The World Bank recently released its MENA Economic Update – April 2024 report in which it placed special emphasis on the recent regional conflict and its repercussions as well as on the debt situation in the region. The World Bank first commented that the ongoing conflict in the region comes at a time when global economic growth is slowing down for the third consecutive year following the COVID pandemic. In addition, the report pointed out that the economic performance of the Middle East and North Africa (MENA) region is trailing that of other Emerging Market and Developing Economies (EMDE’s), which are expected to grow by 4.4% in 2023 and 3.9% in 2024, compared to expected respective growth rates of 1.9% and 2.7% for the MENA region. The report added that the hike in oil prices following the war in Ukraine resulted in highly diverging performance between oil-exporting countries in the regions (which benefited from higher oil revenues) and oil-importing ones which alongside the reset of the world struggled with a lower growth. However, this divergence has narrowed recently (as oil prices have dropped by 9.5% since October 2023), and is expected to remain at subdued levels over the upcoming period. In figures, the World Bank pointed out that while the difference in growth between GCC countries and oil importers in the MENA region stood at 5.6 percentage points in 2022, the gap is projected to stand at a mere 0.9 percentage points in 2024.

The World Bank further commented that despite the drop in oil prices, oil-exporting countries in the MENA region are anticipated to boast positive current account (7.5% of GDP in 2024 down from 8.4% in 2023) and fiscal (0.1% of GDP in 2024 down from 0.5% in 2023) balances. The situation is not the same, however, for oil importing countries who are anticipated to register twin deficits in the year 2024. More particularly, said countries are projected to record a current account deficit of 3.4% of GDP in 2024 (compared to a deficit of 1.8% of GDP in 2023), with the fiscal deficit projected to widen from 5.5% of GDP in 2023 to 5.7% in 2024. As far as Lebanon is concerned, the report anticipates that the country will achieve an economic growth of 0.5% in 2024, compared to economic contractions of 0.2% in 2023 and 0.6% in 2022. Growth in real GDP per capita is also expected to improve from 1.2% in 2022 to 2.4% in 2023 and 3.1% in 2024. The World Bank also anticipated Lebanon’s current account deficit to remain in double-digit territory in 2024 (10.4% of GDP compared to 11% in 2023 and a much wider deficit of 32.7% of GDP in 2022), and the fiscal balance to breakeven in 2024 compared to a surplus of 0.5% of GDP in 2023 and a deficit of 2.9% in 2022. 

As far as the war on Gaza is concerned, the report commented that its effect was devastating on the Gaza strip (heavy civilian casualties, displacements, massive damage to infrastructure and buildings, 86% drop in GDP in the last quarter of the year, etc.) yet its ripple effect was not felt equally by MENA countries. In details the report commented that countries (such as Algeria, Libya, Morocco and GCC countries) with low economic linkages with Palestine, have barely felt any repercussions, except for some shocks in commodity prices. On the other hand, neighboring countries have severely felt the pinch especially in terms of international trade and tourism. As far as Lebanon is concerned, the war has already inflicted “substantive” infrastructural damage, while agricultural lands (20% of the country’s cultivated lands are in the south) have been burned and contaminated. Always on the agricultural front, the impact was the sharpest on the olive planting industry (which accounts for 7% of the total agricultural output in Lebanon), with some 100,000 square meters of olive groves being affected. Needless to say that the tourism sector was largely affected by the war, with aviation passenger arrivals dropping by more than 20% year-on-year during the months of October and November. Always in the same context, the report commented that prior to the conflict, Lebanon was projected to register some economic growth in 2023, which was revisited to a 0.2% expected contraction after the conflict has propagated.

The World Bank then highlighted the issue of the rising public debt for oil-importers in the MENA region, with said countries having little prospects of tackling the issue in the near future. In details, the report pointed out that 16 out of 19 countries in the MENA region saw their debt to GDP ratios grow between the years 2013 and 2020, with said ratio increasing by an average 4 percentage points per year. The World Bank commented that high levels of debt-to-GDP have several repercussions, namely in the form of crowding-out private sector investments as a result of the high interest rate environment emanating from the increased governmental borrowing, as well as reducing the government’s ability to undertake growth-enhancing investments. As far as Lebanon is concerned, the report commented that the country was already grappling with a high debt to GDP ratio before the crisis, with said ratio attaining 155% in 2018 up from 135% in 2013. The report added that the debt-to-GDP ratio spiked by 17 percentage points to 172.3% during the year 2019 as the country’s economy contracted by around 7%, before increasing by 22 percentage points over the 2020-2023 period to exceed the 200% threshold (201%), as the sharp increase in the counter value of foreign currency denominated debt due to the depreciation of the local currency was partly offset by inflation.