World Bank Sees Saudi Arabia’s Serious Stance on Economic Diversification
The World Bank predicts a sharp fall in the economic growth of Middle East and North African (MENA) nations this year, plummeting to 1.9% from 6% last year. Saudi Arabia, despite recording a significant decline in its oil sector, has witnessed an approximately 3.7% growth in non-oil activities, underscoring a steadfast commitment to its economic diversification agenda.
Military Escalation & Global Economic Impact
These forecasts precede the military escalation between Israel and Gaza, which could have ripple effects on the global and regional economies. Bloomberg predicts global growth will drop to 1.7%, removing about a trillion dollars from global production.
Exceptional Growth & 2023 Setback
Roberta Gatti, Chief Economist for the MENA region at the World Bank, noted that the region experienced exceptional growth last year, the highest in almost 15 years. The oil prices and increased oil exports post the Russian-Ukrainian war fueled this growth. However, 2023 saw stark growth regression, with oil demand not as robust as expected.
GCC’s Falling Growth Rates
Gatti expected that the Gulf Cooperation Council (GCC) oil-exporting countries to experience the largest decline in growth rates. Their real Gross Domestic Product (GDP) growth is projected to be 1% in 2023, down from 7.3% in 2022, due to reduced oil production and prices. Meanwhile, growth in developing oil-exporting countries is expected to decrease from 4.3% in 2022 to 2.4% in 2023.
Saudi Arabia’s Diverse Economic Agenda
According to Gatti, Saudi Arabia has recorded a significant decline in the oil sector against a notable growth of about 3.7% in non-oil activities. The nation seriously takes its economic diversification agenda, structuring its expenditure and financial balance based on a fixed oil price rate of around 70 dollars.
Challenges Faced by Egypt & Tunisia
Countries like Egypt and Tunisia, already economically impacted by the pandemic, are struggling considerably due to rising inflation rates. Increasing interest rates are further complicating the economic situation by elevating debt service levels. Both nations need to consider how to revert to financial space fundamentals.
Importance of Flexible Exchange Rate for Egypt
Gatti points out that for Egypt, a flexible exchange rate is vital, something the International Monetary Fund is advocating for as part of its reform agenda. Additionally, there’s a need for fiscal and structural policies aligned with these reforms, primarily rethinking the state’s role and enhancing the private sector’s role.
Shock Prevention & Employment Vision
Gatti highlights that the World Bank’s vision for the labor market in the MENA region is close to growth and social stability. Countries should think about doubling their shock resistance and finding mechanisms to widen fiscal space, as the MENA region records the highest rate of climate-related disasters compared to other world countries.
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