The MENA countries may be divided into two groups: (1) oil-exporters which include the six GCC countries (Bahrain, Kuwait, Qatar, Oman, Saudi Arabia, and the UAE), Algeria, Libya, Iraq, and Iran; and (2) net oil-importers which include Egypt, Jordan, Lebanon, Morocco, Syria, and Tunisia. The MENA countries had a combined GDP of about $2.9 trillion and a population of about 321 million in 2012. Most currencies in the region are pegged to the dollar or to a basket of currencies, and monetary policy is therefore largely constrained. Endowed with about 70% of the world's proven oil reserves and 50% of proven gas reserves, MENA oil-exporters play a critical role in the world energy market. Earnings from oil and gas accounted for about 73% of total exports and 78% of budget revenues in 2012.

Several countries in the MENA region are still navigating a protracted process of political change which has delayed important economic policy decisions. The political transitions in Egypt, Tunisia, and Libya are proceeding in fits and starts while Syria has entered a full-blown, destructive civil war that could leave the country in a shambles. Libya has made significant progress, but there remain serious concerns about the security situation. Bahrain, Jordan and Morocco, longstanding monarchies, appear to have succeeded in avoiding major disruptions through a combination of political reforms, additional government spending, and tighter security. Financial support from GCC countries has underpinned the monarchies’ political stability and eased economic strains.

The future political landscape in the region remains unclear, as the ascendant Islamists struggle to govern in a highly volatile and unpredictable political environment. This has sharply reduced economic activity and undermined the authorities’ capacity to reestablish security and the rule of law, and undertake the urgently needed structural reforms to reignite growth and reduce unemployment. Without a clean path to political stability, economic recovery will remain halting at best. At the same time, increased government spending on fuel and food subsidies, combined with pressures to raise public wages, has further strained public finances. Concessional external financing has been promised, and some has been forthcoming, but disbursements will remain slow and contingent upon increasingly challenging reforms linked to IMF programs. The sharp contraction of the Syrian economy will continue this year. Among the MENA oil importers only the Moroccan economy has been operating at near-trend growth.

Most of the region’s oil exporters continue to post strong nonhydrocarbon growth (an average of 5.5% in 2012), and fiscal and current account surpluses have been buoyed by higher oil prices in recent years. Over the medium term, stronger growth will be contingent on building diversified capacities with reduced dependence on hydrocarbons through sustained structural reforms.

For the oil importers, the economic toll from the unrest, political uncertainty and weak external demand have led to weak real GDP growth of around 1% in 2011 and 2012 (as compared with an average of 5% in 2001-2010). Tourism and foreign direct investment (FDI) remain weak, and are still far below pre-revolution levels. Most businesses have retrenched. The Euro Area recession and sporadic violence have depressed economic activity in Egypt and Tunisia, while Jordan and Lebanon have been severely impacted by the spillover from the civil war in Syria. The prospects in 2013 remain challenging. We expect economic activity remain weak in Egypt, but improve in Morocco, Jordan and Tunisia. The Syrian economy is projected to contact again in 2013.