Dubai, UAE – Middle East needs a ‘New Deal’ to deliver for its 600 million people more jobs, better education, greater dignity, better governance, and a broader, fairer distribution of economic opportunities and resources.
“The status quo of state-dominated economic activity will be hard to sustain, especially for heavily indebted countries facing high financing costs,” says an article published on IMF website written by Jihad Azour and Taline Koranchelian, the director and deputy director of the IMF Middle East and Central Asia Department respectively.
“Already swamped with high levels of youth unemployment and gender inequality, these countries won’t be able to absorb the more than 100 million people who are projected to enter the workforce in the next 10 years unless they change their growth model,” the authors added.
No-change policy, the article says, will severely threaten vulnerable social cohesion, on top of the strains caused by the rapid warming of the planet and the dramatically evolving global economy.
The authors, however, see new opportunities amid challenges: These include digitalization, green investment, new economic markets, the energy transition, and the changing nature of work.
“Already, countries including Egypt, Mauritania, Morocco, and the United Arab Emirates are moving to tap into green energy,” the article points out. “The region could also grasp the potential to benefit from expanded intraregional trade as global supply chains undergo realignment.”
The authors make following recommendations:
Challenges and Opportunities
The MENA region, spanning 4,000 miles and four time zones, features a diverse set of nations ranging from the wealthiest, like Qatar, UAE and Saudi Arabia, to the poorest, including Somalia and Yemen. Despite this diversity, the region shares common historical, cultural, and linguistic ties.
“In the past two decades, the Middle East and North Africa have experienced both significant change, including the Arab Spring uprisings of 2010–11, and not enough forward-looking transformation—persistently lackluster growth, low female labor force participation, and high youth unemployment,” the authors say. “Some countries face intensifying pressures related to debt, high inflation, demographics, and equity.”
However, amid these difficulties, the region sees opportunities for transformation. The pandemic, climate change, and the digital revolution are driving new avenues for economic growth. Initiatives include digitalization, green investments, intraregional trade, and adapting to changing work patterns.
The Need for Change
MENA countries are urged to move away from state-dominated economic activities, particularly those with high debt burdens and youth unemployment rates. Maintaining macroeconomic and financial stability is crucial. Governments are encouraged to enhance tax equity, reduce untargeted subsidies, and control public sector wage bills. This will free up resources for education, healthcare, and social protection.
Efforts to replace broad price subsidies with targeted support have shown promise in countries like Morocco and Egypt. The private sector’s involvement in economic activities and job creation is vital, with governments supporting an enabling environment for private enterprise to thrive.
Resilience and Climate Action
Climate change is a pressing concern for a region with significant water and food needs. MENA countries are urged to invest in renewable energy and climate-resilient infrastructure while phasing out carbon subsidies. These measures will improve resilience and reduce economic losses due to climate-related challenges.
“Some countries have already begun investing in renewable energy and climate-resilient infrastructure while enacting measures that raise the effective cost of carbon emissions, including the phaseout of subsidies,” the article says. “Morocco in recent years built the world’s largest concentrated solar plant, which uses reflected heat to drive power generation even after the sun sets. Egypt pioneered green bonds in the region and has accelerated the integration of renewable energy over the past decade.”
Embracing Technology
Digitalization can significantly boost economic growth in the region. Governments are advised to improve digital infrastructure, enhance digital literacy, and develop workforce skills to promote digital adoption, particularly among small and medium-sized enterprises.
Reforming and Collaborating
Structural reforms may take time to yield results, but they are essential for lasting change. Governments should lead reforms with transparent communication and ensure broad public support.
In light of a fragmented global landscape, MENA countries are encouraged to strengthen regional partnerships in trade and investment to enhance economic resilience.
Regional Collaboration
As the world faces global challenges like climate change and pandemics, multilateral institutions must upgrade rules to foster cooperation on these issues and protect the most vulnerable nations.
“Today’s fragmented global landscape calls for a reboot of regional partnerships in the Middle East and North Africa,” the article explains. “Less trade integration would do the most harm to low-income countries in a highly fragile region, and reduced capital flows and foreign direct investment would further constrain these countries’ financing,”
The authors add that as global links weaken, it will be more important than ever to strengthen regional ties in trade and investment.
“In this context, members of the 42-year-old Gulf Cooperation Council—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates—have taken steps to support regional investments,” the article states. “But despite multiple trade agreements across the Middle East and North Africa, trade within the region remains weak.”
Ultimately, the success of economic overhaul in the MENA region hinges on homegrown initiatives with strong government ownership, as demonstrated by countries like Jordan and Morocco, the authors suggest.