Mideast Conflicts’ Unreconstructed Wreckage

With regional stock markets already reeling from commodity and geopolitical shock, the World Bank’s Middle East and North Africa economic team has tallied the direct and indirect costs of the Syrian and other wars presenting immediate humanitarian and medium-term rebuilding challenges. Continued civil strife, terrorist strikes, and low oil values cut 2015 area GDP growth to 2.5 percent, and recent Saudi-Iran clashes further contribute to a pessimistic outlook, the report comments. However with Iran’s global market re-entry and improved security for Libya and Iraq energy exports, annual output could rise 4 percent despite flat Gulf performance. Oil importers like Jordan and Lebanon have not gained fiscal relief with the added burden of hosting huge Syrian refugee populations. Double-digit unemployment is up and investment has fallen in both countries, where tourism, real estate and construction hits will shave GDP growth to 3 percent. For Egypt and Tunisia visitor killings and slumping remittances, which account for one-tenth the economy, take a similar toll. For the GCC, oil break-even prices are one-third the level needed for budget balance. Saudi Arabia public debt will jump tenfold to 20 percent of GDP by 2017, and the government wage bill alone was almost that amount last year. Reserves there and in Qatar, Kuwait and the UAE will support continued spending through end-decade, but then the cushion will disappear and fuel subsidy reforms and property and sales taxes should help avoid that outcome.

In war-torn Syria, Yemen, Libya and Iraq GDP rebound is unlikely soon as budget and inflation indicators are increasingly dire, according to the report. A Damascus think tank puts government debt at 150 percent of GDP, with a 15 percent annual deficit and under 1 percent growth. Libyan oil production has dropped by two-thirds with fighting, closed ports and rival leadership. In Yemen hydrocarbon revenue is at an “almost complete halt” with a lack of basic services and inflation above 20 percent, as foreign reserves dip to a record low $2 billion. Iraq has reduced its latest budget by $1 billion and turned to the IMF for assistance after external bond market issuance proved too expensive and unlikely. Capital stock damage in Syria was $75 billion as of end-2014, and Libyan infrastructure needs are $200 billion over the next decade. Aleppo is the most devastated major city, with housing 65 percent of the total loss. Preliminary estimates of physical destruction are around $5 billion in Yemen. The UN counted 70 attacks on health facilities in late 2015 and widespread electricity and fuel shortages, with two-thirds of the population getting water from “high-risk” sources. In the four countries 45 million require humanitarian aid, and half of children are no longer in school. Syria has 12 million displaced internally and externally, and Iraq 4 million, and hosting refugees in Jordan has absorbed one-quarter the budget amid a 90 percent debt/GDP ratio as the poverty rate in this cohort remains over 60 percent. Only with a complete reversal from “non-democracy” to democracy and economic freedom shift to strong property rights protection could growth double by 2020, but peace and free-market dividends are remote, with the vicious cycle of ethnic and communal slaughter and payback sweeping the zone, the World Bank cautions.