Middle East and North Africa Macro Poverty Outlook Country-by-country Analysis and Projections for the Developing World Annual Meetings 2023 © 2023 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclu- sions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Middle East and North Africa Annual Meetings 2023 Algeria Kuwait Saudi Arabia Bahrain Lebanon Syrian Arab Rep. Djibouti Libya Tunisia Egypt, Arab Rep. Morocco United Arab Emirates Iran, Islamic Rep. Oman Yemen, Rep. Iraq, Rep. Palestinian territories Jordan Qatar MPO 1 Oct 23 elevated for Algeria’s level of income, while spatial inequalities persist. ALGERIA Key conditions and The COVID-induced recession was com- pounded by a surge in inflation working challenges against poverty reduction, to which the au- thorities responded through a rise in pub- Table 1 2022 Algeria’s economy is dependent on oil lic spending on wages and social transfers. Population, million 45.7 and gas which account for a fifth of GDP, The September 2021 Government Action GDP, current US$ billion 195.0 four-fifths of exports, and two-fifths of Plan (GAP) set as developmental priorities GDP per capita, current US$ 4265.6 budget revenues. Double-digit fiscal and the transition to a private sector-led a 5.5 National poverty rate current account deficits persisted before growth and job creation model and a a 0.5 the pandemic, eroding foreign exchange stronger macroeconomic framework. Ef- International poverty rate ($2.15) a 4.0 reserves, and causing fast debt accumu- forts to encourage foreign and domestic in- Lower middle-income poverty rate ($3.65) Gini index a 27.6 lation and large-scale monetization while vestment have since accelerated, including School enrollment, primary (% gross) b 111.3 leading to currency depreciation and im- through the 2022 Investment Law. Contin- b 76.4 port reduction policies. ued reform implementation, notably to im- Life expectancy at birth, years The Russian Federation’s invasion of prove the business environment, will be Total GHG emissions (mtCO2e) 281.5 Ukraine and Europe’s efforts to shift away key to fostering growth in the nonhydro- Source: WDI, Macro Poverty Outlook, and official data. from Russian gas supply have raised oil carbon private sector. a/ Most recent value (2011). b/ WDI for School enrollment (2020); Life expectancy and gas export prices, generated record (2021). trade surpluses for Algeria, and reduced the budget deficit despite a steep rise in current spending. It also presented oppor- Recent developments Despite continued nonhydrocarbon dy- tunities for reviving foreign energy invest- namism, Algeria’s GDP growth moderat- ment in Algeria, after years of declining GDP growth slowed moderately in export capacity amidst stagnating produc- Q1-2023 (+3.0 percent y-o-y), dragged by ed in early 2023, while high inflation per- tion and rising domestic consumption. low hydrocarbon GDP growth amidst the sisted. Recent swings in oil and gas prices However, more private investment outside reduction in crude oil production quotas highlight the challenges that hydrocarbon the hydrocarbon sector is needed to foster and despite natural gas output growth. On dependence poses for macroeconomic sta- faster, inclusive, and sustainable growth. the other hand, dynamic nonhydrocarbon The Algerian economy recovered to pre- GDP growth in 2022 extended in Q1-2023 bility. Amid declining oil and gas export COVID-19 levels in 2022, but growth had (+4.0 percent y-o-y), with accelerating pub- prices, the current account surplus is been slowing down before the pandemic, lic consumption growth making up for shrinking after peaking in 2022, and the reaching 1.2 percent in 2017-2019, causing slower private consumption, and strong fiscal deficit is expected to widen. Priori- GDP per capita to contract to its 2014 investment growth stimulating the con- ty reforms include strengthening the level and unemployment to remain ele- struction and industrial sectors. Agricul- vated, especially among youth. Non-mon- ture output slowed down markedly, how- macroeconomic policy framework, open- ever, amid a severe drought episode. etary poverty declined between 2013 and ing more space for the private sector, 2019, amid improvements in education, The current account surplus shrank from and improving public service delivery. health, and living standards, but it remains a record US$11.8 billion in H2-2022 to FIGURE 1 Algeria / Hydrocarbon export prices FIGURE 2 Algeria / Current account, exports, imports and changes in international reserves Price index (H1-2018=100) Billions USD 350 45 300 30 Natural gas 250 Weighted price 15 200 Crude oil 0 150 100 -15 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 50 2018 2019 2020 2021 2022 2023 0 Exports G&S H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 Imports G&S Change in foreign exchange reserves 2018 2019 2020 2021 2022 2023 Current account balance Sources: Algerian authorities and World Bank staff estimates. Sources: Algerian authorities and World Bank staff estimates. MPO 2 Oct 23 US$2.9 billion in H1-2023, as falling oil and US dollar) and increased the reserve re- would increase slightly, with Treasury gas export prices and volumes led to a quirement rate in April 2023 from 2 to 3 savings accumulated in 2022 partially fi- US$8.9 billion decline in exports and percent, its pre-pandemic level. nancing fiscal deficits. Inflation is expected strong investment growth raised equip- to decline gradually, fueled by rising mon- ment imports. Reserve accumulation ey supply and public spending but damp- therefore continued, reaching US$68.8 bil- ened by the delayed effects of the dinar’s lion at end-June 2023, or about 17.2 months Outlook appreciation and tapering food prices. of imports of goods and services. The fragility of the global outlook and de- After declining from 7.2 to 2.9 percent of Growth is expected to decelerate in 2023, velopments in Russia’s war on Ukraine GDP in 2022, the overall budget deficit is with lower hydrocarbon output amidst ris- could have significant consequences for expected to have risen again in H1-2023, ing domestic consumption and a decline volatile oil prices, OPEC quotas, hydrocar- dragged by the decline in hydrocarbon ex- in exports. Nonhydrocarbon GDP would bon exports and, as a result, the trajectory port revenues and rising public sector slow down moderately, as private con- of Algeria’s external and budget balances. wages, and despite an increase in tax rev- sumption tapers and rising investment is Financing budget deficits through the do- enues supported by rising wages, prices, met through increasing imports. Agricul- mestic banking sector and maintaining im- investment, and imports. After declining to tural output would contract, in contrast to port reduction policies could also weigh 55.6 percent of GDP at end-2022, public debt more dynamic construction, industrial, on growth and inflation, as would new increased by 4.3 percent in nominal terms in and service activity. GDP growth would episodes of disappointing rainfall and H1-2023, financed by regular Treasury is- accelerate in 2024 and 2025, as agricultural agricultural output. On the other hand, suances. It remained overwhelmingly do- output recovers and crude oil production successful efforts in attracting large invest- mestically held, at long-term maturities tracks recovering OPEC quotas. ments, notably in Algeria’s hydrocarbon and negative real interest rates. The current account is expected to come and mining sectors, amidst Europe’s ef- Inflation remained elevated, reaching 9.7 close to balance in 2023, as higher imports forts to diversify its energy supply, could percent y-o-y in H1-2023 up from 9.3 per- compound the steep decline in hydrocar- support higher growth. cent in 2022, fueled by fresh agricultur- bon export prices. Export and import lev- Ultimately, structural reforms that im- al products, hurting vulnerable Algerians els would stabilize in 2024-25, as would the prove the business environment, foster pri- disproportionately as food accounts for level of foreign exchange reserves. Lower vate sector-led diversification, improve the over half of the spending for the bottom hydrocarbon revenues amidst higher bud- efficiency of public spending, and raise hu- 40 percent of the population. To try to get spending would cause the overall bud- man capital will be key to decreasing the curb inflationary pressures, the Bank of Al- get deficit to expand in 2023 before a slow- country’s dependence on hydrocarbons geria supported an appreciation of the di- down in public spending reduces it mod- and fostering sustainable economic nar in H2-2022 (+6 percent relative to the erately by 2025. The debt-to-GDP ratio growth and job creation. TABLE 2 Algeria / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -5.1 3.4 3.2 2.1 2.5 2.5 Private consumption -3.0 3.7 2.9 2.6 2.4 2.2 Government consumption -0.1 1.2 2.2 2.2 2.0 1.9 Gross fixed capital investment -5.2 5.8 2.4 4.3 3.7 3.2 Exports, goods and services -11.3 13.4 -0.1 -2.3 -0.8 -0.3 Imports, goods and services -16.0 -4.1 0.0 3.9 1.3 0.5 Real GDP growth, at constant factor prices -4.5 4.0 3.3 2.1 2.5 2.5 Agriculture 1.7 -1.9 5.8 -3.0 3.1 2.0 Industry -6.8 7.7 1.5 2.1 2.0 2.3 Services -4.3 2.7 4.2 3.7 2.9 2.9 Inflation (consumer price index) 2.4 7.2 9.3 9.3 8.6 7.9 Current account balance (% of GDP) -12.5 -2.8 9.4 1.9 0.3 -0.8 Fiscal balance (% of GDP) -11.9 -7.2 -2.9 -6.8 -6.8 -6.4 Revenues (% of GDP) 30.5 29.9 34.2 32.4 30.8 29.9 Debt (% of GDP) 51.8 62.9 55.6 56.9 57.0 57.8 Primary balance (% of GDP) -11.0 -6.5 -1.4 -5.3 -5.4 -4.9 GHG emissions growth (mtCO2e) -2.7 -0.9 3.4 1.7 1.8 2.1 Energy related GHG emissions (% of total) 49.8 49.2 50.3 50.7 50.9 51.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 3 Oct 23 youth unemployment and the depletion of underground water resources will have BAHRAIN Key conditions and serious long-term growth implications. Downside risks to the outlook are mostly challenges linked to a sizeable drop in hydrocarbon prices, which could renew financing chal- Table 1 2022 Bahrain experienced strong economic lenges, delay implementation of fiscal re- Population, million 1.5 growth in 2022, the fastest pace in a forms, reduce investor confidence, and GDP, current US$ billion 44.4 decade, boosted by growing non-hydro- lead to higher external financing costs. GDP per capita, current US$ 30152.1 carbon sectors including government ser- Other risks are related to climate vulnera- a 98.0 School enrollment, primary (% gross) vices, finance, manufacturing, and the up- bility to increasing heat and sea level rise, a 78.8 turn in hospitality-oriented sectors. The which could have negative impacts on wa- Life expectancy at birth, years Total GHG emissions (mtCO2e) 53.8 strong commitment to the fiscal and ter supply and natural environment. On Source: WDI, Macro Poverty Outlook, and official data. structural reform agenda, identified in the the upside, higher oil prices provide an op- a/ WDI for School enrollment (2019); Life expectancy Fiscal Balance Program (FBP) and Eco- portunity to advance the ambitious reform (2021). nomic Recovery Plan (ERP), supported by agenda to contain external borrowing and favorable oil prices, has significantly nar- put debt on a firm downward path, while rowed the overall fiscal deficit. On the rebuilding fiscal buffers. Advancing struc- other hand, a new National Labor Mar- tural reforms including those related to ket Plan (NLMP) was approved on July transition towards a low carbon economy 23 to encourage Bahraini employment in and increase employment opportunities Economic growth will moderate this year the private sector and reduce public sec- among youth, would ensure a private sec- on the soft performance of the hydrocar- tor fiscal pressures. tor-led inclusive recovery. Creating addi- bon sector, with non-hydrocarbon activity However, challenges remain. Bahrain is tional fiscal space for renewable energy in- remaining the growth engine for the considered the most diversified economy vestment would facilitate Bahrain’s cli- economy. Despite softening oil prices, the in the GCC yet hydrocarbon revenues ac- mate transition, which is expected to have count for more than 63 percent of total a positive impact on growth. fiscal deficit is anticipated to narrow, sup- budget revenues which exposes the econ- ported by ongoing fiscal reforms, while omy to extreme vulnerabilities stemming the external balance surplus is main- from the volatile nature of energy prices. tained. Larger than forecasted drop in oil Point in case, despite the recent reforms Recent developments and high oil prices which improved fiscal prices and weaker global demand, poten- and external balances, the public debt After a solid 2022 performance, Bahrain's tial delays in implementing advanced fis- remains stubbornly high. Notwithstand- economic growth is projected to moderate. cal reforms, rising global inflation, and ing the strong commitment to the reform Preliminary official data reveals that the climate change pose significant risks to agenda, falling oil prices will constrain economy grew by 2 percent during Q1 Bahrain’s economic outlook. Bahrain from balancing its budget by 2023 driven primarily by the non-oil sec- 2024, while extra-budgetary spending tors which grew by 3.5 percent. The trans- could impede reform implementation ef- portation and communications, real estate, forts. Other challenges in the form of high and financial sectors were among the key FIGURE 1 Bahrain / Real annual GDP growth FIGURE 2 Bahrain / General government operations Percent change Percent of GDP 8 40 6 30 4 20 2 10 0 -2 0 Hydrocarbon GDP -4 -10 Non-hydrocarbon GDP -6 Real GDP -20 -8 2019 2020 2021 2022 2023e 2024f 2025f 2019 2020 2021 2022 2023e 2024f 2025f Revenues Expenditures Budget balance Sources: Bahrain authorities, World Bank, and IMF projections. Sources: Bahrain authorities and World Bank projections. MPO 4 Oct 23 contributors to this steady recovery in non- workforce for the future needs of the labor Growth is estimated to moderate to 2.8 oil activities, which outpaced the contrac- market, the plan aims to better align higher percent in 2023 capped by a soft perfor- tion in the oil sector activities (falling by 6 education pathways with the needs of the mance of the oil sector while the non-oil percent) due to seasonal operational main- labor market and strengthen the technical sector remains the key driver for growth. tenance. Average inflation contracted by 0.1 and vocational education sector. It also in- The hydrocarbon sector is expected to reg- percent in July 2023 y/y, reversing from a 0.4 tends to strengthen partnerships with the ister small growth of 0.1 percent during percent y/y rise in June, driven by lower private sector and improve oversight of the 2023-24 while the non-hydrocarbon sectors transport, housing and utilities, and cloth- labor market. will continue expanding at nearly 4 per- ing and footwear prices, and as the impact According to the most recent available ILO cent supported by the recovery in the of doubling VAT on prices dissipated. estimates, Bahrain's labor market is con- tourism, service sectors, and the continua- Official fiscal data for 2023 have not been re- tinuing to recover from the impact of the tion of infrastructure projects. The econo- leased yet. However, the government suc- COVID-19 pandemic but has not yet re- my is forecast to rebound in the medium- ceeded in concluding the state budget for bounded fully. The labor force participa- term supported by stronger non-oil sector 2023-24, which placed controlling of public tion rate and employment-to-population performance as the impact of structural re- spending and diversifying revenue sources ratio were projected to reach 71.9 percent forms trickle into the economy. The easing at the heart of the medium-term plan. and 70.8 percent respectively in 2023, each of global commodity prices and the fading Despite lower exports’ value in Q1 2023, still a little below its level in 2019. In 2023, effects of doubling VAT rate are projected reflecting softening commodity prices and the employment-to-population ratio is es- to keep inflation subdued at 2.2 percent subdued global demand, the current ac- timated at 86.3 percent among men and during the medium term. count balance posted a small surplus of at 42.8 percent among women (ILO esti- With the commitment to mobilize higher US$0.6 billion (5.7 percent of GDP). This mates). The unemployment rate was ex- non-oil revenues and implement addi- was mainly driven by the decline in im- pected to hold steady around 1.4 percent tional fiscal measures, the budget deficit ports, down by 8.4 percent, to reflect eas- in 2023, 0.2 percentage points above the is anticipated to continue its narrowing ing international prices. As a result, official 2019 rate. The gradual decline in the un- path to reach 5.3 and 4.5 percent of GDP reserve assets accumulated and reached employment rate since the height of the during 2023 and 2024, respectively. How- US$3.6 billion in Q1 2023—an increase of pandemic has been slower among women ever, public debt will remain elevated in US$251 million compared to Q1 2022. than among men, with the unemployment the medium term—exceeding 120 percent In July 2023, the Ministry of Labor issued rate among women expected to increase of GDP—requiring deeper fiscal consoli- the National Labor Market Plan slightly again in 2023. dation measures. 2023-2026. The plan aims to create high- After widening sharply in 2022, the cur- quality job opportunities for Bahrainis, in- rent account surplus is forecast to narrow cluding by encouraging the private sec- in 2023 on softening oil export prices but tor to expand flexible options for employ- Outlook would remain in surplus during 2024-25 in ment. It also seeks to strengthen the inte- line with the current oil price outlook. The gration of women into the labor market, Bahrain’s economic outlook hangs on comfortable external position will boost noting that women constitute 76 percent oil market prospects and the accelerated foreign reserves and strengthen forbear- of job seekers. To better equip the national implementation of structural reforms. ance against future external shocks. TABLE 2 Bahrain / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -4.6 2.7 4.9 2.8 3.3 3.2 Private consumption -4.4 18.9 5.0 2.7 2.5 2.4 Government consumption -2.5 6.5 2.4 2.0 1.6 1.4 Gross fixed capital investment -3.8 -4.2 2.3 3.0 3.3 3.4 Exports, goods and services -2.5 29.5 4.9 3.2 3.3 3.4 Imports, goods and services -0.7 15.2 5.0 3.7 3.0 3.2 Real GDP growth, at constant factor prices -4.5 2.4 3.3 2.8 3.3 3.2 Agriculture 0.2 7.2 4.4 0.3 3.0 1.8 Industry -0.9 0.5 1.2 3.6 3.4 3.1 Services -7.1 3.9 4.9 2.2 3.2 3.3 Inflation (consumer price index) -2.3 -0.6 3.6 2.3 2.2 2.1 Current account balance (% of GDP) -9.4 6.6 15.4 7.8 6.6 5.9 Net foreign direct investment inflow (% of GDP) -3.5 -4.4 0.0 -2.6 -2.6 -2.7 Fiscal balance (% of GDP) -17.9 -11.0 -6.0 -5.3 -4.5 -7.0 Revenues (% of GDP) 17.9 20.8 23.3 23.2 22.7 19.4 Debt (% of GDP) 129.7 127.2 117.4 120.9 120.6 122.7 Primary balance (% of GDP) -12.8 -6.3 -1.6 -0.8 0.1 -2.4 GHG emissions growth (mtCO2e) 3.9 -5.6 0.8 7.2 4.0 0.7 Energy related GHG emissions (% of total) 60.8 58.6 58.4 60.2 60.8 60.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 5 Oct 23 DJIBOUTI Key conditions and Recent developments challenges Djibouti’s economic activity shows signs of recovery as of June 2023 after the de- Table 1 2022 Djibouti’s macro-fiscal vulnerabilities cline observed in 2022. The rebound is Population, million 1.1 have been exacerbated by a series of mostly driven by renewed trade and lo- GDP, current US$ billion 3.5 exogenous shocks (COVID-19 pandemic, gistics demand from its key trade part- GDP per capita, current US$ 3136.1 conflict in Ethiopia, and Russian in- ner, Ethiopia following the signing of a a 19.1 International poverty rate ($2.15) vasion in Ukraine) since 2020. These peace agreement between the Ethiopian a 43.8 shocks have strained government fi- federal government and the Tigray Rebel Lower middle-income poverty rate ($3.65) a 21.1 nances, led to inflation, jeopardized movement in November 2022. GDP National poverty rate Gini index a 41.6 food security, and slowed poverty re- growth is estimated to rise by 4.7 percent School enrollment, primary (% gross) b 73.2 duction efforts. Climatic changes, in- from 3.1 percent in 2022. The year-on- b 62.3 cluding drought and floods, also pose year inflation which reached a peak of Life expectancy at birth, years an increasing threat to households and 11 percent in July 2022, declined by 1.2 Total GHG emissions (mtCO2e) 1.4 businesses, which may be dispropor- percent in July 2023 mainly due to a Source: WDI, Macro Poverty Outlook, and official data. tionally felt in poorer regions of the slowdown in global food product prices a/ Most recent value (2017), 2017 PPPs. b/ Most recent WDI value (2021). country. Poverty rates, which stood at and administrative measures implement- 19 percent in 2017 at the international ed by the government to protect the pur- poverty line, are estimated to have de- chasing power of consumers. On the fis- Djibouti's economy is recovering, large- creased at a slower rate in recent years, cal side, the budget remains under pres- than previously anticipated, to around sure from lower tax collection perfor- ly driven by renewed trade with 15.7 percent in 2023, reflecting mance and rising debt service. Domes- Ethiopia after a 2022 peace agreement. COVID-19 effects as well as the econom- tic revenue is estimated to fall by 0.6 GDP growth is estimated to reach 4.7 ic and social impact of regional insta- percent of GDP to about 17.9 percent of percent compared to 3.1 percent in bility and accelerating food and energy GDP in 2023. To ease cash flow pres- price inflation up to 2022. Continued ef- sures, the government renewed in the 2022. Medium-term growth is promis- forts by country authorities to promote 2023 budget the main expenditure re- ing, supported by domestic development more inclusive and resilient growth will duction measures adopted in 2022, in- projects, and expected stability in be critical. This will include improving cluding the freezing of promotions for Ethiopia, but fiscal vulnerabilities re- the business environment and improv- vacant posts. As a result, total expen- main. Poverty, projected to stand at ing SOE governance to attract private diture is estimated to fall to 19.7 per- investment and lower costs of key ser- cent of GDP in 2023, 0.3 percent of GDP 15.7 percent in 2023 (at the internation- vices to the economy, improving rev- down from the level of 2022. In such al poverty line), is expected to follow a enue mobilization to restore fiscal sus- a context, the budget deficit is expect- downward trend, reflecting sustained tainability, and rationalizing untarget- ed to deteriorate slightly to 1.9 percent economic recovery. ed subsidies to create space for higher of GDP at the end of 2023. Public exter- social spending. nal debt stock is estimated to increase to FIGURE 1 Djibouti / Real GDP growth, fiscal, and current FIGURE 2 Djibouti / Actual and projected poverty rates and account balances real GDP per capita Percent change Percent of GDP Poverty rate (%) Real GDP per capita (constant FDJ) 20 8 90 600000 6 80 15 500000 70 4 60 400000 10 50 2 300000 5 40 0 30 200000 0 20 -2 100000 10 -5 -4 0 0 2019 2020 2021 e 2022 e 2023 f 2024 f 2025 f 2012 2014 2016 2018 2020 2022 2024 Real GDP growth (rhs) Current account balance (lhs) International poverty rate Lower middle-income pov. rate Government fiscal deficit (rhs) Upper middle-income pov. rate Real GDP pc Sources: Government of Djibouti and World Bank staff projections. Source: World Bank. Notes: see Table 2. MPO 6 Oct 23 75 percent of GDP in 2023 following the central government investment spend- signature of two new loan agreements ing, the freeze on new civil service re- in July 2023 with AFREXIMBANK and Outlook cruitment, improvements in fiscal man- a local commercial bank (US$155 mil- agement, and tax administration and lion) and the European Investment Bank Medium-term growth prospects for Dji- collection, should help gradually reduce (US$87 million). Djibouti’s stock of pub- bouti are positive, largely due to expected the budget deficit, which is expected to lic debt external arrears also further in- stability in Ethiopia benefiting its ports. drop to 1.3 percent of GDP by 2025. It is creased, reaching US$212.6 million (5 per- However, failure to reach a debt restruc- projected that 15.7 percent of the popula- cent of GDP) in March 2023. Arrears turing agreement with EXIMBANK China tion will continue living under the inter- were mainly accumulated on the railway for the Djibouti-Ethiopia railway and wa- national poverty line in 2023 and that this and water pipeline loans financed by EX- ter pipeline projects would escalate liq- rate will decrease to 15.4 percent and 14.3 IM BANK China. Talks are ongoing with uidity pressures and increase debt ar- percent respectively in 2024 and 2025. A EXIMBANK China to restructure these rears. Domestic development projects in- more recent household survey remains two loans. On the external account side, cluding the development of the Damerjog pending which would allow more ac- the current account balance is expected to Industrial Park Project, the development curate and up-to-date poverty estimates. turn from a small deficit in 2022 into a of the Doraleh Desalination Plant, and in- Despite this, risks remain. They include 1 percent of GDP surplus following the frastructure programs to be undertaken the deterioration in the fiscal situation re- rebound in Ethiopian demand for logis- as part of the implementation of the Na- sulting from a continued accumulation of tics services and reexport activities. As a tional Development Plan (NDP) would public debt, a stagnation or decline in result, the foreign reserve coverage ratio push Gross Fixed Capital Investment up- revenues, and increased tax exemptions, of the money supply under the currency ward. Decelerating energy and food which could prove a source of vulnera- board would remain comfortable above price inflation in 2023 should provide bility in 2024-25. Potential new shocks in 100 percent and gross official reserves are a lift to households’ real income and the global transport and logistics value expected to reach 5 months of prospec- boost private consumption.GDP growth chains, regional tensions, Russia's with- tive imports. Despite multiple shocks in is, therefore, projected to accelerate to drawal from the Black Sea grain deal, 2022, the banking sector remains gener- 5.1 percent in 2024, and to 5.7 percent in and climatic shocks, including drought ally stable. However, the solvency ratio 2025. Critical fiscal consolidation mea- and floods represent additional downside dipped below the regulatory threshold. sures, including the reprioritization of risks to Djibouti’s baseline outlook. TABLE 2 Djibouti / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices 1.3 4.5 3.1 4.7 5.1 5.7 Private consumption 9.9 9.6 -1.2 5.0 5.0 5.0 Government consumption 1.6 -2.5 -14.8 2.0 6.2 5.6 Gross fixed capital investment 1.0 4.9 2.2 7.0 7.0 7.1 Exports, goods and services -29.7 29.5 -13.0 9.0 9.0 10.0 Imports, goods and services -29.5 18.2 -6.8 11.0 11.0 11.3 Real GDP growth, at constant factor prices 2.1 4.1 3.6 4.7 5.1 5.7 Agriculture 11.5 16.5 -3.2 3.2 3.6 3.9 Industry -3.7 11.4 -0.4 6.1 6.2 6.3 Services 3.1 2.5 4.5 4.5 5.0 5.7 Inflation (consumer price index) 1.0 1.5 5.1 2.0 2.0 2.0 Current account balance (% of GDP) 11.3 -0.7 -0.1 1.0 -0.8 -1.8 Fiscal balance (% of GDP) -1.7 -2.9 -1.5 -1.9 -1.4 -1.3 Revenues (% of GDP) 23.4 20.0 18.5 17.9 18.4 18.4 Debt (% of GDP) 75.8 73.8 71.8 75.0 73.4 71.0 Primary balance (% of GDP) -1.6 -2.7 -0.6 -1.0 -0.6 -0.4 a,b International poverty rate ($2.15 in 2017 PPP) 17.3 16.9 16.5 15.7 15.4 14.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 40.8 39.9 39.4 38.0 36.7 35.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 76.2 75.2 74.3 73.4 71.8 70.2 GHG emissions growth (mtCO2e) -0.1 0.9 0.5 0.8 0.7 0.7 Energy related GHG emissions (% of total) 25.3 25.4 25.6 25.7 25.9 26.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2017-EDAM. Actual data: 2017. Nowcast: 2018-2022. Forecasts are from 2023 to 2025. b/ Projection using neutral distribution (2017) with pass-through = 0.7 (Low (0.7)) based on GDP per capita in constant LCU. MPO 7 Oct 23 In response, the authorities undertook a series of policy adjustments since March ARAB REPUBLIC Key conditions and 2022. These include raising policy rates by 1,100 basis points (to 19.25 percent and challenges OF EGYPT 20.25 percent for overnight deposit and lending transactions as of August 2023), al- Egypt continues to face a foreign ex- lowing the exchange rate to depreciate by change crisis, historically high inflation, more than 97 percent (to LE30.8/US$), and Table 1 2022 and a sharp rise in borrowing costs. introducing social mitigation packages (in- Population, million 103.4 While triggered by overlapping global cluding the expansion of cash transfer pro- GDP, current US$ billion 476.7 shocks, rising macroeconomic imbalances grams). These adjustments were support- GDP per capita, current US$ 4610.7 also reflect pre-existing domestic vulnera- ed by the 46-month IMF Extended Fund Lower middle-income poverty rate ($3.65) a 17.6 bilities and challenges, including the slug- Facility (EFF), approved in December 2022. b 29.7 gish non-oil exports and FDI, constrained However, the first EFF review is still pend- National poverty rate a private sector activity and job creation, as ing. In addition, transformative measures Gini index 31.9 c well as the elevated and rising govern- to improve the business environment are School enrollment, primary (% gross) 106.4 ment debt, driven by budgetary and off- yet to be implemented. c 70.2 Life expectancy at birth, years budget transactions. Total GHG emissions (mtCO2e) 361.5 The latest estimates (for 2019) show that Source: WDI, Macro Poverty Outlook, and official data. the national poverty rate reached 29.7 per- a/ Most recent value (2019), 2017 PPPs. b/ Most recent value (2019). cent. COVID19 and accelerating inflation Recent developments c/ WDI for School enrollment (2019); Life expectancy (2021). in 2022 and 2023 are expected to have in- creased poverty rates substantially. Economic activity has been adversely im- Notwithstanding the recent downtick in pacted by the overlapping global shocks. Egypt’s macroeconomic and structural the unemployment rate to 7.0 percent in Growth declined to 4.2 percent during Q4-FY23 (April—June 2023), the broader FY23 (July 2022—June 2023) from 6.6 per- challenges intersected with global shocks labor market indicators reflect structural cent a year earlier. Lingering de facto im- causing a foreign exchange crisis, high in- challenges, as captured by the below-po- port restrictions continue to adversely im- flation and pressures on medium-term debt tential labor force participation and em- pact economic activity, due to the difficul- sustainability. Growth is projected to de- ployment rates (at 43.0 percent and 40.0 ty of accessing inputs for production and percent of the working-age population). exports (with backlogs in ports last report- cline from 4.2 percent in FY23 to 3.7 per- Furthermore, relatively low revenue mo- ed at US$5.5 billion at end-May 2023 from cent in FY24. Fiscal (including off-budget) bilization (tax revenues at 12.4 percent of US$3.9 billion two months earlier). consolidation, mobilizing foreign flows, GDP in FY23) and the high and increasing Annual urban inflation has been in the and reforms to enable the private sector debt service (interest payments at 7.6 per- double-digits since March 2022, accelerat- are key to stabilize the economy and break cent of GDP in FY23) pose risks to fiscal ing to an average of 24.1 percent in FY23 sustainability and are limiting the space (37.4 percent, with food inflation at 71.7 the potential depreciation-inflation spiral. to advance human capital for the rapidly percent in August 2023), exceeding the Importantly, targeted social protection is growing population which exceeds 105 peak reached during the 2017 inflation crucial to shield the vulnerable. million in FY23. episode. Cost-push factors have been the FIGURE 1 Arab Republic of Egypt / Real GDP growth, FIGURE 2 Arab Republic of Egypt / Annual inflation rates employment and labor force participation rates Percent Percent of working-age population Percent 12 50 80 Headline CPI 10 70 40 Core CPI 8 60 Food & Beverage 6 30 50 4 20 40 2 30 10 0 20 -2 0 10 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 0 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 -10 GDP Growth (lhs) Employment rate (rhs) Labor force participation rate (rhs) Sources: World Bank estimates based on Central Agency for Public Mobilization Sources: Central Bank of Egypt (CBE) and CAPMAS. and Statistics (CAPMAS) and Ministry of Planning and Economic Development. MPO 8 Oct 23 predominant contributors to this recent in- households’ purchasing power and firms’ GDP in FY22) supported by continued im- flation wave, but relatively loose domestic activity are constrained by higher costs be- provements in services exports as well as liquidity conditions (mainly driven by cause of the depreciation, exchange and compressed imports. The projected mod- credit extended to the public sector) also import restrictions, imported inflation, do- eration, however, is expected to be partial- indicate that excess demand remains an- mestic supply bottlenecks, and costlier ac- ly counterbalanced by the still-elevated other contributor to inflationary pressures. cess to finance. The recent electricity cuts imports costs, downtick in remittances, Official reserves (Tier 1 reserves) and other (caused by a combination of a downtick in and the pay down of import backlogs/sup- foreign currency assets (Tier 2 reserves) in- natural gas production and increased con- pliers’ credit. The capital and financial ac- creased gradually over recent months, sumption during the heat wave) may fur- count is expected to remain under pres- jointly reaching US$42.9 billion at end-Au- ther contribute to lower economic activi- sure, with mitigation coming from interna- gust 2023. These, however, remain around ty. Going forward, growth is projected to tional financing and sales of assets. US$12 billion (21 percent) below their level gradually rise to 4.0 percent by FY25, ben- Risks to the outlook stem from a pro- prior to March 2022. The Balance of Pay- efitting from favorable base effects, and the longed delay of macro stabilization and ments outturns indicate that improve- contained imports growth associated with the potentially scarring effects of expand- ments in the services balance (tourism and the depreciation, under a baseline scenario ing untargeted subsidies and tax exemp- the Suez Canal), along with FDI have sup- envisaging a resumption of macro stabi- tions, in addition to the government debt ported reserves. Authorities are also gen- lization and continued structural reforms. maturity, its currency structure, as well as erating receipts from the sales of assets The budget deficit is forecast to widen the financial interlinkages with extra-bud- (at US$2.5 billion during 2023). Neverthe- from 6.0 percent in FY23 to 7.1 percent in getary entities. High inflation, especially less, shortage of hard currency remains a FY24, as subsidies and interest payments for food, remains a source of concern for challenge. This is evidenced by the bank- are driven up by the social mitigation mea- poverty reduction efforts. This highlights ing system’s deeply negative net foreign sures and monetary tightening. The gov- the importance of upscaling targeted social assets position [-LE812.4 billion (US$26.3 ernment debt-to-GDP ratio is also estimat- protection. Pursuing tight fiscal and mon- billion) at end-July 2023] which has been ed to have increased from 88.3 percent at etary policies, while addressing foreign deteriorating even prior to the escalation end-FY22 to 95.6 percent at end-FY23, and exchange distortions and mobilizing in- of the global shocks. is projected to rise further to 96.9 percent ternational financing will be key to restor- by end-FY24, in large part driven by valua- ing macroeconomic stability. Strengthen- tion effects of foreign currency-denominat- ing the role of the State as a regulator, ed debt (estimated at 27.8 percent of total while streamlining its presence in the Outlook debt at end-FY22), which is more than off- economy and enabling a more competi- setting the negative real interest rates. tive private sector will be critical to un- Growth is forecast to decline to 3.7 percent The current account deficit is forecast to leash the economy’s potential in higher in FY24 (from 4.2 percent in FY23) as decline in FY23-24 (from 3.5 percent of value-added export-oriented activities. TABLE 2 Arab Republic of Egypt / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices 3.6 3.3 6.6 4.2 3.7 4.0 Private consumption 7.4 6.2 2.8 3.6 2.8 3.1 Government consumption 7.9 3.4 4.9 4.2 4.3 3.8 Gross fixed capital investment -21.1 -3.2 18.5 -0.1 2.3 4.0 Exports, goods and services -23.7 -13.9 57.4 35.0 25.0 16.0 Imports, goods and services -18.7 0.5 24.3 20.0 16.5 11.0 Real GDP growth, at constant factor prices 2.5 2.0 6.2 3.9 3.6 3.9 Agriculture 3.4 3.8 4.0 4.5 3.5 3.3 Industry 0.6 -1.2 6.9 2.0 1.4 2.6 Services 3.6 3.7 6.2 5.0 5.0 4.8 Inflation (consumer price index) 5.7 4.5 8.5 24.1 26.7 15.9 Current account balance (% of GDP) -2.9 -4.3 -3.5 -2.8 -2.8 -2.9 Net foreign direct investment inflow (% of GDP) 1.9 1.1 1.8 1.9 2.0 1.9 Fiscal balance (% of GDP) -7.5 -7.1 -6.2 -6.0 -7.1 -7.0 Revenues (% of GDP) 15.9 16.6 17.2 15.4 16.0 16.2 Debt (% of GDP) 82.8 87.9 88.3 95.6 96.9 94.0 Primary balance (% of GDP) 1.7 1.4 1.3 1.6 2.0 2.1 a,b International poverty rate ($2.15 in 2017 PPP) 1.7 1.7 1.7 2.4 2.3 2.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 20.0 19.8 19.2 24.3 24.1 23.8 GHG emissions growth (mtCO2e) 1.3 -0.6 1.9 1.8 1.6 1.9 Energy related GHG emissions (% of total) 64.6 64.3 64.3 64.2 64.2 65.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2010-HIECS, 2015-HIECS, and 2019-HIECS. Actual data: 2019. Nowcast: 2020-2022. Forecasts: 2023-2025. b/ Projection based on microsimulations for 2020 and 2023, for the other years it is using annualized elasticity (2010-2015) with pass-through = 0.02 based on GDP per capita in constant LCU. MPO 9 Oct 23 highly skilled workforce, and a declin- ing birth rate not only weigh on growth IRAN, ISLAMIC Key conditions and prospects but also pose a challenge for an already struggling pension system. challenges REPUBLIC Urgent economic reforms are crucial to address critical structural issues. Priority Despite maintaining sustained moderate reforms include restoring price and finan- growth in 2022/23 - the Iranian year starts cial system stability, market-based lend- Table 1 2022 on March 20 - the economy faces en- ing, and minimizing unnecessary market Population, million 84.7 trenched structural challenges. Sluggish interventions and price controls. Imple- GDP, current US$ billion 413.5 and jobless long-term growth, low pro- menting a counter-cyclical fiscal policy GDP per capita, current US$ 4881.9 ductivity, high inflation, and imbalances would help curb budget deficits and pro- Upper middle-income poverty rate ($6.85) a 27.6 in the banking and pension systems per- mote investments in productive capacity, a 42.0 sist. These challenges have compounded renewable energy, and economic diversi- Gini index b longstanding socio-economic grievances fication. Improved targeting of cash trans- School enrollment, primary (% gross) 109.7 b that have triggered recent protests. Ongo- fers will create fiscal space, while index- Life expectancy at birth, years 73.9 ing economic sanctions and a dominant ing the cash transfers for a targeted pool Total GHG emissions (mtCO2e) 947.2 public sector hinder the full utilization of of eligible beneficiaries will help protect Source: WDI, Macro Poverty Outlook, and official data. Iran’s economic potential, including lever- them from inflation. a/ Most recent value (2019), 2017 PPPs. b/ WDI for School enrollment (2020); Life expectancy aging a highly educated young popu- (2021). lation, to further diversify the economy towards non-oil industries and services such as tourism. Recent developments Iran’s economy is set to grow for a High inflation and insufficient job cre- ation disproportionately impact lower-in- Iran's economy maintained a moderate fourth consecutive year, buoyed by the come households. Years of high inflation growth rate of 3.8 percent in 2022/23, dri- oil sector. However, persistent high in- have negatively impacted poor house- ven by services and manufacturing. The flation and scarce job opportunities com- holds and eroded the real value of social oil industry also grew with tighter global pound labor market challenges. Oil-dri- assistance transfers. With only around oil markets. Private consumption served as ven growth is non-inclusive; an estimat- one-third of the population employed the primary driver of GDP growth, while and limited job prospects, particularly for government consumption contracted in re- ed 28.1 percent of Iranians are poor, the young and female population, labor al terms to address the budget deficit. Both and two fifths of households are vulner- market challenges persist; this exacerbates exports and imports expanded, and robust able to falling into poverty. The econom- inequalities and contributes to a high investment in machinery drove invest- ic outlook is projected to remain con- poverty rate. Inadequate job creation has ment. Despite growing by 0.7 million year- driven many Iranians, particularly on-year (Y-o-Y) in Q1-2023/24, employ- strained by sanctions, adverse climate women, out of the job market, resulting ment still lags the economic expansion of change impacts, electricity and gas in a lost window of opportunity for the past three years. shortages, and weakened global demand. growth. The gradual aging of the popu- Elevated food prices and housing lation, a notable rate of emigration of the costs drove consumer price inflation FIGURE 1 Islamic Republic of Iran / Real GDP growth and FIGURE 2 Islamic Republic of Iran / Improved inflationary supply-side contributions to real GDP growth expectations have eased price pressures Percent, percentage points Thousand IRR per 1 US$ Percent, MoM 10 600 12 Food import/price 8 measures 500 10 6 400 8 4 2 300 6 0 200 4 -2 -4 100 2 -6 0 0 2016/17 2018/19 2020/21 2022/23 2024/25f Jan'20 Jul'20 Jan'21 Jul'21 Jan'22 Jul'22 Jan'23 Jul'23 Oil Agriculture Industry Inflation, MoM (rhs) Parallel market ER (lhs) Services Net taxes GDP growth NIMA ER (lhs) Sources: Central Bank of Iran (CBI) and World Bank staff calculations. Sources: CBI, Statistical Center of Iran, and World Bank staff calculations. Note: NIMA is the CBI-administered foreign exchange auction system that facilitates transactions between exporters and importers. MPO 10 Oct 23 to 46.7 percent (Y-o-Y) in the first five higher projected oil revenues. While the months of 2023/24. However, lower infla- government plans to cover most of the tion expectations and the stabilization of Outlook deficit through asset sales, this is projected the exchange rate helped decelerate to partially cover the funding gap, thereby monthly inflation, following the continua- GDP growth is forecast to maintain a keeping the inflationary pressures from tion of nuclear talks and improved access modest pace in the medium term. Higher the budget deficit financing in place. On to frozen funds abroad that helped partial- projected oil production and export vol- the external front, the current account is ly ease exchange rate pressures. umes are expected to offset lower oil expected to remain in surplus as higher The recent increase in oil exports is helping prices as well as China's economic slow- crude oil exports are expected to offset the to mitigate the budget deficit and improve down in 2023/24, and to drive an oil- decline in oil prices as well as rising im- the current account. In 2022/23 and based growth. Non-oil growth is pro- ports. Access to frozen funds would help Q1-2023/24, the government budget was jected to remain constrained by ongoing alleviate exchange rate pressures and in- constrained by lower than budgeted oil sanctions, energy shortages, liquidity flationary expectations. High inflation and revenues in response to which the govern- constraints, underinvestment, and eco- limited job creation will continue to place ment reprioritized expenditures. Since nomic uncertainty. Inadequate agricultur- pressure on household welfare and chal- Q2-2023/24, oil exports have recorded their al production, worsened by droughts and lenge poverty reduction. highest level since the reimposition of US water scarcity, disproportionally harms The economic outlook is subject to height- sanctions in 2018/19. Despite rising im- the poor, jeopardizes food security, and ened risks. Downside risks include further ports, higher oil exports in 2022/23 drove a drives migration to cities, increasing rur- water and energy shortages, intensification current account surplus (US$14.4 billion), al-urban disparities. of climate change shocks, and a re-esca- offset by a net capital account deficit Anticipated higher oil exports and partial lation of social tensions. Further sanctions (US$14.6 billion), marking the seventh con- access to frozen funds are expected to al- and stricter enforcement of restrictions secutive year of net capital outflows. Im- leviate fiscal and external pressures. Gov- may disrupt trade and fuel further infla- proved oil exports in the first half of 2023/ ernment expenditures for 2023/24 to 2025/ tionary expectations. A substantial sanc- 24 are estimated to have maintained the 26 are projected to outpace revenues, tions relief or an interim agreement related overall trade surplus, despite a non-oil leading to a fiscal deficit, albeit a smaller to nuclear negotiations could significantly trade deficit. one as a share of GDP considering the improve the economic outlook. TABLE 2 Islamic Republic of Iran / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020/21 2021/22 2022/23 2023/24e 2024/25f 2025/26f Real GDP growth, at constant market prices 3.3 4.7 3.8 4.1 3.5 3.1 Private consumption 0.5 3.9 8.7 2.2 2.1 1.9 Government consumption -0.9 8.3 -3.6 3.5 3.4 3.2 Gross fixed capital investment 3.2 0.0 6.6 5.9 5.5 5.4 Exports, goods and services -12.8 5.2 8.2 15.4 7.9 5.6 Imports, goods and services -29.7 24.1 7.5 8.7 4.1 3.0 Real GDP growth, at constant factor prices 4.1 4.4 4.0 4.1 3.5 3.1 Agriculture 3.2 -2.6 1.1 1.1 1.0 1.0 Industry 7.8 3.2 7.4 7.3 4.9 3.7 Services 2.2 6.5 2.7 2.9 3.0 3.0 Inflation (consumer price index) 47.1 46.2 46.5 42.6 35.8 32.3 Current account balance (% of GDP) -0.3 3.1 3.5 4.8 3.5 2.7 Fiscal balance (% of GDP) -5.8 -3.2 -1.9 -1.6 -2.1 -2.2 Revenues (% of GDP) 7.3 11.0 12.1 12.1 12.0 12.1 Gross Public Debt (% of GDP) 41.4 42.4 30.1 30.7 32.5 34.0 Primary balance (% of GDP) -5.3 -2.7 -1.4 -1.3 -1.7 -1.9 GHG emissions growth (mtCO2e) -2.4 5.7 2.7 2.8 2.4 2.2 Energy related GHG emissions (% of total) 66.2 67.6 67.5 67.4 67.2 66.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 11 Oct 23 vast oil wealth, public service delivery re- mains poor, due to poor public investment REPUBLIC OF Key conditions and management, productive and allocative in- efficiencies, and corruption. A large public challenges IRAQ sector (representing about 39% of total employment) and an unconducive busi- Iraq’s economy is showing signs of a slow- ness environment limit opportunities in down as GDP growth continues to track the private sector which remains largely Table 1 2022 the developments in the oil sector. GDP informal with low social status and low Population, million 44.5 growth is decelerating, reflecting extended economic returns. Most of the poor and GDP, current US$ billion 241.7 oil production cuts by OPEC+ and the on- vulnerable Iraqis are employed in the in- GDP per capita, current US$ 5430.8 going halting of oil exports from the north- formal sector. Climate change challenges, Lower middle-income poverty rate ($3.65) a 2.4 ern oil pipeline, following the international including extreme heat events, water a 24.7 arbitration case with Türkiye. Lower oil ex- scarcity and desertification, increase food Upper middle-income poverty rate ($6.85) a port quantities will decrease oil revenues, insecurity and reliance on food imports, National poverty rate 22.5 a weighing on the fiscal position and inter- hamper economic activities, re-enforce Gini index 29.5 national reserves. rural-urban migration, and negatively im- b 108.7 School enrollment, primary (% gross) The approved budget law for 2023 to 2025 pact physical and mental health. In the b 70.4 Life expectancy at birth, years envisages a fiscal expansion that does not absence of economic reforms, these chal- Total GHG emissions (mtCO2e) 309.8 address structural vulnerabilities, at a time lenges are set to weigh on growth and in- Source: WDI, Macro Poverty Outlook, and official data. of weaker global growth and heightened crease pressures on the most vulnerable a/ Most recent value (2012), 2017 PPPs. oil market uncertainty. The budget, if fully Iraqis and heighten social tensions. b/ WDI for School enrollment (2007); Life expectancy (2021). implemented, will result in a large fiscal deficit, which would require a sizeable fi- nancing need and deplete the buffers ac- The economy enjoyed an oil-driven recov- cumulated during the previous year’s oil Recent developments windfall. The composition of the budget ery in 2022 but is projected to slow down for 2023, notably the sharp increase in the GDP growth is decelerating due to declin- significantly in 2023. GDP is contract- wage bill, could have a long-term impact ing oil output. Following a rapid expan- ing following oil market developments by further aggravating budget rigidities; sion in 2022, real GDP growth moderated and the new OPEC+ production cuts. this would then leave little fiscal space for to 2.6 percent year-on-year (y-o-y) in growth-enhancing programs in human Q1-2023 as oil production was constrained Lower oil exports and the sharp fiscal and physical capital. by the extended OPEC+ production quota. expansion are weighing on fiscal and ex- Despite several reform efforts, Iraq’s eco- Crude oil production was below Iraq’s ternal balances, and fiscal risks could re- nomic model remains oil-dependent and agreed quota between April and August emerge without more reforms. Downside dominated by the public sector, negatively 2023 in part due to halting of exports from impacting growth prospects. Over-reliance the Kurdistan Region of Iraq. Non-oil GDP risks to the outlook include oil market on oil and the implicit social contract re- grew by 4.7 percent y-o-y in Q1-23 owing volatility, climate change risks, and a duce incentives to diversify the economy to a rebound in non-oil industries (partic- return to instability. and government revenues. Despite the ularly construction), supported by the CBI FIGURE 1 Republic of Iraq / Fiscal account outlook FIGURE 2 Republic of Iraq / Consumer price inflation and parallel market pressures Percent of GDP US$ per barrel Percent Percent 60 100 8 4 45 6 80 3 30 4 2 15 60 2 0 1 0 40 -2 -15 0 20 -4 -30 M/M inflation (rhs) -1 -6 Y/Y inflation (lhs) -45 0 IQD depreciation* (lhs) 2020 2021 2022 2023 2024 2025 -8 -2 Oil revenues (lhs) Non-Oil revenues (lhs) Wages and pension (lhs) Other expenditures (lhs) Fiscal balance (lhs) Oil price (rhs) Sources: Iraq’s Ministry of Finance, Ministry of Oil, and World Bank staff calculations. Sources: Iraq’s Central Statistical Organization, Central Bank of Iraq, media, and World Bank staff calculations. Note: *Positive values show dinar’s depreciation against the dollar in the parallel market. MPO 12 Oct 23 lending initiative, and agriculture due to a the procyclicality of fiscal policy. As a re- thereafter. The easing of global commod- better rainfall season. sult, the fiscal account recorded a surplus ity prices, revaluation of the dinar, and While inflation has eased since the FX-re- of 2.9 percent of GDP (cash basis), down continued price subsidies are projected to lated spike in prices at the beginning of from a surplus of 7.8 percent of GDP in keep inflation in check. With the project- the year, pressures in the parallel mar- H1-2022. On the external account, higher ed decline in oil prices and the expan- ket persist. Following the closer enforce- imports and lower exports almost halved sionary fiscal policy stance, the fiscal bal- ment of due diligence measures in the the current account surplus to 5.7 percent ance is forecast to return to a deficit and CBI dollar auctions since November 2022, of GDP in H1-2023. The accumulation of the debt-to-GDP ratio increase. An ex- the re-channeling of demand to the paral- gross official reserves (excluding gold) pected influx of imports driven by the lel market drove a depreciation of the di- started to decelerate in early 2023 and de- dinar revaluation and the significant in- nar and a surge in inflation to 7.0 percent clined in July 2023 to US$95 billion from crease in government expenditures will y-o-y in January-February 2023. However, over US$101 billion in June. further weigh on the current account sur- inflationary pressures have since started plus, which at a projected average oil to moderate, supported by the CBI deci- price of US$78.7/bbl from 2023 to 2025, is sion to revalue the dinar against the dol- forecast to narrow in 2025. lar by 10.3 percent in Feb 2023 and by Outlook Downside risks to the outlook stem from moderating global commodity prices. Av- geopolitical developments, along with erage headline and core inflation eased The economic outlook is expected to weak- fluctuations in commodity prices and ex- to 3.9 and 3.4 during March to July pe- en due to less favorable oil market acerbated vulnerabilities due to climate riod y-o-y, respectively. However, pres- prospects. GDP growth is forecast to con- change. A potential resurgence in food sures in the parallel exchange market re- tract by 2.3 percent in 2023 as OPEC+ oil prices, contingent on the evolution of main elevated and the gap with the offi- production cuts agreed in June 2023 will Russia’s invasion of Ukraine and the com- cial rate was over 19 percent in mid-Sep- lead to lower production and exports from ing El Niño, could fuel inflationary pres- tember 2023, reflecting continued FX de- the Kurdistan Region remain constrained sures. Food price surges, coupled with in- mand in the parallel market. due to the oil pipeline dispute. Non-oil tensified climate change shocks could am- Lower oil prices and export volumes have GDP is estimated to grow by 4.5 percent plify existing poverty trends and heighten started to weigh on government finances in 2023, assisted by the fiscal expansion in food insecurity, which add to the exist- and on the external account. Government the second half of the year. For 2024-25, a ing public grievances and social tensions. revenues, heavily dependent on oil, de- gradual rebound in overall GDP growth The Iraqi economy’s overreliance on oil clined by 28.2 percent y-o-y in the first half is forecasted under the assumption that leaves it susceptible to market volatility, of 2023 (H1-2023). Expenditures declined oil production will start to increase again global demand fluctuations, and height- by 2.4 percent due to the delay in ratifica- from mid-2024, reaching its historical ened risks amid the global transition to- tion budget law 2023, which partly curbed peak by end-2024 and gradually growing wards a decarbonized world. TABLE 2 Republic of Iraq / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -9.4 -2.1 7.0 -2.3 4.3 2.9 Private consumption -5.5 2.6 3.5 7.7 4.5 4.0 Government consumption -9.5 4.7 8.2 18.0 8.5 4.7 Gross fixed capital investment -65.4 7.8 10.4 21.2 26.6 9.9 Exports, goods and services -10.1 -13.3 16.4 -6.7 4.8 2.8 Imports, goods and services -23.9 7.7 20.0 20.5 13.7 7.0 Real GDP growth, at constant factor prices -12.0 1.6 7.0 -2.3 4.3 2.9 Agriculture 22.5 -20.6 -10.6 3.5 3.0 3.0 Industry -16.4 -0.7 11.2 -5.6 4.7 2.9 Services -5.8 9.8 1.2 3.8 3.5 2.8 Inflation (consumer price index) 0.6 6.0 5.0 4.8 4.0 3.8 a Current Account Balance (% of GDP) -4.0 12.0 20.7 4.6 4.9 3.7 a Net Foreign Direct Investment Inflow (% of GDP) -1.7 -1.3 -0.9 -0.8 -0.8 -0.8 a Fiscal Balance (% of GDP) -12.1 4.0 11.7 -1.5 -1.2 -2.0 Revenues (% of GDP) 29.3 36.2 42.2 37.9 37.8 36.2 a Debt (% of GDP) 78.8 58.8 40.8 44.3 46.1 46.6 a Primary Balance (% of GDP) -11.0 4.5 12.6 -0.9 -0.6 -1.5 GHG emissions growth (mtCO2e) -9.7 -2.1 9.1 -3.9 3.7 1.9 Energy related GHG emissions (% of total) 43.0 42.6 43.3 43.1 43.6 43.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Share of factor cost GDP. MPO 13 Oct 23 geopolitical tensions and the associated impact on commodity prices – pose sig- JORDAN Key conditions and nificant challenges for Jordan. Meanwhile, water and electricity sectors’ financial sus- challenges tainability remain a concern, and the coun- try remains highly susceptible to extreme Table 1 2022 Jordan’s geopolitical role in the MENA re- weather conditions, including rising tem- Population, million 11.3 gion, its exposure to regional conflicts, and peratures and lower precipitation, which GDP, current US$ billion 47.5 the associated spillover of refugees have could aggravate water scarcity and food GDP per capita, current US$ 4210.4 historically made security and stability the security risks. a 15.7 National poverty rate foremost concerns of policymaking. The b 80.0 impact of these external shocks is com- School enrollment, primary (% gross) b 74.3 pounded by domestic constraints, with the Life expectancy at birth, years Total GHG emissions (mtCO2e) 37.6 lack of structural transformation resulting Recent developments in a low-growth equilibrium, persistent Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2017/8). weak labor market outcomes, and a chal- Growth reached 2.5 percent in 2022 and b/ Most recent WDI value (2021). lenging business and socioeconomic con- increased to 2.8 percent (y-o-y) during text. In the face of crises, Jordan has adopt- Q1-2023, yet labor market indicators re- ed an accommodative but prudent mone- main weak. Growth was driven by services tary and fiscal policy mix focused on fiscal (transport and communications, finance Jordan has prudently navigated difficult consolidation and maintaining the pegged and insurance, and wholesale and retail exchange rate. Implementation of the new trade), a rebound in agriculture, and a ro- times, showing resilience in the face of Economic Modernization Vision 2033 is es- bust contribution from manufacturing and major external crises. However, key sential to spur productivity and invest- mining. The restaurants and hotels sector structural constraints remain firmly en- ment, address the job market woes, and grew by 5.6 percent in Q1, but its contri- trenched, notably those related to the la- improve the standard of living. bution to overall growth remains marginal While no new official poverty rate has been (0.1 ppts) given its low weight in the econ- bor market, the business environment, released since 2018 it is likely that food omy (1.5 percent of GDP). Inflation decel- and fiscal sustainability. Additionally, price increases in 2022 have adversely af- erated to 2.5 percent on average in Jordan is highly vulnerable to climate fected the poorest and most vulnerable 8M-2023, reflecting the Central Bank of Jor- shocks, underscoring its need to address households. Further, recent cutbacks to dan’s monetary tightening and lower glob- water, energy, and food security con- humanitarian assistance for Syrian al commodity prices. Poor labor market in- refugees are likely to have adverse welfare dicators continue to constrain economic cerns. A reaffirmed commitment to re- consequences, as these households are dis- potential, with a low 33.3 percent labor form implementation, progress monitor- proportionally likely to be poor and de- force participation rate in Q1-2023 (13.7 ing and course adjustment when needed pendent on cash-assistance to supplement percent for women). Unemployment has can help spur growth and improve the their livelihoods. only slightly declined to 21.9 percent (from Risks from the global economy - including 22.8 percent in Q12022), with youth (46.1 wellbeing of the Jordanian population. tighter financial conditions, a slowdown in percent) and women (30.7 percent) being trading partners’ growth, continued the most affected. FIGURE 1 Jordan / External accounts are boosted by travel FIGURE 2 Jordan / Fiscal performance benefited from receipts, but the trade balance remains largely in deficit higher revenue and phasing out of fuel subsidies Percent of GDP Percent of full year GDP Fiscal balance, percent of GDP 20 5 35 30 3 10 25 1 20 0 15 -1 -10 10 -3 5 -20 0 -5 -5 -30 -7 -10 2016 2017 2018 2019 2020 2021 2022 Q1-22 Q1-23 2016 2017 2018 2019 2020 2021 2022 5M- 5M- Current Transfers Income Account 2022 2022 Services Account Trade Balance Full year CAD (lhs) Quarterly CAD (rhs) Total Expenditures Total Domestic Revenue Overall Fiscal Balance Sources: Central Bank of Jordan and World Bank staff calculations. Sources: Ministry of Finance and World Bank staff calculations. MPO 14 Oct 23 The Central Government fiscal deficit contraction in imports. With the decline in informality, and low labor productivity reached 5.8 percent in 2022, supported by FDI (from 0.8 percent of GDP to 0.5 percent continue to suppress households’ real in- revenue-enhancing reforms, while total ex- in Q1) and other investments (from 1.3 per- come growth. Moreover, cuts in cash penditure grew at a slower pace. It contin- cent of GDP to 0.9 percent), the BOP regis- transfers to refugees due to declining for- ued to improve in H1-2023, narrowing by tered a deficit of 1.5 percent of GDP com- eign assistance are likely to have an ad- 0.5 percent of GDP compared to H1-2022, pared to 0.4 percent of GDP in Q1-2022. verse impact on poverty, food security, and showing a primary surplus of 0.4 and indebtedness levels. percent for the first time since 2017. This Fiscal consolidation is expected to contin- was driven by an increase in revenue ue in 2023, supported by the decline in and lower subsidy spending in H1-2023. Outlook subsidies and the growing domestic rev- Capital expenditures witnessed a marked enues. Together with the containment of increase of 0.4 ppts of GDP. Government Growth is expected to inch up to 2.6 per- public wage bill growth, this will offset the and guaranteed debt reached JD39.7 bil- cent in 2023, supported by a strong con- impact of higher interest payments and lion in June, compared to JD38.49 billion tribution from services. Without a strong capital expenditures. Nevertheless, fiscal (114.2 percent of GDP) at end-2022, or 91.0 reform momentum, growth is expected to pressures from the water and electricity percent net of SSIF holdings (i.e., general settle at around 2.5 percent starting 2024, sectors are expected to increase public government coverage). as base effects from post-pandemic recov- debt to 116.0 percent of GDP (equivalent The BOP registered a deficit of 1.6 percent ery fade away. Headline inflation is an- to 91.1 percent of GDP after excluding of GDP in 2022, compared to a 5.3 percent ticipated to be contained at 2.4 percent in SSIF holdings) at end-2023. surplus in 2021, impacted by the large in- 2023, supported by favorable base effects, On the external front, the CAD is expected crease in the current account deficit. The lower imported commodity prices, and to narrow to 7.6 percent of GDP in 2023, CAD reached 8.7 percent of GDP in 2022, muted core inflation. driven by an improved trade balance part- but improved in Q1-2023 (down to 2.0 While the recovery of tourism and other ly due to lower commodity prices and in- percent of GDP, from 2.7 percent), helped services is expected to support wage in- creased tourism receipts. These will more by a marked pickup in travel receipts. comes, large socioeconomic vulnerabili- than offset the impact of lower grants, the The trade deficit narrowed during ties persist. Limited private sector job slowdown of remittances growth, and H1-2023, mainly driven by a 4.8 percent creation, segmented labor markets, high higher primary income payments. TABLE 2 Jordan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -1.6 2.2 2.5 2.6 2.5 2.5 Real GDP growth, at constant factor prices -1.3 2.2 2.5 2.7 2.5 2.5 Agriculture 1.3 2.8 3.3 3.7 2.4 2.4 Industry -2.1 3.1 3.3 3.1 2.2 1.5 Services -1.2 1.8 2.2 2.4 2.7 3.0 Inflation (consumer price index) 0.3 1.3 4.2 2.4 2.4 2.4 Current account balance (% of GDP) -5.7 -8.2 -8.7 -7.6 -5.9 -5.1 Net foreign direct investment inflow (% of GDP) 1.7 1.3 2.4 2.2 2.4 2.8 a Fiscal Balance (% of GDP) -7.1 -6.4 -5.8 -5.1 -5.0 -4.8 Revenues (% of GDP) 22.7 25.4 26.5 26.6 26.7 26.8 b Debt (% of GDP) 106.8 111.7 114.2 116.0 117.1 118.2 b Debt, net of SSIF (% of GDP) 87.0 89.8 91.0 91.1 90.8 90.3 a Primary Balance (% of GDP) -3.1 -2.0 -1.6 -0.6 -0.1 0.2 GHG emissions growth (mtCO2e) -3.7 3.2 3.3 3.1 2.4 2.8 Energy related GHG emissions (% of total) 62.4 62.1 61.3 60.9 60.7 60.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ CG fiscal balance incl. grants and adjustment on receivables and payables (use of cash) as per IMF Country Report No. 23/49. b/ Government and guaranteed gross debt. Includes securitization of domestic arrears in 2019-21. MPO 15 Oct 23 limited financial linkages and trade flows between the two countries. KUWAIT Key conditions and challenges Table 1 2022 Recent developments Kuwait’s long-term economic challenges Population, million 4.3 are linked to its heavy oil dependence, After strong economic performance of 7.9 GDP, current US$ billion 168.7 domestic consumption as a main growth percent in 2022, driven by robust oil sec- GDP per capita, current US$ 39527.0 driver, and a slow pace in diversification tor performance (13.3 percent), Kuwait’s a 82.6 School enrollment, primary (% gross) and structural reforms. Meanwhile, the economic growth declined sharply. Dur- a 78.7 nation's economic resilience is anchored ing H1-2023, economic growth slowed Life expectancy at birth, years Total GHG emissions (mtCO2e) 155.2 by significant foreign assets in its sover- mainly due OPEC+’s agreement of cutting Source: WDI, Macro Poverty Outlook, and official data. eign wealth fund (KIA), ranking among production quotas, higher interest rates, a/ Most recent WDI value (2021). the world's largest. Nevertheless, these and global uncertainties. In June 2023, oil assets cannot shield against the potential sector output declined to its lowest lev- decline in future oil demand. Addressing el in the past 18 months. Non-oil sec- this risk requires comprehensive fiscal tor sustained its growth during H1-2023 and structural reforms. Resolving polit- supported by domestic and external de- ical deadlock between Parliament and mand, elevated oil prices, high govern- Kuwait’s economy is expected to slow government, coupled with ensuring gov- ment spending, and restoration of pan- down sharply in 2023, after performing ernance stability may expedite economic demic-disrupted projects. Although pri- strongly in 2022, and stabilize over the diversification and timely reform imple- vate sector credit experienced the fastest medium term. The projected economic mentation. Anticipated robust oil prices growth in 7 years at 7.7 percent during over the medium-term could still play 2022, credit growth for households and slowdown is driven by the sluggish a key role in financing economic transi- businesses slowed in H1-2023 to reflect global economic activity and OPEC+ tion and foster sustainable, inclusive, and rising borrowing costs. To resolve the cautious production schedule. Lower en- green growth. chronic housing problem, the government ergy prices and fiscal expansion will Key risks include oil production and oil introduced measures that include a four- price volatility, global economic slow- year action plan for lot distribution and narrow fiscal balance. Fiscal support down, monetary tightening, geopolitical building permits. measures, tight monetary policy, and uncertainty, and climate change. Delays Monetary policy tightening, along with falling import prices will keep inflation in fiscal and structural reforms, along generous government subsidies on subdued. Key downside risks to the out- with slow progress towards diversifying food and energy, eased inflationary the economy, could slow up growth in pressures during 2023, reaching 3.8 look include global uncertainty, oil price both the oil and non-oil sectors and sig- percent during Q2-2023. volatility, and continued political dead- nificantly affect fiscal and external bal- In 2022, supported by robust oil produc- lock over key reforms. ances. Direct adverse economic spillovers tion and prices, the fiscal balance regis- from the Russian invasion of Ukraine tered a surplus of 2.2 percent of GDP. have been contained in Kuwait due to However, the FY23/24 budget, approved FIGURE 1 Kuwait / Annual real GDP growth FIGURE 2 Kuwait / Public finance Percent change Percent of GDP 15 80 60 10 40 5 20 0 0 -5 -20 -10 -40 2019 2020 2021 2022 2023 2024 2025 2019 2020 2021 2022 2023 2024 2025 Oil GDP Non-Oil GDP GDP Fiscal Balance Revenues Expenditures Sources: Kuwait CSB, IMF WEO, and World Bank staff estimates. Sources: World Bank, MTI Global Practice, and IMF WEO. Notes: Based on the fiscal year cycle (April to March 31). Fiscal balances exclude investment income and FGF transfers. MPO 16 Oct 23 by Parliament in August 2023 based on an projected to increase slightly to 71.7 per- developments, it is anticipated that polit- oil price assumption of US$70 per barrel cent in 2023 (ILO) but remains about 1.3 ical uncertainties will persist, potentially and 2.68 million barrels per day produc- percentage points lower than in 2019. The delaying the rollout of new infrastructure tion, projects KWD 6.8 billion deficit. Ex- employment-to-population ratio in 2023 projects and further advancement of the penditure increase is due to past one-off was also expected to increase slightly to reform agenda. Non-oil sector is projected arrears settlement and higher wage and so- 69.9 percent overall and to 45 percent to grow by 5.2 percent supported by pri- cial security allocations, is partially offset among females, remaining about 1.6 and vate consumption and loose fiscal policy. by the new "income generated by GREs" 0.7 percentage points lower than in 2019, High subsidies, tighter monetary policy, revenue item. To improve fiscal sustain- respectively. Unemployment rates were and declining global commodity prices ability, the government renewed Vision projected to remain relatively steady in will keep inflation contained at 3.3 and 2.4 2035 objectives, revealing a medium-term 2023 at 1.2 percent among men and 6.4 percent in 2023 and 2024, respectively. strategy in 2023, and pursued enhanced percent among women, still higher than Monetary policy is expected to maintain a public financial management measures. the 2019 rates by 0.2 and 0.6 percentage close alignment with the US Federal Re- The banking system remain well capital- points, respectively. Unemployment has serve, considering the predominant role of ized and liquid. Overall financial stability been especially high among young the US dollar in the Kuwaiti Dinar's is maintained as nonperforming loans re- women (aged 15-24), estimated at 29.4 pegged basket. Concurrently, domestic main low (1.6 percent in Q2-2023) while percent for 2023. credit growth is projected to moderate re- credit growth continues to be strong de- flecting the higher costs of borrowing. spite early signs of slowing down. Follow- In 2023, lower oil revenue and loose fiscal ing global monetary tightening, the Cen- policy will result in a fiscal deficit of 8 per- tral Bank of Kuwait raised policy rates Outlook cent of GDP (excluding investment income multiple times, reaching 4.25 percent in Ju- and FGF transfers). This trend is likely to ly 2023, with official reserve assets contin- Economic growth is projected to decelerate persist in the medium term given the on- uing to stay at their comfortable levels. The sharply to 0.8 percent in 2023 due to a de- going expansionary fiscal policy. The im- current account surplus, which registered crease in oil output, monetary tightening, plementation of the economic diversifica- 26.3 percent of GDP in 2022, narrowed and sluggish global economic activity. Fol- tion program, alongside the introduction during H1-2023 at the back of softening oil lowing tighter OPEC+ production quotas of VAT, in line with other GCC countries, receipts and easing global demand. and reduced global demand, oil GDP and timely fiscal consolidation measures, Kuwait's labor market continues to re- growth is expected to decline by 3.8 per- could help diversify revenues and cover from the impact of the pandemic, cent in 2023 but is anticipated to recover strengthen fiscal sustainability. Lower oil although many indicators have not yet in 2024 as production quotas are re- revenues and import prices are anticipated rebounded to their pre-pandemic levels. laxed—supported by higher activity from to narrow current account surplus in 2023 The labor force participation rate was the Al Zour refinery. Considering recent and in the medium term. TABLE 2 Kuwait / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -8.9 1.3 7.9 0.8 2.6 2.7 Private consumption -4.5 3.2 4.8 2.7 2.5 2.3 Government consumption 0.0 1.1 2.0 2.2 2.6 2.3 Gross fixed capital investment -4.6 3.9 4.4 2.1 2.5 2.9 Exports, goods and services -13.3 2.2 12.0 0.8 2.8 3.1 Imports, goods and services -4.0 5.7 5.3 4.1 2.7 2.9 Real GDP growth, at constant factor prices -8.9 1.4 7.9 0.8 2.6 2.7 Agriculture -3.8 0.5 1.1 0.8 1.3 1.3 Industry -12.2 2.2 8.3 1.3 3.3 3.3 Services -4.2 0.4 7.3 0.1 1.6 1.9 Inflation (consumer price index) 2.1 3.4 4.3 3.3 2.4 2.1 Current account balance (% of GDP) 3.2 16.0 26.3 23.1 19.1 15.2 a Fiscal Balance (% of GDP) -33.2 -7.3 2.2 -8.0 -10.7 -11.2 GHG emissions growth (mtCO2e) 5.0 0.0 8.2 3.4 4.8 6.4 Energy related GHG emissions (% of total) 65.7 64.8 64.2 62.0 60.1 58.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Based on fiscal year cycle (April to March 31). Fiscal balances exclude investment income and FGF transfers. MPO 17 Oct 23 price inflation in the first quarter of 2023. Nominal food price inflation stood LEBANON Key conditions and at 350 percent over the period of January to April 2023. Soaring food prices fol- challenges lowing the Russian invasion of Ukraine are forcing households to adopt extreme Table 1 2022 Lebanon’s protracted crisis will likely have livelihood coping measures and exacer- Population, million 5.5 a long-lasting effect on potential growth. bating the precarity of the conditions GDP, current US$ billion 21.0 The scale and scope of the financial crisis among the poorest and most vulnerable GDP per capita, current US$ 3823.9 is reducing Lebanon’s potential for segments of society. a 27.4 National poverty rate growth as the country’s physical, human, Preliminary data from the 2022-2023 a 31.8 social, and institutional capital are being Lebanon Household Survey (LHS) sug- Gini index b 75.0 rapidly, and potentially, irreparably de- gests that poverty continues to rise and Life expectancy at birth, years Total GHG emissions (mtCO2e) 24.2 pleted. A highly polarized political land- household living conditions continue to scape, a caretaker government with re- deteriorate. The LHS is ongoing, with over Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2011). stricted executive powers, an interim cen- 5,200 households interviewed to date. b/ Most recent WDI value (2021). tral bank governor (the first deputy gov- Around three out of every five households ernor of the Central Bank) in the absence considered themselves to be poor or very of a successor to the former Central Bank poor. Households that do not receive any Eleven months into a Presidential vacuum governor following the end of his 30-year form of private remittances are even more and with a caretaker government and act- tenure, and limited legislative action by likely to feel impoverished. parliament have all markedly slowed the ing central bank governor in place, progress progress needed for a comprehensive cri- towards a comprehensive crisis resolution sis resolution plan. plan has been limited. The contraction in re- Foreign currency reserves at the central Recent developments al GDP in 2022 is estimated to have nar- bank are steadily depleting. The insolven- cy of the banking sector and its inability Real GDP contraction is estimated to have rowed to 0.6 percent amid signs of stabiliza- to extend credit have rendered the narrowed to 0.6 percent in 2022 (up from a tion in private sector activity and better- Banque du Liban (BdL) the main financier previous estimate of 2.6 percent owing to than-expected real activity indicators. of external and fiscal deficits in the past better-than-expected recent high frequen- Triple digit inflation and currency depreci- four years. Usable gross foreign exchange cy indicators data). Tourism receipts and ation show no sign of abating, inducing a reserves at BdL currently stand at remittances, which form a de facto safety US$8,573 mln and have declined by net, supported domestic consumption in pervasive and growing dollarized cash- US$22.4 bn since the onset of the crisis 2022. The growth in consumption coupled based economy. Inflation averaged 171.2 in October 2019. Lebanon has also relied with signs of stabilization in private sector percent in 2022 and is projected to reach on limited external financing and the 2021 activity are the main drivers of the narrow- about 231 percent in 2023. Subject to un- IMF SDR allocation to finance critical im- ing contraction in economic activity. ports such as medicine and wheat. The fiscal deficit stood at 2.9 percent certainty, real GDP is projected to exhibit a Lebanon topped the list of countries of GDP in 2022. Revenues are estimated tepid growth of 0.2 percent in 2023. that are hardest hit by nominal food to have declined from an already low FIGURE 1 Lebanon / Exchange rate depreciation drives the FIGURE 2 Lebanon / Inflation in basic items has been a key surge in inflation driver of overall inflation, hurting the poor and the middle class Index (Aug 2019=100) Percent Contributions to Overall Inflation in 7M-2023, Percent 7,000 200 250 Headline Inflation growth 6,000 Food & Non-alcoholic Beverages 160 Transportation 5,000 200 Communication 4,000 120 Water, Electricity, Gas, & Other Fuels Health 3,000 80 150 Owner Occupied 2,000 Clothing & Footwear 40 Education 1,000 100 Furnishings, Household Equipment 0 0 Other Aug'19 Feb'20 Aug'20 Feb'21 Aug'21 Feb'22 Aug'22 Feb'23 Alcoholic Beverages & Tobacco 50 World Bank average exchange rate (lhs) Actual Rent Inflation rate (lhs) Currency in circulation (lhs) CPI-Exchange rate pass through (rhs) 0 Sources: Lebanese authorities and World Bank staff calculations. Sources: Lebanese authorities and World Bank staff calculations. MPO 18 Oct 23 13.1 percent of GDP in 2020 to 6.1 per- The exchange rate has now stabilized at pervasive cash-based economy. The qual- cent of GDP in 2022, one of the lowest around 90,000 LBP/US$ since July 2023, ity of BoP data in Lebanon remains his- rates globally. Revenues were more than however, the currency lost more than 98.3 torically weak. Nonetheless, the current ac- offset by an increase in total expenditures percent of its pre-crisis value by July 2023. count deficit is expected to narrow in 2023, (including off-budget spending) that is dri- The depletion in gross foreign currency re- owing to an anticipated decrease in im- ven by a slight increase in personnel costs serves implies that the scope for further ports of goods and services, and the owing to the social assistance schemes for foreign exchange intervention by BdL is planned halt of BDLs financing of the fiscal public sector employees, transfers to Élec- limited and that any exchange rate stabili- deficit, which is expected to reduce the tricité du Liban, and other current expen- ty may be short-lived. drain on the balance of payments and ditures, including the wheat subsidy. The Inflationary pressures have not abated, BdL’s remaining gross reserves. new interim governor of the Central Bank averaging 171.2 percent in 2022, one of has also announced that the Central Bank the highest rates globally, primarily due will no longer finance the fiscal deficit in to the depreciation of the LBP. Year-on- the absence of a legal framework. If imple- year inflation stood at 251.5 percent in Ju- Outlook mented, the halt of BDL financing of the ly 2023 with food and alcoholic beverages fiscal deficit, along with the implementa- as the largest contributor to headline in- Subject to extraordinarily high uncertainty tion of planned revenue mobilization mea- flation in 7M-2023. and assuming a continuation of political sures (correcting the mis-valuation in the The current account deficit is estimated to paralysis in 2023, real GDP is projected, for exchange rate for customs and taxes) are have reached a staggering 32.7 percent of the first time in 5 years, to expand with likely to narrow the overall fiscal and pri- GDP on the back of higher imports and a tepid growth of 0.2 percent in 2023. mary deficits in 2023. falling exports. Imports reached pre-crisis Growth in consumption supported by The pace of the exchange rate depreciation levels in 2022, at a record US$19 billion, tourism, remittances and a stabilization in has moderated due to BdL’s foreign ex- growing by close to 40 percent in 2022 (y- private sector activity will underpin mod- change rate interventions coupled with o-y). The current account deficit continues est growth in 2023. Inflation, however, is an increase in foreign exchange inflows to be financed, for the most part, by the re- expected to remain in triple digits, accel- from tourism services and remittances. maining usable gross reserves of BdL and a erating to 231.3 percent in 2023. TABLE 2 Lebanon / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e Real GDP growth, at constant market prices -21.4 -7.0 -0.6 0.2 Private consumption -14.0 2.1 2.3 0.3 Government consumption -53.7 -76.0 34.9 -19.3 Gross fixed capital investment -53.0 -67.6 -88.6 -59.4 Exports, goods and services -53.7 13.1 0.3 4.1 Imports, goods and services -46.0 -12.2 3.5 -0.3 Real GDP growth, at constant factor prices -15.9 -5.3 -0.6 0.2 Agriculture 0.6 -7.1 -0.8 0.2 Industry -6.5 -6.9 -0.6 0.2 Services -18.3 -4.9 -0.6 0.2 Inflation (consumer price index) 84.3 150.0 171.2 231.3 Current account balance (% of GDP) -9.3 -12.5 -32.7 -12.8 Net foreign direct investment inflow (% of GDP) 4.1 2.1 7.6 2.6 Fiscal balance (% of GDP) -3.3 1.0 -2.9 -1.3 Revenues (% of GDP) 13.1 7.5 6.1 8.8 Debt (% of GDP) 179.2 172.5 179.7 181.3 Primary balance (% of GDP) -0.8 1.9 -2.1 -0.3 GHG emissions growth (mtCO2e) -19.4 -7.1 -8.2 -3.3 Energy related GHG emissions (% of total) 72.4 74.3 73.7 73.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 19 Oct 23 About 4 percent of the population needed humanitarian assistance before the devas- LIBYA Key conditions and tating floods of September 10, 2023. challenges Table 1 2022 The security situation has improved but Recent developments Population, million 6.8 remains uncertain, with sporadic, and in GDP, current US$ billion 45.8 part strong clashes, between armed groups During the first semester 2023, oil produc- GDP per capita, current US$ 6725.0 in various regions, including Tripoli in Au- tion increased by 12 percent on an annual a 109.0 School enrollment, primary (% gross) gust 2023. The formation of the Govern- basis to 1.19 million bpd but remained be- a 71.9 ment of National Unity (GNU) in 2021 low the 2010 level (1.71 million bpd). Fol- Life expectancy at birth, years Total GHG emissions (mtCO2e) 123.5 was seen as a step towards political res- lowing the authorities’ call, three large oil Source: WDI, Macro Poverty Outlook, and official data. olution. However, the absence of national companies which had suspended their ac- a/ WDI for School enrollment (2006); Life expectancy elections and the creation of the com- tivities due to security reasons resumed (2021). peting Government of National Stability production in August 2023. (GNS) in 2022, accentuated divisions. Libya’s trade surplus during the initial UN-mediated efforts to reach political con- four months of 2023 has contracted by sensus on an electoral roadmap have yet to 40.3 percent in nominal terms compared yield the desired results. to the same period in 2022. This is due to Libya faces significant structural econom- lower international oil prices, which led Although high oil prices have provided an ic challenges that extend beyond its cur- to a 20 percent reduction in export rev- economic relief; conflict and political divi- rent political situation. The Libyan econ- enues. On the other hand, imports grew sions continue to negatively affect Libya’s omy is dominated by the oil sector and by 6.4 percent driven by the recovery of economy and society. Libya’s key socio- undiversified. The private sector remains domestic demand. economic challenges are economic diversi- underdeveloped - accounting for only 4 The CBL announced the institutional re- to 15 percent of GDP - and employing unification of all branches in August fication, inclusion, improved wealth shar- just 15 percent of the workforce. The IMF 2023. The CBL branch in the eastern ing, and addressing the underpinning concluded article IV in June 2023, there- part of the country has been operating factors of the country’s fragility and frag- by resuming its engagement on macroeco- independently since 2014, providing fi- mentation. The recent floods that devas- nomic and structural policies after ten nancing to the administration in the years of interruption. East. However, only the CBL branch in tated cities and communities in the Green Social conditions have deteriorated due to Tripoli could provide letters of credit Mountain area of the country threaten to high unemployment, regional income dis- throughout this period. accentuate these challenges and call for a parities, and poor basic infrastructure and Inflation decelerated from the peak of strong response from Libyan institutions services. The unemployment rate has risen 5.7 percent in March 2022 to 2.4 percent and their international partners. steadily since 2012 to 20.5 percent in 2023, in June 2023 thanks to the stabilization according to modeled estimates, with of international food prices and the ex- higher rates among women (26.7 percent change rate. The gap between the black vs. 17 percent men) and youth (51 percent). market and official rates narrowed to only FIGURE 1 Libya / Oil production and exports FIGURE 2 Libya / The median cost of minimum expenditure basket (MEB) and official inflation rate in the region of Tripoli Thousand, bbl per day USD, billion Percent change, y/y Percent change, y/y 1400 5 6 50 1200 5 40 4 1000 4 30 800 3 3 20 600 2 2 10 400 1 1 0 200 0 0 0 -10 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul '19 '19 '20 '20 '21 '21 '22 '22 '23 '23 -1 -20 Crude oil including lease condensate production (tb/d) (lhs) Jan'20 Jul'20 Jan'21 Jul'21 Jan'22 Jul'22 Jan'23 Exports (fob) (rhs) Inflation rate (lhs) Median Cost of the MEB (rhs) Sources: Organization of the Petroleum Exporting Countries (oil production) and Sources: Central Bank of Libya, REACH, and World Bank staff calculations. IMF Direction of Trade Statistics (exports). MPO 20 Oct 23 7 percent compared to 325 percent before to lower oil prices and strong imports driven the devaluation of the dinar in 2021. by rebounding public investment. The fiscal surplus of the GNU stood at Outlook This outlook is subject to substantial un- 3.7 percent of GDP during the first eight certainty and downside risks. On the secu- months of 2023 compared to 9.6 per- Assuming that the relative stability is rity front, recent clashes in Tripoli under- cent of GDP during the same period in maintained in 2023, growth is projected to score the fragility of the situation. Further 2022. Lower capital spending (-18 per- rebound to 14.1 percent as strong hydro- heightening the landscape of risks is the cent) limited the impact of the 54 per- carbon production pulls industrial activity potential deceleration of the Chinese econ- cent increase in public wages. Low pub- (+11.3 percent). On the demand side, omy, which carries with it consequential lic investment is a key challenge for growth is driven by an increase in govern- ramifications for the global oil market. the reconstruction and maintenance of ment wages that stimulate services growth These projections do not take account of public infrastructure and services. While (+18.7 percent). the impacts of the recent Derna flooding. the House of Representatives approved In the short- and medium-term, the stabi- Given preliminary information, the cata- a budget to benefit the Benghazi-based lization of oil production, still high oil strophe is expected to have significant so- GNS in September 2023, the implemen- prices, and possible reunification of the CBL cio-economic implications. It caused ex- tation process is unclear since the GNS are expected to boost growth. The economy tensive damage to infrastructure, impact- does not have access to the government is expected to grow at a steady pace of 4.7 ing the supply of essential goods and ser- accounts at the CBL. percent in 2024 and 4.8 percent in 2025. vices, and potentially leading to increased In the night from September 10 to Septem- Inflation is projected to continue to mod- diseases and food insecurity. However, ber 11, 2023, two dams in the eastern part erate thanks to a stable exchange rate and hydrocarbon production was not affected of Libya collapsed after a severe storm. less volatile global commodity prices. as oil fields are far from the affected areas This released millions of cubic meters of The fiscal surplus in 2023 is estimated to and exporting ports reopened after a brief water downstream causing extensive reach 14.4 percent of GDP assuming that closure. Although the agricultural sector, flooding, with the city of Derna being most the revenue and spending dynamics in the accounts for a small part of the GDP, the severely affected. The UN estimates that as first half of the year are maintained. Over loss of arable land and water resources of September 20, up to 3,958 people have 2024-2025, the fiscal surplus is projected to is expected to affect the local population, died and 9,000 persons are missing; other decline in line with oil prices and the pos- and potentially migrants, and refugees. sources estimate casualties as high as sible increase of public investment. The government quickly announced an 20.000. Derna is one of the poorest regions The current account surplus is projected to allocation of LYD 2 billion for reconstruc- in Libya highlighting the risks of increased decline from 21 percent of GDP in 2022 to 7.8 tion and an emergency cash transfer pro- poverty and vulnerability. and 3.9 percent of GDP in 2023 and 2024 due gram is under consideration. TABLE 2 Libya / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -29.8 31.4 -1.2 14.1 4.1 4.3 Real GDP growth, at constant factor prices -29.8 31.4 -1.2 14.1 4.7 4.8 Agriculture -30.1 31.4 10.0 6.8 5.9 6.7 Industry -34.6 45.0 -9.9 11.3 0.6 0.6 Services -21.1 11.1 15.0 18.7 10.5 10.2 Inflation (consumer price index) 1.4 2.8 4.6 2.4 2.4 2.4 Current account balance (% of GDP) -9.8 13.9 21.0 7.8 3.6 3.9 Fiscal balance (% of GDP) -35.2 11.0 2.5 14.4 7.2 -1.5 Revenues (% of GDP) 35.4 58.8 59.0 43.9 40.7 37.4 Debt (% of GDP) 238.2 87.0 70.4 54.7 51.2 55.0 Primary balance (% of GDP) -35.2 11.0 2.5 14.4 7.2 -1.5 GHG emissions growth (mtCO2e) -11.0 14.4 -4.2 0.8 2.6 2.4 Energy related GHG emissions (% of total) 28.0 36.0 31.8 31.2 32.4 33.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 21 Oct 23 investment fund and the recently approved investment charter aim at supporting a pri- MOROCCO Key conditions and vate sector-led, job-creating growth model. The SOE governance reforms are aimed at challenges improving the strategic management and performance of the public sector. The suc- Table 1 2022 Morocco´s external resiliency has been rel- cessful implementation of these reforms Population, million 37.5 atively strong in the face of multiple global will be crucial to place Morocco on a GDP, current US$ billion 130.9 disturbances such as the COVID-19 pan- stronger and more inclusive growth path. GDP per capita, current US$ 3494.9 demic and the war in Ukraine. The country a 4.8 National poverty rate has sustained a stable currency, reinforced a 9.8 its external liquidity buffers, maintained Lower middle-income poverty rate ($3.65) Gini index a 39.5 good access to international financial mar- Recent developments School enrollment, primary (% gross) b 113.4 kets, and continued to attract large vol- Life expectancy at birth, years b 74.0 umes of FDI. It has also had remarkable After a sharp deceleration in 2022, Moroc- Total GHG emissions (mtCO2e) 96.3 success in tradeable sectors, including the co’s real GDP expanded by 3.5 percent in rapid growth of its automotive industry, the first quarter of 2023. This was partly Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2014). the consolidation of the Tangier port as a due to a base effect, as agricultural output b/ Most recent WDI value (2021). leading logistical hub, or the transforma- began to recover from last year’s drought. tion of the phosphate sector into a major It is also explained by the 5.4 percent ex- provider of fertilizers for Africa. pansion of the services sector, boosted by a And yet, the performance of the Moroccan rebound in tourism. On the demand side, economy has been undermined by struc- net exports have become the main contrib- Economic activity is recovering as recent tural weaknesses. GDP growth has been utor to growth despite a weakening global shocks dissipate. Growth is projected to volatile and followed an overall declining economy. Together with strong workers’ re- accelerate further in 2024 as inflation de- trend, aggravated by the increasing fre- mittances, this resulted in a small current ac- clines and domestic demand recovers. quency of severe droughts. Private invest- count surplus in the first quarter of 2023, af- Preliminary information suggests that ment has yet to return to pre-pandemic ter last year’s deficit of 3.5 percent of GDP. levels, and the public sector remains the After peaking at 10.1 percent in February, despite the dramatic consequences of the dominant investor in the economy. The re- annual inflation has declined to 4.9 percent September 8th earthquake on the lives cent earthquake highlights the persistence in July, mostly due to lower fuel prices. and livelihoods of the affected population, of pockets of poverty and exclusion, partly The central bank has hence decided to its macroeconomic effects are unlikely to fueled by a labor market that is not creat- pause the monetary policy tightening cycle ing enough jobs for women and the youth. after three hikes starting in September be major if impacts on tourism are tempo- The government is engaged in an ambitious 2022 for a cumulative 150 basis points, up rary. Moroccan households continue to reform program to address some of these to 3 percent. With two-year inflation ex- face high food inflation, rural employment challenges. It aims at reinforcing human pectations at 4.7 percent, the policy rate re- has not fully recovered from the drought, capital by universalizing access to health mains negative in real terms. and social protection and improving the Public revenues have continued to grow and confidence levels are low. quality of education. The new Mohamed VI steadily, while subsidies have mechanically FIGURE 1 Morocco / Real GDP growth and contributions to FIGURE 2 Morocco / Actual and projected poverty rates and real GDP growth real GDP per capita Percentage change, y/y, seasonally adjusted Poverty rate (%) Real GDP per capita (constant LCU) 16 70 40000 12 35000 60 8 30000 4 50 25000 0 40 -4 20000 30 -8 15000 -12 20 10000 -16 10 5000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2019 2020 2021 2022 2023 0 0 Net exports Private consumption 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Public consumption Investment International poverty rate Lower middle-income pov. rate Real GDP Upper middle-income pov. rate Real GDP pc Sources: HCP and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 22 Oct 23 declined together with butane gas prices. in 2024. A full assessment of impacts was Despite its temporary increase in the first This windfall has not yet reduced the not available at the time of writing to in- months of 2023, the budget deficit is pro- deficit in 2023, up by 9 percent in the first corporate the effects of the recent earth- jected to moderately decline to 4.6 per- seven months of the year compared with quake into these projections. However, cent of GDP this year thanks to solid the same period of 2022, reflecting strong preliminary information suggest that revenue collection. The new family al- spending as the government rolls out key macroeconomic impacts will be moderate, lowances program to be deployed at the reforms, injects liquidity in SOEs, and ad- channeled mostly through tourism, which end of this year will exert pressure on dresses the water crisis. could reduce GDP growth by up to 0.3 per- public spending in 2024, but the envis- Despite the acceleration of growth, recent centage points in 2023. The agricultural aged price subsidy reform and the gov- shocks continue to have pronounced im- sector should contribute to the accelera- ernment´s asset monetization operations pacts on welfare. At 11.7 percent, food in- tion, as key crops gradually recover from should keep the deficit on a downward flation remains high, disproportionately last year´s drought and return to average path, stabilizing the debt ratio below 69 affecting the poor. Household consump- levels in 2024. Services will remain a major percent of GDP. tion contracted by 0.6 percent in 2022 and contributor to growth on the back of a After years of deterioration and more stagnated in the first quarter of 2023. Net buoyant tourism sector, expected to recov- recently, stagnation, extreme and mod- job creation is negative in rural areas, er relatively fast from the impact of the erate poverty are projected to resume where poverty levels are higher. The HCP earthquake. The performance of the manu- their slow decline in 2023, returning to household confidence index is at its lowest facturing sector will be tempered by weak their pre-pandemic level. However, distri- level since it began being produced in global conditions and a construction slow- bution neutral projections probably un- 2008. Approximately 250 thousand people down. Domestic demand is forecasted to derestimate the welfare impact of in- reside in the areas that are most affected by begin recovering from recent shocks, sup- flation, which disproportionally hits the the earthquake, mostly in rural and impov- ported by an improvement in labor market bottom of the distribution, as did the erished mountainous villages. The earth- conditions, remittances, and the gradual earthquake. More realistically, poverty quake claimed close to 3,000 lives. moderation of inflation. may have increased in rural areas, also Together with the fading terms-of-trade affected by continued job losses. With shock related to the war in Ukraine, grow- inflation receding, the gradual rollout of ing tourism and remittances inflows will the social protection reform, and the an- Outlook also contribute to reduce the current ac- nounced temporary cash transfer targeted count deficit to 1.3 percent of GDP in 2023, to the victims of the earthquake, poverty GDP growth is expected to accelerate to 2.8 which would widen to 2.6 percent of GDP is expected to decrease more decisively percent in 2023 and to firm up to 3.3 percent in 2024 as domestic demand recovers. starting in 2024. TABLE 2 Morocco / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -7.2 8.0 1.3 2.8 3.1 3.3 Private consumption -5.6 6.9 -0.7 1.0 2.1 2.7 Government consumption -0.6 7.2 3.3 3.4 3.6 3.3 Gross fixed capital investment -10.0 7.6 -2.2 1.6 2.0 2.4 Exports, goods and services -15.0 7.9 20.4 10.8 6.9 10.9 Imports, goods and services -11.9 10.4 9.0 6.4 4.8 8.4 Real GDP growth, at constant factor prices -7.0 7.8 1.0 2.8 3.1 3.3 Agriculture -7.1 19.0 -12.7 1.5 5.7 3.1 Industry -5.2 7.1 -1.7 0.3 2.0 2.5 Services -7.9 5.8 5.4 4.0 3.1 3.5 Inflation (consumer price index) 0.7 1.4 6.6 6.2 3.8 2.8 Current account balance (% of GDP) -1.2 -2.3 -3.5 -1.3 -2.6 -2.2 Net foreign direct investment inflow (% of GDP) 0.8 1.1 1.2 1.5 1.5 1.4 Fiscal balance (% of GDP) -7.1 -6.0 -5.2 -4.6 -4.1 -3.6 Revenues (% of GDP) 27.0 25.3 27.0 27.6 27.4 27.0 Debt (% of GDP) 72.2 69.5 71.6 69.7 69.0 68.5 Primary balance (% of GDP) -4.7 -3.7 -3.0 -1.9 -1.5 -1.0 a,b International poverty rate ($2.15 in 2017 PPP) 0.7 0.6 0.6 0.6 0.5 0.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 6.0 5.0 4.9 4.7 4.4 4.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 32.2 28.7 28.5 27.6 26.7 25.2 GHG emissions growth (mtCO2e) -4.1 5.1 4.8 3.5 2.7 2.8 Energy related GHG emissions (% of total) 72.8 73.9 75.2 76.0 76.5 76.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2013-ENCDM. Actual data: 2013. Nowcast: 2014-2022. Forecasts are from 2023 to 2025. b/ Projection using neutral distribution (2013) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 23 Oct 23 more deals were signed in late August 2023 to supply 0.8 million metric tons of OMAN Key conditions and liquefied natural gas (LNG), which will further support economic activity and mit- challenges igate the impact of declining oil prices on fiscal and external balances. Table 1 2022 Oman’s economy continues to perform However, challenges remain. Despite sev- Population, million 4.6 well supported by high oil prices and eral reform initiatives, the economy re- GDP, current US$ billion 114.7 fiscal consolidation under the authorities’ mains dependent on the hydrocarbon GDP per capita, current US$ 25056.7 Medium-Term Fiscal Plan (MTFP) and sector which contributes heavily to both a 104.1 School enrollment, primary (% gross) Vision 2040. Higher than expected hy- fiscal and export revenues. Volatility and a 72.5 drocarbon windfalls and fiscal measures unpredictability of oil prices could pose Life expectancy at birth, years Total GHG emissions (mtCO2e) 119.7 have boosted fiscal and external posi- significant fiscal challenges, increase Source: WDI, Macro Poverty Outlook, and official data. tions. The authorities succeeded in utiliz- gross financing needs, and disrupt the a/ Most recent WDI value (2021). ing the hydrocarbon windfalls to reduce government’s reform program. Key risks government debt to less than 42 percent to the outlook arise from the uncertainty of GDP in 2022—from over 61 percent surrounding the energy market, lower of GDP in 2021. State-Owned Enterprises demand for hydrocarbons due to the (SOEs) debt has markedly declined by 12 global energy transition, and pressures percentage points of GDP in 2022 (IMF), to spend oil windfall, which could delay Following a strong 2022 performance, with risks mitigated by the considerable the implementation of fiscal adjustment Oman’s economic growth is set to slow- assets under Oman Investment Authority and heighten financing risks in the medi- down this year reflecting OPEC+ output (OIA) and advancing governance and ef- um term. On the upside, additional fiscal cut and moderation in non-hydrocarbon ficiency reforms. and diversification measures, accelerating The government continues to reveal plans production at the Duqm refinery project activities. Despite this downturn, the to boost the economy including setting and increased foreign direct investments outlook continues to be encouraging dri- up Oman Future Fund of OMR2 billion from regional partners, would spur ven by increased production capacity (US$5.2 billion) in May 2023, allocating growth and strengthen fiscal and exter- and accelerated implementation of struc- a percentage of its capital to bolster in- nal positions. A new labor law enact- vestments in small, medium, and emerg- ed in July 2023 is expected to increase tural reforms. Thus, fiscal and external ing businesses. Furthermore, Oman is al- Omani's employment in the private sec- balances are projected to remain in sur- so prioritizing investments in renewable tor and help resolve the high youth un- plus but to moderate in the medium energy and green hydrogen projects with employment challenge. term. Tighter global financial conditions aim to derive 30 percent of electricity from renewable sources by 2030, from 5.5 and fluctuating energy prices remain percent currently. In June 2023, the gov- key risks to the outlook. ernment signed three agreements worth Recent developments US$20 billion to develop green hydrogen with the aim of becoming a global hub The real economy grew by 4.7 per- for green hydrogen production. Two cent during Q1 2023 supported by the FIGURE 1 Oman / Real annual GDP growth FIGURE 2 Oman / General government operations Percent change Percent of GDP 12 50 Hydrocarbon GDP 40 9 Non-Hydrocarbon GDP 30 Real GDP 6 20 3 10 0 0 -10 -3 -20 2019 2020 2021 2022 2023e 2024f 2025f -6 2019 2020 2021 2022 2023e 2024f 2025f Revenues Expenditures Budget balance Sources: Oman authorities, World Bank staff projections, and IMF projections. Sources: Oman authorities and World Bank staff projections. MPO 24 Oct 23 non-hydrocarbon sector, which registered Based on the latest International Labor growth of 4.6 percent, to reflect the Organization (ILO) estimates, Oman’s la- strong performance of industrial and ser- bor market continues a slow recovery Outlook vices sectors. Meanwhile, the hydrocar- from the impact of the pandemic but was bon sector grew by 3.5 percent as a re- not expected to fully rebound by 2023. Oman’s economy is estimated to slow- sult of significant natural gas activity. The labor force participation rate and down in 2023 capped by OPEC+ produc- Average headline inflation eased from 2.8 employment-to-population ratio were tion cuts and slower global economic activ- percent in 2022 to 1.2 percent during the projected to reach 68.2 percent and ity. However, the economy is anticipated first eight months of 2023 y/y to reflect 66.5 percent respectively in 2023, still to strengthen over the medium-term dri- the drag from lower transportation and around two percentage points below ven by higher energy production and communication prices. their 2019 levels.The unemployment wide-ranging structural reforms. Overall Public finance data reveals a decline in rate was expected by the ILO to re- growth is projected to decelerate to 1.4 per- budgetary revenues, down by 6 percent main elevated around 2.5 percent, with cent in 2023, as oil output falls, while non- during H1-2023, as a result of moder- recovery slower among women than oil sectors are expected to support growth, ating global energy prices. In parallel, among men. Unemployment rates con- rising by over 2 percent, driven by the re- public spending declined by 4 percent tinue to be higher among young bound in construction, investments in re- during the same period, to reflect a adults, with the highest rates among newable energy, and tourism sectors. In- drop in public debt service costs together young women. According to the most flation is forecast to slow to 1.3 percent with lower electricity and fuel subsidies. recent monthly statistical bulletin, the reflecting dampening private consumption Accordingly, Oman’s overall fiscal posi- rate of job seekers among women aged as a result of tightening monetary policy. tion shifted into a surplus of US$1.7 bil- 25-29 was 25.9 percent in July 2023, Despite relatively moderate hydrocarbon lion (nearly 1.6 percent of GDP) during while the rate of job seekers among prices during the forecast period, Oman’s H1-2023. The lower hydrocarbon rev- men aged 25-29 in that same period overall fiscal balance is expected to remain enues are estimated to limit the scope for was 2.4 percent. in surplus exceeding 5 percent of GDP in larger declines in the debt-to-GDP ratio, Oman issued both a new Social Protec- 2023-25 supported by ongoing fiscal adjust- but it remains much lower than the peak tion Law and a new Labor Law in July ment measures under the MTFP. Accord- of 61 percent in 2021. 2023. The former undertakes a compre- ingly, public debt is expected to continue its The trade balance surplus narrowed to hensive reform of the social protection downward trajectory in the medium term. US$7.6 billion (7 percent of GDP) by the system that integrates contributory and Similarly, the current account is projected end of May 2023, compared to US$10.6 non-contributory frameworks for lifecy- to remain in surplus over the medium billion (9.2 percent of GDP) during the cle coverage, better support for labor term as higher liquified natural gas ex- same period last year, as hydrocarbon market transitions, and a more sustain- ports will partially compensate the de- exports contracted by 13.2 percent. As a able financing model. The latter, among cline in hydrocarbon prices. This will help result, gross foreign assets marginally in- its provisions, addresses working hours, Oman to rebuild its foreign reserves, creased (by US$160 million) in May 2023 leave allowances, contract terms and ter- which is projected to exceed US$22 billion to reach US$17.6 billion by the end of mination, dispute resolution, and Oman- in 2023-25, and improve the country’s re- May 2023. isation measures. silience against external shocks. TABLE 2 Oman / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -3.4 3.1 4.3 1.4 2.7 2.9 Private consumption 9.6 6.8 4.0 3.0 3.4 3.3 Government consumption -14.0 0.9 3.1 2.7 2.5 2.8 Gross fixed capital investment 1.8 -1.5 4.0 3.0 3.6 3.4 Exports, goods and services -14.6 14.2 12.3 1.8 3.4 3.5 Imports, goods and services -8.9 2.7 6.2 5.7 5.3 5.0 Real GDP growth, at constant factor prices -3.6 3.1 4.4 1.4 2.7 2.9 Agriculture 14.3 9.0 -9.7 2.7 1.1 1.5 Industry 0.0 1.1 5.1 1.2 2.5 1.5 Services -8.4 5.4 4.4 1.7 3.1 4.6 Inflation (consumer price index) -0.9 1.5 2.8 1.3 1.8 2.0 Current account balance (% of GDP) -16.2 -4.9 6.2 5.0 5.1 2.2 Net foreign direct investment inflow (% of GDP) 4.7 5.0 -1.9 -1.0 -0.5 -0.1 Fiscal balance (% of GDP) -15.7 -3.2 7.2 6.0 5.7 4.2 Revenues (% of GDP) 28.9 33.0 37.1 32.4 31.5 29.8 Debt (% of GDP) 69.5 61.4 41.8 38.4 34.4 31.9 Primary balance (% of GDP) -12.6 0.0 9.9 9.0 8.2 6.7 GHG emissions growth (mtCO2e) 7.5 4.1 6.6 5.0 3.5 4.3 Energy related GHG emissions (% of total) 70.9 71.5 72.6 73.3 73.7 74.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 25 Oct 23 poverty line (2016/17), compared to less than 10 percent in the West Bank. PALESTINIAN Key conditions and challenges TERRITORIES From 2017 to 2022, the Palestinian econo- Recent developments my advanced on a near-stagnant trajecto- The Palestinian economy slowed to a 3.1 Table 1 2022 ry, with an average annual GDP growth percent growth rate in the first quarter Population, million 5.0 of 0.6 percent. Economic activity has been (Q1) of 2023, year-on-year (y/y), down GDP, current US$ billion 19.1 curtailed by a combination of continued from 3.9 percent in 2022, as the post-pan- GDP per capita, current US$ 3789.3 Israeli restrictions1, sluggish and/or frag- demic rebound dissipates. Growth was Upper middle-income poverty rate ($6.85) a 20.5 mentary reform efforts by the Palestinian largely driven by the West Bank (4.3 per- a 33.7 Authority (PA), episodes of violence, the cent y/y), reflecting continued buoyancy of Gini index b internal divide between the West Bank and private consumption which in turn sup- School enrollment, primary (% gross) 94.0 b Gaza (WB&G), and depressed aid inflows. ported the wholesale and retail trade and Life expectancy at birth, years 73.5 The economy has been driven by factor ac- services sectors. Meanwhile, the near-total Source: WDI, Macro Poverty Outlook, and official data. cumulation rather than improvements in blockade imposed by the Government of a/ Most recent value (2016), 2017 PPPs. b/ Most recent WDI value (2021). productivity, and growing slower than the Israel (GoI) on Gaza continues to hinder population, resulting in decreasing per economic expansion, where the economy capita incomes and rising poverty. The contracted by 2.6 percent in Q1 2023. This bulk of gross investment has been chan- was due to a rapid worsening of the agri- neled into non-tradable activities rather cultural, forestry, and fishing sectors, fol- The Palestinian economy slowed in early than sectors that could help boost more lowing the introduction of new regulations 2023 reflecting the waning of the post- inclusive growth and job creation. by GoI restricting fish sales from Gaza into pandemic rebound and increased Israeli Subnational trends paint a highly diver- the West Bank, since August 2022. restrictions on Gaza. Despite strong rev- gent picture. In 2022, the GDP per capita in During 2022, CPI in the Palestinian ter- Gaza was estimated at US$1,257, which is ritories remained relatively contained – enue outturn, the fiscal situation is ex- approximately a quarter of the West Bank's compared to the rest of the world – re- pected to worsen in 2023 due to an un- GDP per capita, at US$4,458. In 2016/17, flecting the inflation experience of the sustainable wage bill, larger Israeli de- one Palestinian out of five lived below the Israeli New Shekel, at 3.7 percent (y/y, ductions and low aid. Lacking other fi- upper-middle income poverty line ($6.85 2022), although up from negative territory 2017 PPP a day), according to the latest na- in 2020. It has since remained relatively nancing options, the PA is expected to tional household survey. Poverty is signif- stable, reaching 3.8 percent in Q1 2023. In continue accruing arrears to the private icantly more prevalent in Gaza, where al- Gaza, the inflation rate was just 1.8 percent sector and public pension fund and pay- most half of the population lives below this in the first half of 2023 reflecting lower im- ing partial salaries to public employees. port prices from Egypt, while in the West The outlook remains precarious and sub- Bank it reached 4.4 percent. 1/ According to the Government of Israel, these restric- On the fiscal front, targeted government ject to security and political stability. tions are in place for security reasons. reforms supported revenue mobilization FIGURE 1 Palestinian territories / Real GDP growth and FIGURE 2 Palestinian territories / Actual and projected contributions to real GDP growth poverty rates and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 30 35 4000 30 3500 20 3000 25 10 2500 20 2000 0 15 1500 -10 10 1000 5 500 -20 2015 2016 2017 2018 2019 2020 2021 2022 2023e 2024f 2025f 0 0 Private consumption Government consumption 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Gross capital formation Net exports International poverty rate Lower middle-income pov. rate Statistical discrepancy GDP Upper middle-income pov. rate Real GDP pc Sources: Palestinian Central Bureau of Statistics and World Bank estimates. Source: World Bank. Notes: see Table 2. MPO 26 Oct 23 in Q1 2023. However, expenditure also 24 percent of GDP, reflecting rising tax ef- grew, mainly driven by the wage bill re- forts and continued economic growth in sulting from partial implementation of Outlook the West Bank. Expenditures are project- agreements with the labor unions on ed to increase by 2.5 percent and reach salary increases. In Q1 2023, the overall fis- In the absence of distinct policy change, the 26.5 percent of GDP in 2023, mostly dri- cal deficit, after accounting for grants and Palestinian territories are expected to con- ven by an increasing wage bill. The over- for deductions made by Israel, reached tinue facing a combination of slow growth all fiscal deficit, including grants and the US$83 million, or 0.8 percent of GDP, and and high poverty rates, in a context of elevat- deductions from clearance revenues, is was largely financed by arrears and partial ed risks. Under a baseline scenario, the thus expected to reach US$493 million, or public salaries payment (80-85 percent), Palestinian economy is expected to continue 2.5 percent of GDP by end-2023 and is ex- since November 2021. languishing under the multi-layered system pected to remain constant in relative terms Since 2022, overall unemployment rose by of Israeli restrictions and sluggish reform over the medium-term forecast period. 0.3 percentage points to 24.7 percent in progress on the PA side. These constraints Downside risks remain elevated. An es- Q2 2023. The increase was driven by a will continue to hinder economic activity calation of Russia’s invasion of Ukraine rise in Gaza’s unemployment (from 45.3 and discourage private-sector develop- could further strain global supply chains to 46.4 percent) reflecting the contraction ment, preventing the Palestinian economy and increase pressure on food and en- in economic activity. In the West Bank, from reaching its full potential. Under this ergy prices, slowing the growth of the unemployment remained almost constant, scenario, economic growth is expected to Palestinian economy. Meanwhile, re- nearing 13 percent. decelerate to 2.7 percent by 2025, and due newed clashes between Palestinians and Based on GDP per capita growth trends, to the rate of population growth, the av- Israeli forces in WB&G could increase it is estimated that the poverty rate spiked erage real income per capita is expected economic uncertainty and further limit by 6 percentage points between 2016 and to continue stagnating. Consequently, the Palestinian workers’ access to the Israeli 2020, reaching 26.5 percent. As the impact poverty rate is expected to remain sticky at labor market. The PA has little fiscal scope of the pandemic softened during 2021, the a little over 24 percent until 2025. to counter such shocks, and uncertainty on poverty rate is deemed to have declined to On the fiscal front, revenues are expected the political front in Israel could contribute 24.3 percent, by 2022, representing rough- to grow by 6 percent in nominal terms to exacerbating the macroeconomic and ly 1.25 million people who live in poverty. y/y by end-2023, and amount to around fiscal risks facing the West Bank and Gaza. TABLE 2 Palestinian territories / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -11.3 7.0 3.9 3.2 3.0 2.7 Private consumption -13.1 7.5 20.5 4.0 3.8 3.7 Government consumption 0.3 10.3 -10.5 -3.0 4.0 3.7 Gross fixed capital investment -20.9 13.7 11.8 3.0 2.8 2.2 Exports, goods and services -11.2 17.3 6.2 5.0 5.0 5.0 Imports, goods and services -14.2 14.8 25.7 5.0 5.0 5.0 Real GDP growth, at constant factor prices -12.0 6.2 1.3 3.2 3.0 2.7 Agriculture -9.1 -0.7 -5.7 -1.0 -1.0 -1.0 Industry -19.4 4.5 3.4 3.2 3.0 2.8 Services -10.0 7.5 1.5 3.6 3.4 3.0 Inflation (consumer price index) -0.7 1.2 3.7 3.8 3.0 2.7 Current account balance (% of GDP) -12.3 -9.8 -15.0 -13.8 -13.2 -12.7 Net foreign direct investment inflow (% of GDP) 0.9 1.6 1.3 1.3 1.3 1.3 Fiscal balance (% of GDP) -7.5 -5.8 -1.8 -2.5 -2.5 -2.5 Revenues (% of GDP) 25.7 25.0 27.3 24.1 24.1 24.1 Debt (% of GDP) 55.1 56.0 53.2 53.1 53.2 53.3 Primary balance (% of GDP) -7.1 -5.1 -1.1 -1.8 -1.8 -1.8 a,b International poverty rate ($2.15 in 2017 PPP) 1.1 0.9 0.8 0.8 0.8 0.8 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 5.9 4.9 4.6 4.5 4.5 4.5 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 29.7 27.0 26.2 26.1 25.8 25.4 CO2 emissions growth (mtCO2e) -27.5 6.2 -0.6 -1.5 -1.9 -2.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2016-PECS. Actual data: 2016. Nowcast: 2017-2022. Forecasts are from 2023 to 2025. b/ Projection using neutral distribution (2016) with pass-through = 0.7 (Low (0.7)) based on GDP per capita in constant LCU. MPO 27 Oct 23 form of necessary public sector reforms to enhance expenditure management, ser- QATAR Key conditions and vice delivery, and diversification away from the hydrocarbon sector. challenges Table 1 2022 Qatar's economic conditions in 2022 were Population, million 2.9 marked by strong growth driven by the Recent developments GDP, current US$ billion 237.4 FIFA World Cup. This event boosted var- GDP per capita, current US$ 80974.8 ious sectors of the economy, including Following a remarkable 4.9 percent growth a 102.2 School enrollment, primary (% gross) tourism, hospitality, and construction. In in 2022, driven primarily by hosting the FI- a 79.3 the upcoming 2023-2027 period, Qatar's FA World Cup, the economy has exhibit- Life expectancy at birth, years Total GHG emissions (mtCO2e) 128.9 policy direction will be guided by the ed modest growth this year. However, the Source: WDI, Macro Poverty Outlook, and official data. Qatar National Vision 2030, a cornerstone growth still surpasses pre-pandemic lev- a/ Most recent WDI value (2021). of the government's strategy for economic els, which is at 2.7 percent in Q1 2023, sup- diversification, environmental manage- ported by the tourism sector and ongoing ment, and social advancement. The vision energy investments. PMI indicators high- aims to create a conducive business envi- light a solid expansion in the non-hydro- ronment to encourage higher investment carbon private sector during H1 2023 sup- and employment. The primary economic ported by a thriving tourism sector. No- Economic growth is projected to moderate driver will continue to be the expansion tably, Qatar welcomed more than 2.56 mil- in 2023 as the boost from the 2022 World of the North Field Liquified Natural Gas lion visitors from January until August Cup on non- hydrocarbon sectors dimin- (LNG) project. Over the forecast period, 2023, exceeding the full-year arrival figures ishes. Nevertheless, the rise in tourism, investment spending on this project will for 2022. In the hydrocarbon sector, support overall economic growth. LNG QatarEnergy signed a 1.8m t/year LNG business activities, and ongoing energy production in 2026 and 2027 will rise contract with Bangladesh earlier in June. sector investment offers support. Exter- substantially supporting industrial output Later in the month, Qatar also finalized a nal and fiscal twin surpluses are antici- and boosting exports. long-term gas supply deal with a Chinese pated to continue in the medium term The economy presents a range of op- state-controlled company, mirroring a pre- portunities and challenges. On the posi- vious agreement made last November. supported by the development of the tive side, vast hydrocarbon reserves, ro- This has driven a 45 percent surge in North Field LNG expansion project. Key bust government net asset position with Qatari-Chinese trade, reaching US$26.3 risks include tighter global financial substantial sovereign net foreign assets billion. These developments augur well for conditions and fluctuating energy (SNFA), and a flexible public finance Qatar's extended energy export prospects, structure favor economic growth. Con- with the likelihood of unveiling further en- prices. The primary challenge for the versely, volatile hydrocarbon prices and ergy contracts across Asia and Europe in economy remains diversification away tighter global financial conditions remain the coming months. Inflationary pressures from the hydrocarbon sector. the main risks to Qatar’s outlook and have eased since a notable acceleration in may extend for longer than initially fore- 2022 due to lower commodity prices and cast. Moreover, challenges persist in the the conclusion of heightened demand FIGURE 1 Qatar / Annual real GDP growth FIGURE 2 Qatar / Fiscal balance Percent, percentage points Percent of GDP 8 40 6 30 4 2 20 0 10 -2 0 -4 -6 -10 2019 2020 2021 2022 2023 2024 2025 2019 2020 2021 2022 2023 2024 2025 Oil GDP growth Non-oil growth Real GDP growth Fiscal balance Revenue Expenditure Source: World Bank. Source: World Bank. MPO 28 Oct 23 caused by the World Cup—reaching 3.5 and the employment-to-population ratio The North Field expansion project is ex- percent during H1 2023. In July, the Qatar was expected to stay slightly lower at pected to boost the hydrocarbon sector in Central Bank (QCB) raised its key policy 88.2 percent for the year. The unemploy- the medium term once the field enters interest rate by 25 basis points to a record ment rate was projected to remain stable commercial operation. Consumer prices high of 6 percent following the US Federal at 0.1 percent in 2023, with higher rates are projected to decelerate, averaging 2.6 Reserve’s policy hike. While the US au- among women and among young people. percent in 2023-24, on the back of tighten- thorities contemplate additional monetary Women aged 15-24 were estimated to ex- ing global financial conditions and declin- tightening, QCB is expected to retain the perience the highest unemployment rate, ing international commodity prices. current policy rate due to persistently low around 0.9 percent in 2023. Despite a further moderation in global and diminishing inflation coupled with a energy prices, the twin-balances are pro- slowdown in economic activity. jected to be in surplus for the coming The overall fiscal balance registered a sur- years. The fiscal balance surplus is an- plus of 5.3 percent of GDP during Q1 2023 Outlook ticipated to reach 5.7 percent of GDP in as a result of elevated hydrocarbon prices 2023-24 due to comparatively strong hy- and a fall in public spending after the 2022 Real GDP growth is estimated to slow drocarbons revenue. The much-delayed World Cup. Despite decreasing imports down to 2.8 percent in 2023 and continue introduction of value-added tax (VAT), and exports of goods, the large influx of at this rate in the medium term. Despite now expected to come into effect during tourists continues to boost services export the weakening of the construction sector 2024, will offset some of the declines in revenues, resulting in a strong current ac- and tighter monetary policy, robust hydrocarbon revenue and support the count surplus, reached 21 percent of GDP growth is anticipated in the non-hydrocar- budget balance. in Q1 2023. As a result, international re- bon sectors, reaching 3.6 percent, pro- The current account surplus is expected serves and foreign currency liquidity wit- pelled by thriving tourist arrivals and large to narrow but remain large during nessed its highest growth, reaching QAR events. Qatar's standing as a global sport- 2023-24. The strength of Qatar's hydrocar- 241.6 billion (US$66.4 billion) in July 2023. ing hub will be further reinforced by an bon sector (currently the largest LNG ex- According to the latest ILO estimates, additional 14 major sporting events during porter and third largest producer) under- key labor market indicators were expect- 2023, including Formula 1 motor racing. pins the strong performance of the econo- ed to remain stable through 2023. The la- Meanwhile, the hydrocarbon sector is es- my. Despite rising expenditure on imports, bor force participation rate was project- timated to grow by 1.3 percent in 2023 on international reserves will be sufficient to ed to remain at 88.3 percent in 2023, account of weaker global energy demand. sustain imports for the coming months. TABLE 2 Qatar / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -3.6 1.5 4.9 2.8 2.5 3.1 Private consumption -5.6 3.4 5.2 3.4 3.0 2.6 Government consumption 10.3 2.8 4.1 3.0 2.5 2.8 Gross fixed capital investment -3.1 2.3 3.7 2.2 2.6 2.3 Exports, goods and services -6.8 2.4 5.4 3.7 3.1 4.2 Imports, goods and services -2.7 4.7 6.5 5.5 4.7 4.0 Real GDP growth, at constant factor prices -3.6 1.5 4.9 2.8 2.5 3.1 Agriculture 18.5 0.5 7.7 2.4 2.1 2.9 Industry -3.2 0.7 5.2 3.1 3.2 3.1 Services -4.6 3.2 4.4 2.2 1.0 3.2 Inflation (consumer price index) -2.7 2.3 5.0 3.0 2.2 1.8 Current account balance (% of GDP) -2.5 14.7 26.6 16.1 13.3 12.3 Net foreign direct investment inflow (% of GDP) -1.0 -0.1 -1.0 -0.5 -0.7 -0.6 Fiscal balance (% of GDP) -2.1 0.2 10.3 6.1 5.3 4.9 Revenues (% of GDP) 32.6 29.6 34.5 35.0 33.5 29.5 Debt (% of GDP) 72.6 58.4 45.3 45.5 42.9 41.4 Primary balance (% of GDP) -0.3 1.9 11.6 7.2 6.6 6.1 GHG emissions growth (mtCO2e) -0.4 4.0 7.6 4.4 3.8 4.9 Energy related GHG emissions (% of total) 75.9 76.7 78.2 78.9 79.6 80.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 29 Oct 23 due to international shocks or because of the uncomfortable fiscal position, would SAUDI ARABIA Key conditions and reduce prospects for stronger long-term growth and employment. challenges Table 1 2022 To realize many of the objectives formu- Population, million 32.2 lated in the long-term diversification plan Recent developments GDP, current US$ billion 1110.0 (Vision 2030), Saudi Arabia have set for- GDP per capita, current US$ 34497.9 ward an ambiguous investment plan to After a stellar performance in 2022, Saudi a 102.1 School enrollment, primary (% gross) promote sustained, inclusive, greener, and Arabia is experiencing an economic down- a 76.9 private sector-led growth. With weak for- turn which is fueled by OPEC+ consecu- Life expectancy at birth, years Total GHG emissions (mtCO2e) 756.7 eign direct investment pouring into Saudi tive decisions of oil production cuts to sup- Source: WDI, Macro Poverty Outlook, and official data. Arabia for several years now, still less than port price stability. Latest official data for a/ Most recent WDI value (2021). 1 percent of GDP, the Public Investment Q2-2023 showed that the economy con- Fund (PIF) has taken on a larger devel- tracted by 0.1 percent q/q after a 1.4 per- opmental role in the domestic economy cent q/q decline in Q1-2023. This translates through funding many giga-projects and to annual growth easing from 3.8 percent investments related to the Vision 2030. De- in Q1-2023 to 1.1 percent in Q2-2023. The spite overture to Western investors, Saudi strong performance of private non-oil ac- Arabia might attract new investments tivities during Q1 and Q2-2023 fell short Following the strong performance in from BRICS members since it formally of compensating for the decline in oil ac- 2022, the economy is expected to report a joined the economic bloc. tivities. Furthermore, the recent decision contraction in 2023 fueled by OPEC+ Downside risks and uncertainties to the by Saudi Arabia to voluntarily cut oil pro- outlook are numerous. These include duction by an additional 1 mbpd during consecutive decisions of oil production downward pressures on oil prices be- H2-2023 will exert a further drag on eco- cuts to support price stability. Lower oil cause of tensions among OPEC+ members nomic activity. High frequency data sug- receipts as a result of contracting oil pro- on production quotas which could result gests that the non-oil sector is also losing duction levels and subdued prices will in members leaving the alliance and in- steam with August’s PMI recording creasing global supply. Furthermore, 56.6—still expansionary but nonetheless place the fiscal balance in deficit and nar- downward revisions of China’s growth the lowest reading in 8 months—while row current account surplus. Inflation re- prospects will have adverse impact on weaker private sector credit growth indi- mains muted. A prolonged war in Saudi Arabia’s main export market. Other cate dampening consumption on the back Ukraine, volatile oil prices, and tighter- risks to the outlook include lower global of tighter monetary conditions. activity linked to new developments Lower oil revenues, as a result of lower than-needed global financial conditions around Russia’s invasion of Ukraine, and prices and production levels, coupled with are key risks to the outlook. tighter-than-needed global financial con- looser fiscal policy (up by 18 percent y/ ditions. Delays or digressions in imple- y) widened the fiscal deficit from SAR 2.9 menting diversification structural reforms billion to SAR 5.3 billion during Q1 and highlighted in the Vision 2030, perhaps Q2-2023, respectively. Financing needs are FIGURE 1 Saudi Arabia / Annual real GDP growth FIGURE 2 Saudi Arabia / Central government operations Percent change Percent of GDP 20 50 Oil GDP 40 15 Non-oil GDP 30 Real GDP 10 20 5 10 0 0 -10 -5 -20 -10 2019 2020 2021 2022 2023f 2024f 2025f 2019 2020 2021 2022 2023f 2024f 2025f Budget Balance Revenues Expenditures Sources: GASTAT Saudi Arabia and World Bank staff estimates. Source: World Bank. MPO 30 Oct 23 covered by issuing a US$10 billion sover- from Q1-2023, and the unemployment rate overall GDP will show a contraction of 0.9 eign bond while state oil firm Aramco in- decreased over the same period. These percent in 2023 before reporting a recovery troduced a performance-linked dividend, changes in labor market indicators were of 4.1 percent in 2024 to reflect expansions on top of its annual base dividend, to shore primarily driven by improvements of oil and non-oil sectors. A relatively up budgetary funds. Furthermore, reports among Saudis, except for the unemploy- strong US dollar, restrictive monetary pol- suggest more Aramco share sales by the ment rate that declined more rapidly icy, and a cap on domestic fuel prices will end of this year similar to the 2019 IPO. among non-nationals. The labor force par- curb any upward pressure on prices; keep- The Q1-2023 balance of payments data ticipation rate among Saudis increased ing the inflation rate hovering around 2.4 shows the current account surplus narrow- from 50.1 percent to 52.4 percent and the percent in the medium term. ing to US$17.7 billion (down from US$39.6 employment-to-population ratio among The continued loose fiscal spending and billion one year ago) driven primarily by Saudis increased from 45.1 percent to 48 the significant reduction in oil receipts a 14.6 percent fall in oil receipts. Further percent. The labor force participation rate during 2023 are expected to flip the fiscal surplus narrowing is anticipated during and employment-to-population ratio also balance into a deficit of 1.5 percent of GDP. this year with even lower oil revenues. continue to increase for Saudi women, Aramco’s distribution of performance- The Saudi Central Bank’s (SAMA) foreign and it does more rapidly than for Saudi linked dividends starting Q3-2023 for six reserves reached US$407 billion in July men, reaching 36 percent and 30.2 per- quarters should improve the fiscal position 2023, the lowest in 14 years, suggesting cent, respectively, in Q1 2023. in the medium term—supported by the re- that oil revenues are being channeled to covery in oil production levels. As bud- PIF to finance its larger investment role in getary financing needs grow, the debt-to- the local economy. GDP ratio is expected to rise to 24.8 per- The number of Saudis working in the pri- Outlook cent in 2023 before moderating to 23.8 per- vate sector continues to increase. Accord- cent in the medium term. The off-budget ing to administrative data, the number of The oil sector is expected to contract by capital spending by PIF will continue to Saudi nationals employed in the private 8.4 percent during 2023 to reflect oil pro- remain substantial. sector in Q1 2023 reached 2.6 million, duction curbs agreed within the OPEC+ al- Even with the anticipated fall in oil export whereas the number of non-Saudi nation- liance. Meanwhile, non-oil sectors are ex- receipts in 2023, exports will continue to als in the private sector increased to 7.8 pected to cushion the contraction, grow- surpass imports. As a result, the current million. The overall labor force participa- ing at 3.6 percent, supported by looser account surplus is expected to continue, tion rate and the employment-to-popula- fiscal policy, robust private consumption, yet narrow significantly from last year, to tion ratio increased during the past year and public investment drive. As a result, reach 5.6 percent of GDP in 2023. TABLE 2 Saudi Arabia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -4.3 3.9 8.7 -0.9 4.1 4.2 Private consumption -8.1 9.4 4.8 4.2 3.5 3.0 Government consumption 3.3 0.8 6.7 6.0 3.0 3.0 Gross fixed capital investment -10.4 10.1 24.1 7.5 4.0 3.3 Exports, goods and services -10.6 1.0 18.7 -8.3 5.3 6.4 Imports, goods and services -19.8 8.3 12.0 5.4 4.3 4.3 Real GDP growth, at constant factor prices -4.3 3.9 8.7 -0.9 4.1 4.2 Agriculture -1.7 2.6 3.9 2.0 2.0 2.0 Industry -6.0 1.7 13.2 -5.3 2.8 3.5 Services -2.2 6.7 3.5 4.9 5.7 5.0 Inflation (consumer price index) 3.4 3.1 2.5 2.6 2.3 2.2 Current account balance (% of GDP) -3.1 5.1 13.6 5.6 5.7 6.8 Net foreign direct investment inflow (% of GDP) 0.1 -0.6 -1.0 -0.8 -0.9 -1.0 Fiscal balance (% of GDP) -11.1 -2.3 2.6 -1.5 -0.1 0.8 Revenues (% of GDP) 30.7 29.6 30.5 30.4 30.8 31.0 Debt (% of GDP) 33.7 28.8 23.7 24.8 24.4 23.2 Primary balance (% of GDP) -10.1 -1.4 3.3 -0.5 0.9 1.7 GHG emissions growth (mtCO2e) -1.2 2.8 3.0 0.0 2.6 3.0 Energy related GHG emissions (% of total) 69.6 70.5 70.3 69.9 70.2 70.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 31 Oct 23 contested among the warring parties of the more than decade-old civil war. SYRIAN ARAB Key conditions and The earthquake caused massive human suffering and damages, resulting in ap- challenges REPUBLIC proximately 6,000 fatalities, 12,000 in- juries, and the displacement of roughly A decade of conflict has led to devastat- 600,000 individuals in Syria. In terms of ing socioeconomic consequences. Despite physical impacts, the World Bank pub- Table 1 2022 a 2020 ceasefire that halted major hostili- lished a Rapid Damage and Needs As- Population, million 22.1 ties, insecurity and violence persist across sessment (RDNA) that estimates the GDP, current US$ billion 12.4 many parts of Syria, which still ranked earthquake caused physical damages and GDP per capita, current US$ 561.3 10th globally in conflict-related fatalities losses across the six most affected gover- School enrollment, primary (% gross) a 81.7 in 2022. More than half of Syria's pre- norates that amount to about 10 percent a 72.1 conflict population remains displaced, in- of Syria’s GDP. Life expectancy at birth, years cluding 6.8 million Internally Displaced Total GHG emissions (mtCO2e) 49.5 Persons (IDPs) and 6.7 million refugees Source: WDI, Macro Poverty Outlook, and official data. abroad. Between 2010 and 2021, GDP a/ WDI for School enrollment (2013); Life expectancy (2021). shrank by more than half. The decline in Recent developments Gross National Income per capita led the World Bank to re-classify Syria as a low- The earthquake caused temporary but income country in 2018. widespread economic and trade disrup- In February 2023, a series of earthquakes tions. Alternative data tracking mobile de- Socioeconomic conditions in Syria have severely hit northern and western Syria, vice activity and nighttime illumination continued to deteriorate due to a combi- where a large share of its population and trends revealed a decline in mobility and nation of shocks from the prolonged economic activity were located. The 7.6 a nationwide contraction in economic armed conflict and the February earth- Richter scale shock was the deadliest in output in the aftermath of the disaster. Syria since the one that hit Aleppo in 1822. Nighttime illumination data tracking gas quakes. Real GDP is projected to con- The areas that experienced strong or flaring showed a contraction in oil pro- tract by 5.5 percent in 2023, exceeding higher levels of impact from the earth- duction. Damage to roads and maritime a 3.5 percent decline last year. The quake were home to 6.6 million Syrians, facilities halted shipping and cargo ar- economy may contract even further if representing around 31 percent of the to- rivals following the earthquake, as indi- conflict escalates and reconstruction ef- tal population and about 17 percent of cated by shipping-position data. In addi- GDP in 2022 (estimated using nighttime tion, the destruction of roads connecting forts fall short of expectations. Conflict, illumination). Of the 6.6 million Syrians Antakya in Türkiye with the Bab al Hawa displacement, and the collapse of eco- affected, 4.6 million (70 percent) live in caused delays in delivering cross-border nomic activities and social services have areas outside of Syrian government con- humanitarian assistance. all contributed to a decline in welfare. trol. The affected areas also hosted approx- Currency depreciation and consumer price imately 3 million IDPs, or 46 percent of inflation accelerated after the earthquake. all IDPs in Syria. The earthquake severe- Since February 2023, the Syrian pound ly hit the area that has been most intensely (SYP) lost about half of its value against FIGURE 1 Syrian Arab Republic / Displaced persons are FIGURE 2 Syrian Arab Republic / Inflation and exchange over-represented in earthquake-affected areas rates Share in percent Percent, y/y growth 350 Internally displaced SYP to US$ market exchange rate 3 29 1 13 300 persons CPI inflation CPI inflation: food 250 Conflict-related deaths 13 12 1 7 WFP minimum food basket prices 200 Population 9 14 1 6 150 100 GDP 10 31 4 50 0 10 20 30 40 50 0 Government and allied forces Non-state armed groups Syrian democratic forces -50 Turkish armed forces and national army (opposition) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Sources: Satellite images; USGS ShakeMap, Humanitarian Needs Assessment Sources: Syrian Pound Today, WFP Syria Price Database, Central Bureau of Programme (HNAP), Armed Conflict Location & Event Data Project, and World Statistics of Syria, and World Bank staff estimates. Bank staff estimates. MPO 32 Oct 23 the United States dollar (US$), reaching substantially increased the prices of sub- real incomes and worsen household wel- around SYP 14,000/US$ in the parallel for- sidized gasoline and petroleum, in addi- fare throughout the country. eign exchange market in early September. tion to a 50 percent hike in pharmaceu- The earthquake by itself is expected to From February to July 2023, inflation, as tical prices, placing an additional burden place only a small additional strain on proxied by the World Food Program on Syrians. Rising prices sparked massive public finances, assuming foreign aid (WFP) minimum food basket price index, demonstrations in southern Syria, non- largely addresses post-earthquake needs. rose by 27 percent, driven by reduced ac- regime-held northwest territories, and the However, the fiscal deficit is expected to cess to goods, disrupted supply chains, northeastern governorates of Deir ez-Zor, remain large at 8.4 percent of GDP in and heightened logistics costs, all of which Raqqa, and Hasakeh. 2023, as efforts to tighten fiscal subsi- exerted upward pressure on prices. dies are projected to only partly offset the The pre-existing vulnerability of Syrian cost-driven increase in expenditures. households has left many ill-equipped to Risks to the growth outlook are signif- cope with the lingering economic impact Outlook icant and tilted to the downside. The of the earthquake. Survey results from the economy may contract more if earth- REACH humanitarian situation overview Real GDP is projected to contract by 5.5 quake-related reconstruction efforts fall in Syria, encompassing non-government- percent in 2023, extending the 3.5 percent short of expectations. The risk is height- controlled areas of both the northwestern decline last year. The earthquake has re- ened by a lack of public resources, low and northeastern regions, indicate that the duced the country’s productive capacity, levels of private investment, and a com- adoption of coping strategies, such as sell- mainly by damaging physical capital and bination of physical obstacles and secu- ing household items and productive as- disrupting trade networks. Oil production rity challenges that prevent humanitari- sets, has increased in earthquake-affected is anticipated to remain low in 2023, with an assistance from reaching some of the areas. Meanwhile, access to health services adverse effects on the industry. Crop pro- affected areas. Both, conflicts and earth- and sanitation continues to deteriorate. duction is expected to rebound from the quakes, destroy fixed capital and de- The Syrian government further reduced near-historical lows observed in 2022, grade human capital through disruptions subsidies through price hikes on essential partly due to greater precipitation this in education services and psychological goods and limited purchase quantities, year. On the consumption side, rising in- trauma; this is expected to produce large, exacerbating already dire living condi- flation, which is projected to increase from sustained negative effects on productivity tions. In August 2023, the government 44 percent to 62 percent, is set to lower in the longer run. TABLE 2 Syrian Arab Republic / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e a Real GDP growth, at constant market prices -0.2 1.3 -3.5 -5.5 Inflation (consumer price index) 114.2 118.8 60.6 62.1 Fiscal balance (% of GDP) -8.4 -9.5 -8.4 -8.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Notes: e = estimate, f = forecast. a/ Projections based on nighttime light data. MPO 33 Oct 23 TUNISIA Key conditions and Recent developments challenges Economic recovery has been modest in real terms since the sharp contraction in Table 1 2022 Tunisia faces increasingly difficult eco- 2020 due to COVID-19 (-8.8 percent). Af- Population, million 12.4 nomic conditions. Weak reform imple- ter a moderate rebound in 2021 (4.4 per- GDP, current US$ billion 46.4 mentation has left the economy ineffi- cent), the economy only expanded by 2.4 GDP per capita, current US$ 3756.7 ciently closed to investment and trade percent in 2022 and by 1.2 percent in a 16.6 National poverty rate and ill-equipped to exploit opportunities the first half of 2023. The latest economic b 2.2 in the global economy. As growth and slowdown reflects the severe drought in Lower middle-income poverty rate ($3.65) b 32.8 private job creation stagnated, the State the first half of 2023 (with agriculture de- Gini index School enrollment, primary (% gross) c 112.3 stepped in as an employer of last resort clining by 9 percent in real terms) and the Life expectancy at birth, years c 73.8 and price stabilizer through subsidies. uncertain financing conditions. Total GHG emissions (mtCO2e) 39.0 This has caused a deterioration of the The merchandise trade deficit declined in fiscal and the current account deficits the first half of 2023 to 4.4 percent of Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2021). under the weight of a large public sec- GDP down from 7 percent in 2022 amidst b/ Most recent value (2015), 2017 PPPs. tor wage bill, higher consumer sub- robust manufacturing exports and more c/ Most recent WDI value (2021). sidies, and underperforming state- benign commodity prices. As a result, the owned enterprises. The COVID-19 current account deficit (CAD) fell from pandemic and Russia’s invasion on 4.1 to 1.5 percent of GDP over the same Tunisia’s economic outlook remains highly Ukraine have exacerbated these long- period, also helped by robust tourism re- uncertain. After a moderate economic re- standing weaknesses. ceipts. While the decline in commodity Tunisia’s growth prospects hinge on de- prices and the energy and food subsidy bound in 2021, the economy slowed down cisive structural reforms to address eco- bill provide some respite, the pressure on in 2022 and further decelerated in the first nomic distortions and fiscal pressures. public finances remains elevated as pub- half of 2023 amid a severe drought and un- These include: (i) eliminating business lic expenditure reforms continue to fal- certain financing conditions. The weak re- entry permits and unnecessary licens- ter amid weak growth. This contributes covery complicates financing the large pub- es, (ii) gradually phasing out controls to the challenges in financing the public to capital outflows; (iii) reducing con- debt, which between 2019 and 2022 in- lic debt and external needs, which remain sumer subsidies while compensating creased from 67.8 to 79.8 percent of GDP elevated—in spite of an improving current vulnerable households; (iv) improving (without including government guaran- account balance—due to the heavy debt the performance of state-owned enter- tees and SOE debts). service. Accelerating the recovery and prises; (v) making the tax system fair- With limited access to international fi- er. Progress in these reforms is critical nancing, the need to finance the sover- stabilizing the economy will require the to stabilize the macroeconomic situa- eign continues to put pressure on banks' speedy implementation of fiscal and tion, accelerate the recovery, and lay liquidity needs, which increased to structural reforms. the foundation for more sustainable TD15.6 billion in June 2023 from TD10.4 economic growth. billion a year before. FIGURE 1 Tunisia / Real GDP: Actual, forecast and pre- FIGURE 2 Tunisia / Actual and projected poverty rates and COVID-19 trend real GDP per capita Millions of real TND (2015 prices) Poverty rate (%) Real GDP per capita (constant LCU) 110 000 35 8200 105 000 30 8000 Pre Covid19 trend 100 000 25 7800 95 000 20 7600 AM23 90 000 15 7400 85 000 10 7200 80 000 5 7000 75 000 0 6800 2010 2012 2014 2016 2018 2020 2022 2024 70 000 International poverty rate Lower middle-income pov. rate 2010 2012 2014 2016 2018 2020 2022 2024 Upper middle-income pov. rate Real GDP pc Sources: World Bank estimates and National Institute of Statistics. Source: World Bank. Notes: see Table 2. MPO 34 Oct 23 After 18 consecutive months of increase, in 2021 and 2022. This reflects the chal- to moderate to 4.0 percent of GDP in 2023 inflation started to moderate since Febru- lenging conditions linked to the drought, thanks to strong travel exports and im- ary 2023, declining from 10.4 percent to 9.3 particularly for agriculture, the uncertain- proved terms of trade. With FDI projected percent in August. The decline appears to ty around debt financing, and the weak to be relatively stable and minimal port- be driven by lower global prices and weak momentum on structural reforms. With folio investments, foreign lending would domestic demand. However, inflation re- this growth rate, real GDP in 2023 would still have to shoulder the financing of the mains well above both the 2021-2022 aver- still be 1.3 percent below its pre-Covid 19 CAD. The 2023-24 growth forecast is sub- age (7 percent) and food inflation is high- level. Assuming more stable financing con- ject to significant downside risks. Growth er (15.3 percent), which presents a particu- ditions and a moderation of the ongoing projections would be even lower should lar challenge for lower income households. drought, growth is expected to eventually Tunisia not implement decisive fiscal and Real interest rates remain negative as the gain some ground, reaching 3.0 percent in pro-competition reforms and/or should Central Bank maintained the policy rate at 2024 and 2025. This slight rebound would available financing not be sufficient to 8 percent in 2023 after increasing it by 175 allow the economy to achieve a 2.4 percent cover Tunisia’s external needs. If these basis points in March-December 2022. annual growth over the post-Covid period. conditions occur, it may be challenging With weak economic growth, the unem- This appears to be the modest structural to secure sufficient foreign currency in ployment rate increased slightly to 15.6 growth rate of an economy dragged by the economy, which could lead to pres- percent in Q2 2023 from 15.3 percent a year pre-existing structural weaknesses and the sures on exchange rates and prices, exert- ago. This is one of the highest rates in the uncertainty around financing conditions. ing a negative impact on economic activ- region and it is associated with a slight Tunisia’s public finance and external ac- ity and employment. In addition should year-on-year increase in labor force partic- count will remain precarious in the ab- the drought conditions persist beyond this ipation. Hence, net job creation during the sence of an IMF program and external fi- year, the 2024 projections could be revised period has been low with only 3,500 jobs nancing, and uncertain global conditions. downwards given the negative impact on being created and a net loss of 15,500 jobs The budget deficit is expected to decline agriculture and the trade balance. for female workers. somewhat to 5.6 percent of GDP in 2023 Poverty using the Lower Middle Income (compared to 6.6 percent of GDP in 2022). Poverty Line (US$3.65/person/day line in That is mainly driven by lower energy sub- 2017 PPP term) is projected to remain sta- sidies, a lower wage bill in real terms, and ble at 2.3 percent in 2022-23 and eventually Outlook an increase in tax revenues. Gross financ- decline to 2.0 percent by 2025. The share of ing needs are expected to rise further at poor and vulnerable at the upper-middle With a projected growth rate of 1.2 percent 16.0 percent of GDP in 2023 (from 12.6 per- income country poverty line (US$6.85/per- in 2023, the economy appears to be signif- cent in 2022) due to significant external son/day in 2017 PPP) is projected to return icantly slowing down relative to the trend debt amortization. The CAD is projected to pre-Covid levels at 17.0 percent by 2025. TABLE 2 Tunisia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -8.8 4.4 2.4 1.2 3.0 3.0 Private consumption -2.1 2.4 2.2 2.7 3.8 4.5 Government consumption -1.0 1.5 -1.2 -2.9 -0.5 -0.5 Gross fixed capital investment -19.9 3.3 1.3 -7.3 2.9 5.0 Exports, goods and services -20.0 11.8 15.2 9.4 5.1 3.3 Imports, goods and services -16.6 10.9 9.3 8.6 4.8 5.1 Real GDP growth, at constant factor prices -8.7 4.5 2.6 1.2 3.0 3.0 Agriculture 0.4 -2.7 0.7 -8.0 3.0 2.1 Industry -10.1 8.7 -0.3 0.7 2.1 2.5 Services -9.6 4.1 4.0 2.8 3.3 3.3 Inflation (consumer price index) 5.6 5.7 8.3 9.2 8.0 7.0 Current account balance (% of GDP) -6.0 -6.0 -8.6 -4.0 -4.6 -5.5 Net foreign direct investment inflow (% of GDP) -1.4 -1.1 -1.4 -1.3 -1.4 -1.4 Fiscal balance (% of GDP) -8.7 -7.6 -6.6 -5.6 -3.6 -3.1 Revenues (% of GDP) 25.5 25.7 28.5 27.7 28.3 28.2 Debt (% of GDP) 77.8 79.9 79.8 77.9 75.9 73.8 Primary balance (% of GDP) -5.6 -4.7 -3.4 -2.3 -0.2 0.3 a,b International poverty rate ($2.15 in 2017 PPP) 0.2 0.2 0.2 0.1 0.1 0.1 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 2.7 2.4 2.3 2.3 2.2 2.0 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 20.2 19.1 18.5 18.4 17.6 17.0 GHG emissions growth (mtCO2e) -3.7 3.6 3.4 2.7 2.5 2.0 Energy related GHG emissions (% of total) 70.6 71.2 71.6 72.0 72.4 72.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2015-NSHBCSL. Actual data: 2015. Nowcast: 2016-2022. Forecasts are from 2023 to 2025. b/ Projection using neutral distribution (2015) with pass-through = 0.7 (Low (0.7)) based on GDP per capita in constant LCU. MPO 35 Oct 23 disagreements. However, increased Russ- ian migration and capital inflows to the UNITED ARAB Key conditions and UAE over the past year have posed a po- tential upside risk, affecting the real es- challenges EMIRATES tate sector and potentially enhancing eco- nomic activity. Enhanced UAE reform ef- The UAE maintains its role as the regional forts offer upside risks to medium-term center for trade, finance, and travel, bol- growth, but delays or digressions in Table 1 2022 stered by advances in economic diversifi- structural reforms could weaken long- Population, million 9.6 cation and reduced hydrocarbon depen- term growth and employment. GDP, current US$ billion 486.1 dency. However, intensifying regional com- GDP per capita, current US$ 50859.1 petition, particularly from Saudi Arabia a 115.4 and Qatar, poses a challenge as these na- School enrollment, primary (% gross) Life expectancy at birth, years a 78.7 tions adopt strategies akin to Abu Dhabi's Recent developments Economic and Environment Vision 2030 Total GHG emissions (mtCO2e) 268.2 and Dubai's Industrial Strategy 2030. The UAE's economy grew by 6.6 percent Source: WDI, Macro Poverty Outlook, and official data. While hydrocarbon activity remains the in 2022 driven by increased oil production a/ WDI for School enrollment (2020); Life expectancy (2021). primary source of government revenue, and strong performance of the non-oil sec- steps to diversify public revenues are con- tors, especially construction and tourism. tinuing and include introducing VAT and Effective management of the COVID-19 CIT, coupled with a phased exit from the crisis, coupled with supportive fiscal mea- business fee structure. In addition, the sures and pro-business and social reforms, UAE's 2050 strategies focus on enhancing have helped strengthen economic develop- UAE’s economy is expected to slow trade, FDI, digital and AI investments, and ment. During H1-2023, economic growth down, after the expansion of 2022, driven renewable energy investment to address decelerated, driven primarily by develop- primarily by OPEC+ production cuts and economic diversification and energy tran- ments in the oil sector as OPEC+ continued sition challenges. The outlook for the non- to cut oil production quotas; concurrently, global economic downturn. Despite eas- oil sector is strong while elevated energy the non-oil sector maintained robust ing oil prices and production levels, twin- prices are expected to continue strengthen- growth supported by loose fiscal policy. balance surpluses are anticipated during ing external and fiscal positions. Business sentiment continues to be posi- 2023 and continue in the medium term. The main impact of Russia’s invasion of tive in 2023 confirming strong non-oil per- Tight monetary policy and cooling eco- Ukraine on the UAE economy will be oil formance. Improved operating conditions price volatility, global inflation, and in the non-oil private sector, fueled by in- nomic activity will keep inflation sub- tourism shocks. Domestic monetary poli- creased new orders, especially from inter- dued. Key risks to the outlook include cy will tighten in line with US Federal national demand, drove the Purchasing global uncertainty, financial tightening, Reserve policy, possibly dampening eco- Managers' Index (PMI) to 56.9 in June oil price volatility, and climate change. nomic growth and job creation. Key risks 2023, its highest level since June 2019. to UAE growth include global uncertain- Meanwhile, oil production during H1 2023 ty and geopolitical developments, tighter fell to 2.9 million bpd in line with the financial conditions, and OPEC+ quota OPEC+ agreements. Headline inflation FIGURE 1 United Arab Emirates / Annual real GDP growth FIGURE 2 United Arab Emirates / Public finances Percent change Percent of GDP 12 40 8 30 4 20 0 10 -4 0 -8 -10 2019 2020 2021 2022 2023 2024 2025 2019 2020 2021 2022 2023 2024 2025 Oil GDP Non-Oil GDP GDP Fiscal Balance Revenues Expenditures Sources: UAE authorities, IMF WEO, and World Bank staff estimates. Sources: UAE authorities, IMF WEO, and World Bank staff estimates. MPO 36 Oct 23 reached 4.8 percent in 2022 and eased dur- Understanding of poverty, inequality, and tighter OPEC+ production quotas, oil ing the H1-2023 to reflect economic slow- livelihoods in the UAE continues to be lim- GDP growth is projected at 0.7 percent down and easing price pressures in food ited due to sparse representative house- in 2023 but expected to recover strongly and transport. hold and labor data. According to the most in 2024 as production quotas are relaxed. Following the US Federal Reserve's mon- recent available ILO estimates, the labor On the other hand, non-oil output is fore- etary tightening and maintaining the force participation rate was expected to cast to support economic activity in 2023, pegged exchange rate, the Central Bank reach 82.7 percent in 2023, slightly above growing at 4.5 percent, with the strong of the UAE undertook multiple policy its 2019 level. Employment rebounded in performance in tourism, real estate, con- rate adjustments, pushing the base rate to 2022 to pre-pandemic levels and was ex- struction, transportation, and manufactur- 5.4 percent by July 2023. Despite rising pected to continue to increase in 2023. The ing and a surge in capital expenditure. rates, the non-performing loans ratio employment-to-population ratio in 2023 is The introduction of mandatory unem- dropped to 6.4 percent and private sector estimated at 80.4 percent among men and ployment benefits in 2023 should further credit grew to 6 percent in Q1 2023, sig- at 52.5 percent among women (ILO esti- bolster private consumption and support naling strong economic recovery. Overall, mates). The unemployment rate was pro- overall domestic demand. banks remain well-capitalized and liquid. jected to be 2.7 percent for 2023, a decrease Tight monetary policy, a strong US dollar, The regulatory framework continues to from the height of the pandemic but still and a slowdown in economic activity will strengthen, driven by progresses in the not back to 2019 rates. Unemployment keep inflation rates subdued—hovering National AML/CFT Strategy and en- rates remain substantially higher among around 3.3 percent in 2023 and decreasing hanced monitoring per Financial Action young adults ages 15-24 than among to 2.2 percent in 2024. Robust oil revenues, Task Force guidelines. adults ages 25 and over. The gap is espe- supported by strong performance of non- After registering a strong fiscal surplus in cially wide among women, with project- oil sectors, will maintain the fiscal balance 2022, the fiscal balance narrowed during ed rates of 18.6 percent and 5.5 percent re- surplus at 5.2 percent of GDP in 2023. Im- H1-2023 to reflect easing oil prices and oil spectively for 2023. plementation of fiscal revenue reforms, production level. Meanwhile, high oil re- e.g. introduction of CIT, and maintaining ceipts and increasing non-oil exports have prudent and well-coordinated emirate- improved the current account balance specific fiscal anchors and rules should im- which is estimated to reach 12.4 percent Outlook prove fiscal buffers and overall fiscal sus- of GDP. Additionally, the signing of free- tainability. Non-oil exports, aided by bilat- trade agreements with significant Asian Economic activity is anticipated to slow- eral trade agreements and the opening of and African markets is expected to contin- down in 2023 to 3.4 percent due to weak- new markets, will grow as imports slow to ue enhancing non-oil exports and further er global activity, stagnant oil output, and 4.4 percent in 2024, narrowing the current support the external balance surplus. tighter financial conditions. Following account to 11.8 percent of GDP. TABLE 2 United Arab Emirates / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -6.1 3.5 6.6 3.4 3.7 3.8 Private consumption -12.5 5.0 5.5 4.4 4.1 4.0 Government consumption 0.6 1.4 3.5 2.6 2.3 2.1 Gross fixed capital investment 5.8 5.4 5.8 4.6 3.6 3.5 Exports, goods and services -7.0 6.8 8.4 4.2 4.4 4.3 Imports, goods and services -6.4 8.8 7.4 5.0 4.4 4.1 Real GDP growth, at constant factor prices -6.1 3.5 6.6 3.4 3.7 3.8 Agriculture 6.9 3.8 3.4 3.5 3.5 3.0 Industry -5.5 1.3 8.8 3.1 2.6 3.8 Services -6.9 5.7 4.6 3.6 4.9 3.9 Inflation (consumer price index) -2.1 -0.1 4.8 3.3 2.2 2.0 Current account balance (% of GDP) 6.0 10.6 13.8 12.4 11.8 11.6 a Fiscal Balance (% of GDP) -5.2 -1.4 9.0 5.2 4.6 3.8 Revenues (% of GDP) 28.0 27.1 37.0 33.0 31.2 29.0 Debt (% of GDP) 40.0 32.0 31.3 27.8 23.4 20.1 Primary balance (% of GDP) -4.9 -1.1 9.2 5.4 4.7 3.9 GHG emissions growth (mtCO2e) -4.1 7.3 7.0 -1.3 3.0 2.6 Energy related GHG emissions (% of total) 72.6 73.6 74.9 74.4 74.7 75.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Consolidated fiscal balance. MPO 37 Oct 23 improving security and achieving peace. Non-oil activity continues to be con- REPUBLIC OF Key conditions and strained by interruptions in essential ser- vice delivery, acute input shortages, dou- challenges YEMEN ble taxation, widespread corruption, mar- ket distortions from uncoordinated poli- Yemen's humanitarian crisis is deeply root- cies, and the multiplicity of Yemen's in- ed in its conflict and complex political and stitutions. Moreover, reliance on remit- Table 1 2022 economic landscape. Between 2015 and tances and aid flows, coupled with cli- Population, million 33.7 2022, the country has experienced a stag- mate change vulnerability, leaves Yemen GDP, current US$ billion 21.9 gering 52 percent contraction in real GDP exposed to external factors. GDP per capita, current US$ 650.3 per capita, leaving two-thirds of the popu- As a result, amid rising poverty and food School enrollment, primary (% gross) a 93.6 lation, approximately 21.6 million individ- insecurity, many households, having ex- a 63.8 uals, in need of humanitarian assistance. hausted traditional safety nets, now resort Life expectancy at birth, years Moreover, the ongoing conflict has intensi- to dire measures like child labor or high- Total GHG emissions (mtCO2e) 19.8 fied the fragmentation of the country into risk jobs. To deal with widespread pover- Source: WDI, Macro Poverty Outlook, and official data. two distinct economic zones, each gov- ty and food insecurity, some households, a/ WDI for School enrollment (2016); Life expectancy (2021). erned by its unique set of institutions and particularly the better-off, can sell assets policies, resulting in an increasing dispari- or use savings. But many more house- ty despite the evident interconnections. holds have already exhausted these usual During 2022, Yemen’s economy showed coping strategies and are adopting last- improvement, supported by a truce that resort coping strategies with long-term brought a glimmer of hope, albeit with- destructive consequences. Economic conditions in Yemen have sig- out the parties reaching a permanent po- nificantly deteriorated since the formal litical settlement. The two-month UN-bro- UN-brokered truce expired in October kered truce between the Internationally 2022. The ongoing Houthi oil export Recognized Government (IRG) of Yemen Recent developments and the Houthis, starting in April 2022 blockade has further strained Yemen’s and extended twice, temporarily halted The truce’s expiration triggered a series fragile economy, leading to mounting offensive hostilities, providing some relief of adverse economic events that nega- challenges, including inflation, currency for civilians, and allowing for limited eco- tively impacted Yemen in 2023. Overall, depreciation, and policy divergence. nomic recovery. The truce expired in Oc- GDP is projected to decrease, in reals tober 2022 and, although an informal terms, by 0.5 percent in 2023, after re- Downside risks include conflict-related truce remained in place, the situation bounding by 1.5 percent in 2022. The developments, new adverse terms of trade worsened as a result of a Houthi-imposed most impactful event was the Houthi shocks, and natural disasters posing a blockade on IRG’s oil exports. blockade on IRG’s oil exports, resulting in significant threat to Yemen’s stability. Yemen continues to face deep structural a sharp projected decline in oil production. challenges. Growth in the oil sector de- At the same time, a relatively more volatile pends on Yemen’s ability to attract foreign currency on the Aden foreign exchange investment, which remains contingent on market, high inflation, and an increase in FIGURE 1 Republic of Yemen / Exchange rate trend: FIGURE 2 Republic of Yemen / Inflation rate: Sana’a and Sana’a and Aden Aden YER per US$1 Percentage 1600 80 Aden 1400 60 Sana'a 1200 40 1000 20 800 0 600 -20 400 Jul'21 Oct'21 Jan'22 Apr'22 Jul'22 Oct'22 Jan'23 Apr'23 Jul'23 Jun'20 Dec'20 Jun'21 Dec'21 Jun'22 Dec'22 Jun'23 Aden Sana'a Sources: Telegram Exchange Market Group and World Bank staff calculations. Sources: Reach Joint Market Monitoring Initiative and World Bank staff calculations. MPO 38 Oct 23 hostile activities have weighed on the pri- Inflationary dynamics have continued to efforts backed by international donors. En- vate sector non-oil activity. diverge significantly across regions in suring that this growth trickles down to The expiration of the truce resulted in 2023. Sana’a has witnessed a sharp re- the most vulnerable will require sustained tightened fiscal conditions. Data from the duction in consumer price inflation dur- investments in human capital that have Aden MOF shows a significant decline of ing the first seven months of 2023, aver- been severely impacted by many years of more than 40 percent in IRG revenues, aging 2.2 percent, compared to 20.5 per- protracted conflict. mainly due to a sharp reduction in oil ex- cent in 2022. This reduction can be attrib- Despite some positive developments, ports. In response, IRG implemented dras- uted to a relatively steady money sup- risks to the economic outlook remain tic cuts in expenditures, including electrici- ply and the base effects of the commodity high. The recent rapprochement between ty subsidies and goods and services spend- price shock in 2022. Conversely, inflation regional powers marks a significant step ing. Despite these cuts, the fiscal deficit (on in Aden has remained elevated, reaching towards alleviating longstanding regional a cash basis) is expected to remain around around 34.7 percent during the first seven tensions that have hindered Yemen's de- 2.9 percent of GDP in 2023. The recent an- months of 2023, compared to an average of velopment prospects. Additionally, the nouncement of US$1.2 billion in Saudi 39.2 percent in 2022. ongoing negotiations between KSA and budget support - with a recent deposit of the Houthis could change the dynamics US$250 million as the first tranche -, could on the ground. However, risks persist, in- ease some pressure, helping cover key ex- cluding the resurgence of hostile activi- penses such as public sector salaries and Outlook ties triggered by regional or domestic ten- electricity subsidies. sions, new adverse terms of trade shocks, The halting of oil exports has increased ex- The macroeconomic outlook for 2024 re- and new natural disasters posing a sig- ternal pressures and eroded confidence in mains highly uncertain, contingent on the nificant threat to Yemen’s fragile econo- the currency on the Aden market. The cur- resumption of oil exports and ongoing my. Most significantly, the reduction in rent account deficit is forecasted to reach truce negotiations. Economic stability in humanitarian aid will result in significant 21.8 percent in 2023. In addition, gross liq- the short run hinges heavily on predictable increases in the prevalence of the food uid FX reserves are now below one and sustainable hard currency inflows and poor. Moreover, policy inaction due to month's worth of imports. As a result, con- political/military developments. Assum- political gridlock remains a paramount fidence in the currency has been eroding ing oil exports resume in 2024 to 2022 lev- risk. It could potentially yield adverse since May on the Aden market. As of end- els, we project real GDP growth of 2.0 per- repercussions on the fiscal front, particu- August 2023, the YER had depreciated to cent in 2024. However, if a lasting truce larly considering the sluggish momentum YER 1,418 per US$1 on the Aden market, or peace agreement is achieved, Yemen's of reforms. Such inaction might lead to returning to end-2021 levels; meanwhile, economy could see more sustained an escalation in monetary financing, exac- the YER appreciated slightly on the Sana’a growth within months, driven by an ex- erbating inflationary pressures. Neverthe- market over the same period. Along with pected rapid rebound in transport, trade, less, maintaining a sustained focus on securing further assistance, replenishing financial flows, and reconstruction financ- monetary and macroeconomic stability reserves will be critical to maintain ing. Over the medium term, growth is con- while strengthening policy and institution- Yemen's economic stability and safeguard ditional on a peace agreement, prudent al capacity can help improve the immedi- hard-won reforms. policies, and robust reform and recovery ate macroeconomic prospects. TABLE 2 Republic of Yemen / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f Real GDP growth, at constant market prices -8.5 -1.0 1.5 -0.5 2.0 a Inflation (Consumer Price Index) 21.7 31.5 29.5 14.9 17.3 Current account balance (% of GDP) -14.1 -17.3 -16.5 -21.8 -13.5 Net foreign direct investment inflow (% of GDP) -0.3 3.5 0.9 0.7 0.7 Fiscal balance (% of GDP) -4.8 -1.0 -2.8 -2.9 0.0 Revenues (% of GDP) 6.7 7.8 10.3 5.3 8.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Notes: e = estimate, f = forecast. a/ Inflation rates refer to end-of-period figures. MPO 39 Oct 23 Macro Poverty Outlook 10 / 2023