High oil prices are creating 'stress' in the Middle East and North Africa region that has stymied reform efforts in oil exporting countries, the World Bank's Chief Economist for MENA, Mustapha Nabli, said yesterday.
With no significant easing of prices on the horizon, the change could have a long-term impact on the region's development prospects.
As the region's oil importers are hit by higher costs and oil exporters enjoy higher revenues, the pace of reforms is diverging between the two groups, according to Nabli.
'In countries that are heavily dependent on oil revenues, reform has been slower-paced [since prices started rising]. Meanwhile, oil importers are accelerating reforms,' he said. 'This is going to have long-term implications.'
'This oil boom has been different from previous ones', Nabli pointed out. Rather than a sharp rise, oil has instead been on a steady upward trend for four to five years. Few analysts see an imminent price collapse; many consider this may indicate a new equilibrium level for oil prices.
How MENA countries respond to the new price levels will have important implications in the long run, Nabli said. Net importers of oil, such as Morocco, Tunisia, Jordan and Lebanon, have had little choice but to step up reforms in response to higher costs, but exporters have slowed reforms, and done little to address unemployment, one of the region's big problems.
Many oil exporting countries chose not to spend more as prices started rising, Nabli said. Expenditures have now begun to increase, but not at the same rate as oil revenue increases.
Some countries, notably Algeria and Saudi Arabia, have used higher oil revenues to reduce debt, while other have simply built their reserve positions, or used the revenues to subsidize low domestic fuel prices. In some countries, reforms of social services, private-sector development and capacity building are also being neglected: the high oil revenues divert attention away from them.
Rising expenditures help to create badly needed jobs, but 'this is not going to solve the problem in the long run,' Nabli said. To solve the unemployment problem over time, 'reforms are critical,' he added.
Unemployment in non-oil producing countries in the region now stands at around 15%, according to the IMF. But the Fund also estimates that the population of the MENA countries has nearly quadrupled since 1950 and is expected to double in the next 50 years.
Even to cut unemployment rates by half in those countries would require average employment growth increasing to a sustained 4% a year, from something like 2.5% today.