MENA economies face rapid accumulation of public debt: World Bank

World Bank MENA
PHOTO/COURTESY: Investopedia

The COVID-19 pandemic exacerbated long-standing development challenges in the Middle East and North Africa (MENA) region, contributing to a rise in poverty, deterioration of public finances, an increase in debt vulnerabilities, and further erosion of trust in government.

The substantial borrowing that MENA governments incurred to finance health and social protection measures increased government debt. Countries must 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.

As an example, the report shows that 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 $227 billion. The region is expected to recover only partially in 2021, but that recovery is, in part, dependent on an equitable rollout of vaccines.

“When MENA governments increased borrowing to address COVID-19, they saved lives and livelihoods, all investments in human capital. 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,” said Ferid Belhaj, World Bank Vice President for the Middle East and North Africa.

According to the report, 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 8 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.

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