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World Bank Downgrades Expectations for MENA Growth
These shops in Shahriar, west of Tehran, shown on November 20, were destroyed during violent demonstrations against gasoline price hikes, brought on in part due to Iran’s economic woes under US sanctions. (Atta Kenare/AFP via Getty Images)

World Bank Downgrades Expectations for MENA Growth

Institution says regional development decreased for third consecutive year due to conflicts, sanctions on Iran and a lower demand for oil

The World Bank, in its recently released Global Economic Prospects Report, indicates lower growth expectations for the Middle East and North Africa Region (MENA) since its last report in June 2019.

The countries measured were classified as emerging market and developing economies. They included the Gulf countries and Iran, the Levant (excluding Syria and Israel), Egypt, Algeria, Tunisia and Djibouti.

The international organization reduced estimated economic progress for these countries by 1.2%, indicating just 0.1% financial growth for 2019. This represents the third year in a row that GDP growth has decreased: In 2017 and 2018, these economies grew by just 1.1% and 0.8%, respectively.

Nader Habibi, Henry J. Leir Professor of Practice in the Economics of the Middle East at Brandeis University, notes, though, that 0.1% growth is miniscule.

“It means that there was practically no change,” he told The Media Line.

In its report, the World Bank blames the downturn on regional conflicts, US sanctions on Iran and a reduced demand for oil.

“The slowdown largely reflected the sharp growth contraction in the Islamic Republic of Iran, following the tightening of US sanctions, geopolitical tensions in the Strait of Hormuz, and diplomatic setbacks,” the report states. “Weakened global growth weighed on demand for oil and other exports, further hindering activity in the region generally.”

Egypt, where economic prospects are more promising, and member nations of the Gulf Cooperation Council are seen as supportive economic environments that have spurred more foreign investment.

The World Bank’s latest forecast for financial expansion in 2020 is 2.4%, down 0.8% from June. Habibi says this prediction is not good news.

“Two-point-four percent annual growth for the Middle East and North Africa is not very strong,” he said. “It is relatively moderate, and when you take into account population growth, it amounts to a very small growth in per capita GDP.”

The World Bank notes that expected growth is based on the supposition that sanctions will lessen or at least be less destructive to Iran’s fiscal wellbeing.

Muhammad Sahimi, a professor at the University of Southern California with expertise on Iran’s political development and oil economy, argues that while it is unlikely that sanctions will be eased, it is realistic to believe that the worst of their economic ramifications have been felt.

“The effect of the sanctions has reached its maximum and, therefore, the economy has stabilized,” he told The Media Line.

Habibi agrees, adding, however, that this is not a positive development for the Islamic Republic.

“Iran has suffered negative growth in 2019 and will most likely remain stable, [meaning] close-to-zero growth, which is not good,” he explained.

Hooshang Amirahmadi, a professor at Rutgers University in New Jersey and author of The Political Economy of Iran under the Qajars, Revolution and Economic Transition: The Iranian Experience, argues that the findings in the report need to be taken with a grain of salt.

“The World Bank forecast is okay, but not very accurate for two reasons: They are based on statistics that [the] states [themselves] provide, and they often are optimistic about sanction relief or trade conditions,” he told The Media Line.

The World Bank refused to comment outside the scope of the report when contacted by The Media Line.

The economies in the region are plagued by numerous difficulties, and Amirahmadi says the most pervasive problem is low productivity due to “old, bad technology and an uneducated labor force.”

Habibi says that the contentious nature of the Middle East also poses economic threats to the region.

“You have to take into account the political risks which will affect the economies of Iran, Iraq and Lebanon in 2020,” he said.

Until these broader political and fiscal issues are addressed, the economies of developing countries in the MENA region will probably remain laggard.

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