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

Abstract

World Bank economists expect economic growth in the Middle East and North Africa (MENA) to continue at a modest pace of about 1.5 to 3.5 percent during 2019-2021, with some laggards and a few emerging growth stars. While some MENA economies have maintained what this Update calls “unexplained” current account balances for several years, fiscal policy has lost some of its historical role as a driver of the current account. In addition, the region’s capacity to recirculate savings from one country to another also seems to have weakened, most notably since 2014, when the global restructuring of the oil market became abundantly apparent. The declining movement of savings across borders suggests that regional economies that tended to finance trade and current account deficits of other economies now face declining current accounts themselves. In the medium- to long-run, therefore, existing exce