Reforms and External Imbalances: The Labor-Productivity Connection in the Middle East and North Africa

By Arezki, Rabah;Lederman, Daniel;Abou Harb and 3 more

World Bank economists expect GDP growth in the Middle East and North Africa (MENA) to continue
at a modest pace of 1.5 percent in 2019, slightly down from 1.6 percent in 2018. The declme reflects
a contraction in one large economy, which more than offsets growth in other countries. In the medium
term, the World Bank expects real GDP in the MENA to grow at 3.4 percent and 2.7 percent in 2020
and 2021, respectively. The expected upswing is partially driven by ongoing policy reforms, as well
as reconstruction efforts in some countries. However, MENA's modest recovery will be insufficient
to change its historically low growth in per capita GDP. External factors are unlikely to pull the region
out of its low-growth equilibrium. In addition, many countries in the region have persistent current
account deficits. A recent deterioration in external balances across MENA constrained the region's
ability to finance these deficits. Although the region has a low risk of experiencing sudden reversals
in capital inflows in the short run, structural reforms capable of raising aggregate labor productivity
are urgently needed to gradually reduce external imbalances. The report concludes by providing
examples of reforms in fiscal policies, trade-related policies, social protection and labor markets, and
state-owned enterprises (SOEs) in network industries.

• Language: English
• Publisher: World Bank Publications
• Release date: Mar 28, 2019
• ISBN: 9781464814082

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