Windfall revenues among oil producers in the Middle East and North Africa (MENA) region have reduced the urgency of economic reform, the World Bank said in mid-June. 'To date, the large budget surpluses appear to have delayed the imperative for reform of the oil subsidy system in resource-rich countries,' said the MENA Economic Developments and Prospects report.
Oil producers have lagged behind other economies in improving the business climate and liberalising trade, it added. Despite rising liquidity, private businesses still have little access to bank finance and as a result, 'few of the assets accumulating in the region are channelled toward productive investment', said the report.
Oil producers are showing fiscal restraint, paying down debt, building external reserves and establishing oil stabilisation funds, as well as diversifying into foreign assets. But financial sector developments, such as bank lending for equity market activity, have increased their economies' exposure to negative shocks.
Non-oil producers have suffered from rising oil prices due to higher import bills and oil subsidies without the benefits from earlier booms that resulted in increased labour remittances and aid, the report added.
Thanks to rising oil prices and production, real gross domestic product (GDP) growth averaged 6 per cent in 2005 across the MENA region. Average GDP growth is estimated at 5.6 per cent in 2006 and 5.2 per cent in 2007 and 2008.