate jobs.
- Increased regional integration will help support medium-term growth.
- Labor market pressures:
  - Youth unemployment remains high: 24.4 percent in 2018.
  - Female unemployment: 18.9 percent in 2018.
  - Female labor force participation: 26 percent in 2018.
  - MENAP OI (oil importers) projected to add 25.9 million new entrants into the labor force by 2025.
- Policymakers face a trade-off between rebuilding buffers to strengthen resilience and addressing growth challenges as a large amount of foreign currency debt matures over the next years.

_Italicized source: Middle East and Central Asia Department — REO Update, April 2019 (selected chapter and figures)._

### 3.6 percent in 2019, before rebounding to

### menap0419 - 3.6 percent in 2019, before rebounding to

### Growth outlook
- Regional real GDP growth projected at 3.6 percent in 2019, before rebounding to 4.3 percent during 2020–23.
- Pakistan growth expected to slow from 5.2 percent in 2018 to 2.9 percent in 2019, pulling down the regional aggregate.
- Growth projections revised down in several countries: Jordan, Lebanon, Morocco, Pakistan, Sudan.
- Regional growth for 2019 was projected at 4.0 percent in the October 2018 Regional Economic Outlook, compared with the current projection of 3.6 percent.

### Downside risks and external environment
- Global trade tensions pose downside risks and may increase investors’ risk aversion toward emerging markets.
- MENAP oil importers have large shares of exports to China, the European Union, and the United States (examples: Jordan, Mauritania, Morocco, Pakistan, Tunisia), exposing them to weaker growth in those partners.
- Heavy reliance on tourism exposes Egypt and Jordan to risks from slower global growth.
- Regional uncertainty from ongoing conflicts and security concerns (Afghanistan, Jordan, Lebanon, Somalia, Syria) is a downside risk to the medium-term outlook.

### Low-income MENAP oil importers: vulnerabilities (Box 2.1)
- Countries under stress from persistent conflict and poverty: Afghanistan, Somalia, Sudan, Syria, West Bank and Gaza.
- Trade accounts for a comparatively smaller portion of GDP in these low-income countries than in other MENAP oil importers.
- Remittances are a significant portion of GDP for some low-income countries (for example, Somalia), creating exposure to global developments.
- Fiscal constraints: weak revenue mobilization despite some improvements in tax collection.
- Reliance on external assistance limits scope for social safety nets and infrastructure investment.
- Financial sector at an early stage; credit to the private sector is very low due to limited capacity and high risk premiums during conflict.
- Higher population growth, capacity constraints, and security concerns heighten risk of social tensions and stress on neighboring refugee-absorbing countries (for example, Jordan and Lebanon).

### External vulnerabilities and trade
- Regional current account deficit expected to decline from 6.5 percent of GDP in 2018 to 5.9 and 5.2 percent in 2019 and 2020, respectively, as lower oil prices help terms of trade.
- Current account deficits in Egypt and Morocco projected to narrow to about 2 percent of GDP by 2020, but external deficits remain sizable elsewhere.
- Regional export growth expected to slow to 7 percent in 2019 and 6.5 percent in 2020 due to weaker demand in key trading partners.
- Exports expected to remain strong in Egypt and pick up in Jordan and Mauritania; exports projected to slow elsewhere.
- Remittances provide a buffer in many countries (Morocco, Pakistan, Somalia), but there is downside risk from slowdowns in remittance-originating countries, most of which are in Europe or the Gulf Cooperation Council.
- Some countries have large foreign currency debt—some $27 billion—set to mature in the next two years.

### Public debt, fiscal space, and recommendations
- Public debt ratios increased by 20 percent of GDP on average since 2008 across the region.
- Most MENAP oil-importing countries are well above the emerging market threshold for public debt, exceeding 80 percent of GDP in Egypt, Jordan, Lebanon, and Sudan.
- Increased borrowing has raised interest expenditures and constrained fiscal space.
- Policy trade-off: rebuilding buffers to strengthen resilience vs. addressing challenges to growth.
- Fiscal consolidation should be intensified and growth-friendly:
  - Improve efficiency of public spending by rationalizing recurrent expenditures to preserve space for capital and social spending.
  - Adequate public spending on health, education, and social safety nets to help alleviate social tensions.
  - Replace subsidies with targeted social transfers (examples: fuel subsidies in Sudan and Tunisia; cross-electricity subsidies in Jordan).
  - Restructure state-owned enterprises (Egypt, Pakistan) for more efficient spending.
  - Improve revenue mobilization where tax collection is low (Afghanistan, Pakistan, Sudan) by eliminating distortionary exemptions, taxing richer segments (introducing property and wealth taxes), broadening the tax base, and reducing informality.
  - Improve budget transparency, reduce corruption, and expand technology use to increase tax compliance and governance, while developing institutional capacity and addressing privacy and cybersecurity concerns.

### Inflation and monetary policy
- Regional inflation projected to pick up slightly to 11.3 percent in 2019, primarily due to higher inflation in Egypt (fuel subsidy reform) and Pakistan (weaker exchange rate).
- Most countries projected at single-digit inflation, below 3 percent for Afghanistan, Jordan, Lebanon, and Morocco.
- Monetary policy scope varies:
  - Little role for monetary policy in peg or currency board arrangements (Djibouti, Jordan, Lebanon).
  - Limited exchange rate flexibility constrains monetary policy and shifts burden to fiscal policy.
  - Countries with more flexible exchange rates better able to absorb external shocks.
- Recommendation: continue strengthening banking sectors, regulatory and supervisory frameworks, and insolvency regimes; strengthen frameworks against money laundering and financing of terrorism (Sudan, Tunisia) to protect correspondent banking relationships.

### Structural reforms to boost medium-term growth
- Limited fiscal and monetary space increases importance of structural reforms to boost private-sector job creation and inclusion.
- Private investment remains low; improvements required in infrastructure, education, governance, institutions, and access to credit.
- Improving access to credit:
  - Credit to the private sector remains low; banking systems cater mainly to large firms.
  - Small and medium enterprises, mortgages, and consumer financing are limited.
  - Deficiencies in property rights, contract enforcement, credit information, insolvency framework, collateral enforcement, and cumbersome property registration hinder mortgage and SME lending.
- Business environment and governance:
  - Legislation to ease doing business passed in some countries (Egypt, Jordan, Morocco, Tunisia).
  - Anti-corruption and anti-money-laundering frameworks need stronger implementation.
- Skills and labor market reforms:
  - Educational attainment and learning outcomes are low relative to other emerging markets.
  - More efficient education spending and labor market reforms can boost productivity and employment.
  - Address labor cost issues (for example, expensive employee contributions in Jordan).
- Product market reforms:
  - Reduce administered prices, electricity and fuel subsidies (Jordan, Lebanon, Sudan, Tunisia), and improve state-owned enterprise efficiency (Pakistan, Tunisia) to foster competition and productivity.
- Regional integration:
  - Greater Maghreb integration could create a regional market of almost 100 million people with an average income of about $4,000 per capita in nominal terms and could raise growth in each Maghreb country by 1 percentage point on average over the long term.

### Key statistics and projections (selected from MENAP tables)
- MENAP Real GDP (annual growth): Average 2000–15 = 4.6; 2016 = 5.2; 2017 = 2.2; 2018 = 1.8; 2019 = 1.5; 2020 = 3.2.
- MENAP non-oil growth: 2016 = 5.7; 2017 = 2.3; 2018 = 3.1; 2019 = 2.3; 2020 = 2.7; 2021 = 3.3 (table rows indicate non-oil series consistent with table structure).
- MENAP Current Account Balance: 2016 = 8.2; 2017 = –3.9; 2018 = –0.6; 2019 = 2.3; 2020 = –0.9; 2021 = –0.7.
- MENAP Overall Fiscal Balance: 2016 = 2.9; 2017 = –9.5; 2018 = –5.5; 2019 = –3.1; 2020 = –4.9; 2021 = –4.0.
- MENAP Inflation (year average): 2016 = 6.5; 2017 = 5.1; 2018 = 7.0; 2019 = 9.6; 2020 = 9.5; 2021 = 9.0.
- MENAP oil importers Real GDP (annual growth): 2016 = 4.3; 2017 = 3.7; 2018 = 4.1; 2019 = 4.2; 2020 = 3.6; 2021 = 4.0.
- MENAP oil importers Current Account Balance: –2.2; –5.6; –6.7; –6.5; –6.1; –5.3 (corresponding to table sequence).
- MENAP oil exporters Real GDP (annual growth): 2016 = 4.8; 2017 = 5.9; 2018 = 1.3; 2019 = 0.6; 2020 = 0.4; 2021 = 2.8.
- MENAP oil exporters Current Account Balance: 11.6; –3.1; 1.6; 5.3; 0.9; 1.0 (corresponding to table sequence).
- Gulf Cooperation Council (GCC) Real GDP (annual growth) series: 4.8; 2.3; –0.3; 2.0; 2.1; 2.8 (corresponding to table sequence).

*Middle East and Central Asia Department — REO Update, April 2019*

### References

### References

### Cited works
- Blancher, N., M. Appendino, A. Bibolov, A. Fouejieu, J. Li, A. Ndoye, A. Panagiotakopoulou, W. Shi, and T. Sydorenko. 2019. “Financial Inclusion of Small and Medium-Sized Enterprises in the Middle East and Central Asia.” IMF Departmental Paper 19/02, International Monetary Fund, Washington, DC.  
- International Monetary Fund (IMF). 2017a. Digital Revolutions in Public Finance. Washington, D.C.  
- IMF. 2017b. “The Role of the Fund in Governance Issues—Review of the Guidance Note—Preliminary Considerations.” Washington, D.C.  
- IMF. 2019. “Economic Integration in the Maghreb: An Untapped Source of Growth” IMF Departmental Paper, Washington, DC.  
- Stepanyan, V., G. Abajyan, M. Alnasaa, and A. Ndoye., A. Forthcoming. “Enhancing the Role of SMEs in the Arab World: Some Key Considerations.” International Monetary Fund, Washington, DC.

*menap0419 - References*

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_Source: https://www.imf.org/-/media/files/publications/reo/mcd-cca/2019/april/english/menap0419.pdf_