The economy of the Middle East and North Africa (MENA) has continued to strengthen in 1997, notwithstanding particularly difficult situations in certain individual economies.1 Annual economic growth has been in the 4 percent range, resulting in a second consecutive year of much needed positive per capita income growth. Financial conditions have continued to improve as reflected in lower inflation, higher foreign exchange reserves, and a more manageable debt burden.
These short-term improvements in the macroeconomic indicators of the region are to be welcomed. They are a further illustration of the region’s potential to put behind it years of foregone economic welfare gains, erosions in living standards, and undue marginalization in the rapidly globalizing world economy.
As important are the underlying changes in the structures of the economies. These changes will determine the sustainability of the region’s economic improvements; the extent of beneficial linkages with the international economy; and, most fundamentally, its ability to generate employment for its growing population and to raise living standards.
The purpose of this paper is to document the recent developments in the MENA economy and the challenges that lie ahead. It complements the analyses that have been presented in a number of recent publications on the region by the International Monetary Fund (see listing at the back of this study).
The paper is organized as follows. Section II details recent macroeconomic developments, while Section III reviews the accompanying structural changes. Against this background, Section IV discusses the challenges for the period ahead as MENA economies seek to sustain higher economic growth and benefit to a greater extent from developments in the global economy. The discussion in this paper is supported by a number of boxes that provide greater details on both the experience of certain countries and key policy issues facing the region. Developments in the six member countries of the GCC2 and in the oil market are discussed in Annex II andAnnex III, respectively.