Covid-19 exacerbated long-standing development challenges in the Middle East and North Africa (Mena) with the accumulated cost of the pandemic in the region estimated to top $227bn by the year-end.
When Mena governments increased borrowing to address Covid-19, they saved lives and livelihoods, all investments in human capital.
But, as the World Bank cited recently, the substantial borrowing that Mena governments incurred to finance health and social protection measures increased government debt.
Countries need to continue spending on health and income transfers, which will add to already high debt burdens and lead to complicated policy decisions after the pandemic recedes.
“We can see hopeful signs of light through the tunnel, especially with the deployment of vaccines, but the region remains in crisis. Strong institutions are crucial to absorbing this crisis, re-launching economies, and building them back stronger and more resilient in the years ahead,” noted Ferid Belhaj, World Bank vice president for the Middle East and North Africa.
The region’s economies are estimated to have contracted by 3.8% in 2020, which is 1.3 percentage points above the World Bank forecasts in October 2020; however, the regional growth estimate is 6.4 percentage points lower than the pre-pandemic growth forecast published in October 2019.
The estimated accumulated cost of the pandemic, in terms of gross domestic product (GDP) losses by the end of 2021, will amount to $227bn. The region is expected to recover only partially in 2021, but that recovery is, in part, dependent on an equitable rollout of vaccines.
The substantial borrowing that Mena governments had to incur to finance essential health and social protection measures increased government debt dramatically: the average public debt in Mena countries is expected to rise eight percentage points, from about 46% of GDP in 2019 to 54% in 2021. Notably, debt among Mena oil importers is expected to average about 93% of GDP in 2021.
The need to keep spending — and keep borrowing — will remain strong for the immediate future. Mena countries will have no choice but to continue spending on healthcare and social protection as long as the pandemic continues.
Consequently, in a post-pandemic world, most Mena countries may find themselves stuck with debt service bills requiring resources that otherwise could be used for economic development.
“Transparency will play an important role in helping Mena countries address the tradeoffs between short-term needs and the long-term risks of public debt,” said Roberta Gatti, World Bank chief economist for the Middle East and North Africa Region.
The Mena region, like the rest of the world, remains in a pandemic-induced crisis. But we can see hopeful signs of light through the tunnel.
Vaccines to fight Covid-19 are being produced and, in some countries, rapidly deployed. Shortages of medical supplies are abating.
There is evidence that the lockdowns and social distancing that caused the economic distress have also helped tamp down the spread of the virus. And after a sharp contraction in GDP, a recovery of sorts has been forecast for the the Mena region in 2021.
Strong institutions are one crucial dimension to helping Mena build back stronger and more resilient economies.
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