World Economy

Terror, Wars, Cheap Oil Hurting Mideast Growth

Terror, Wars, Cheap Oil Hurting Mideast GrowthTerror, Wars, Cheap Oil Hurting Mideast Growth

The World Bank said on Thursday that 2015 economic growth in the Middle East and North Africa likely came to just 2.6%, falling short of a 2.8% forecast in October as terrorism, wars and cheap oil took their toll.

In a new report, the bank said five years of war in Syria and spillovers to neighboring countries have cost the region some $35 billion in lost output measured in 2007 prices, equal to Syria’s gross domestic product that year, Reuters quoted World Bank as reporting.

The plunge in oil prices to around $30 a barrel from over $100 two years ago is causing major problem for the region’s oil exporters, with government revenue falling sharply and budget deficits growing. The World Bank said Saudi Arabia’s public debt would reach 20% of GDP in 2017, 10 times its level of 2.2% in 2013.

“The richest oil exporters in the region, Saudi Arabia, Qatar, Kuwait and United Arab Emirates, have large reserves that will enable them to run deficits over the coming years, although not far beyond that,” the World Bank said in the report. “At current levels of spending, and an oil price of $40 per barrel, Saudi Arabia will exhaust its reserves by the end of the decade.”

  Disturbing Data

In 2016, about 87 million people from four Middle East and North Africa countries directly affected by war—Iraq, Libya, Syria, and Yemen—represented about one third of the region’s population.

The report cited World Bank estimates of $3.6 billion to $4.5 billion in physical damage to just six cities in war-torn Syria: Aleppo, Dar’a, Hama, Homs, Idlib and Latakia. The damage was assessed to housing, health, education, energy, water, transport and agriculture infrastructure.

A similar assessment in Yemen, also hit by war, found $4 billion to $5 billion in damage to four cities: Sanaa, the capital; Aden, Taiz and Zinjibar.

The wars there and elsewhere may be extracting a bigger toll on human capital, as Syrian refugees languish with little or no work, the bank said, while educational gains are being reversed. More than half of school-age children in Syria were prevented from attending school during 2014-2015, it said.

  The statistics are startling:

In Yemen, 80% of the country’s population—20 million out of 24 million people—is now considered poor, an increase of 30% since April 2015, when fighting escalated.

In Syria and Iraq, per capita income is 23% and 28% less respectively, or roughly a quarter, of what it might have been had conflict not broken out, with the direct effects of war accounting for 14% and 16% drops in per capita GDP respectively.

“A peace settlement in Syria, Iraq, Libya and Yemen could lead to a swift rebound in oil output, allowing them to increase fiscal space, improve current account balances and boost economic growth in the medium term with positive spillovers to the neighboring countries,” said Lili Mottaghi, World Bank economist for the region and the author of the report.

  Affecting Neighbors

MENA’s wars have affected countries neighboring them. Turkey, Lebanon, Jordan, and Egypt, already constrained economically, have been under tremendous budgetary pressure. The World Bank estimates that the influx of more than 630,000 Syrian refugees in Jordan has cost it more than $2.5 billion a year. This amounts to 6% of GDP, and one-fourth of the government’s annual revenues.

The conflicts in Syria have affected not just neighboring governments but their citizens, too, with average per capita incomes estimated to be 1.5% lower now than they would have been (without Syria’s turmoil) for many Turks, Egyptians, and Jordanians, and by 1.1% for many Lebanese.

Although farmers and businessmen in Lebanon and Turkey may have been able to profit from cheap labor, local workers have lost out. Nor has Lebanon’s economy benefited from cheap oil prices because of the pressure of hosting more than one million Syrian refugees, with the World Bank estimating a fall in real GDP growth of 2.9 percentage points each year from 2012–14, pushing more than 170,000 more Lebanese into poverty, and doubling the country’s unemployment rate to above 20%.