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World Bank: MENA economies to grow 4.1 per cent this year Latest report shows Bank more bullish than its IMF counterpart, hiking its annual forecast for the Middle East, citing expansionary fiscal policies and better than expected growth
Economies in the Middle East and North Africa will see growth of 4.1 per cent this year and 3.8 per cent in 2012, according to a report from the World Bank released on Wednesday. While warning that global uncertainty is clouding the horizon, the bank has hiked its 2011 forecast for the MENA region by half a percentage point on the prediction it made in May. Earlier this week, the International Monetary Fund cuts its growth forecast for the whole MENA region to 4 per cent for 2011 and 3.6 per cent for the following year. The World Bank said its projected increase was due to "more expansionary fiscal policies in the region, expanded oil production (excluding Libya), better than expected growth in Iran, and quicker than anticipated pickup in industrial production in Egypt". Unlike in 2008, when MENA countries were in a strong position to weather the storm, the ongoing political and economic uncertainties have put some countries in weaker positions to respond to another global downturn, the report claimed. Lessened global demand for oil and the resultant drop in prices will put pressure on fiscal balances for developing oil exporters, especially in a period of expanded government spending, it pointed out. The study also highlighted the important links between good governance in terms of laws and regulations, and the ability of investment to stimulate growth. "If we look at examples from other countries undergoing transition, investment surged in many economies that made early moves to improve governance," said Caroline Freund, chief economist for the Middle East and North Africa region at the World Bank. The report noted that investment in the MENA region has been strong over the last two decades in comparison with Latin America and Eastern Europe, but in oil exporting countries, such as Algeria and Oman, it has been primarily supported by large and expanding public investment. In contrast, oil importers, like Egypt and Morocco, have shown more strength in private investment, which has increased in recent years. "When governance is good, public investments crowd in private investment by providing the energy, roads, logistics and communications links necessary for firms to function productively," said Freund. "But with poor governance, public investment is more likely to crowd out private investment by using resources that would otherwise be used by the private sector." The report also stressed the role of private investment in services and manufacturing as engines of job creation and income growth in the region. While the majority share of foreign direct investment (FDI) received by the region flows into the real estate and fuel sectors, the Bank's evidence suggested most FDI-related jobs are in fact generated in the manufacturing sector.
