Global Development Finance: Extracts

The World Bank

Middle East and North Africa

Debt and indicators
Aggregate resource flows

GNP in the Middle East and North Africa is estimated to have increased by 12 percent in dollar terms in 1996, as oil exporters continued to benefit from higher oil prices and Algeria, Morocco, and Tunisia continued to recover from the droughts of 1994-95. Slow growth in debt and an estimated 8 percent rise in export receipts led to an improvement in debt indicators. Net transfers to the region increased from a net outflow of $5.6 billion in 1995 (reflecting Iran's repayment of arrears) to a net inflow of $1.9 billion in 1996. Inflows nevertheless remained below the $4 billion a year reached in 1990-91. Net transfers represented only 0.3 percent of GNP in 1996, the lowest share among all developing regions and well below the 0.8 percent reached in 1990. The distribution of net transfers was relatively even in the region, although four countries (Iran, Libya, Morocco, and Oman) experienced significant outflows.

Debt and indicators

Debt continues to rise slowly. Total debt in the region reached an estimated $221 billion in 1996, up 2.2 percent over 1995. Most of the rise ($3.7 billion of $4.8 billion) reflected the increase in debt from Algeria. Otherwise, only Bahrain and Saudi Arabia registered increases of $1 billion or more, almost entirely bank lending to the private sector. Some countries in the region experienced significant declines in outstanding debt. The region accounted for 10 percent of the outstanding debt of low- and middle-income countries at the end of 1996. About three-quarters of the region's external debt was owed or guaranteed by debtor governments.

Slow growth of debt and higher exports lead to improved debt indicators. The aggregate ratio of debt to exports in the region fell from 133 percent in 1995 to 127 percent in 1996. However, Saudi Arabia's large weight and low debt to export ratio somewhat distorts the region's debt profile. Excluding Saudi Arabia, the region's debt to export ratio rose to 172 percent in 1996. The region is relatively dependent on official concessional assistance, with a larger share of debt outstanding on concessional terms (25 percent) than the average for low- and middle-income countries (20 percent).

The ratio of debt service to exports fell from 14.9 percent to an estimated 12.1 percent in 1996, well below the 16.4 percent average for low- and middle-income countries. This relatively low debt service ratio in part reflects a buildup of arrears of about $1 billion in 1996, but even full repayment of arrears would not have increased the ratio greatly. Only one country in the region (Republic of Yemen) underwent a formal rescheduling of debt service in 1996. Of the fifteen countries in the region, all but Algeria, Egypt, and Syria had debt to export ratios below 200 percent.

 

Aggregate resource flows

Net aggregate resource flows to the Middle East and North Africa rose to an estimated $10.9 billion in 1996, up sharply from their 1995 level of $2.4 billion and their 1990-94 average of $9.4 billion.

Official development finance rises but remains low. Official development finance to the Middle East and North Africa rose to an estimated $3.9 billion in 1996, up dramatically from the $1 billion in 1995 but still well below the $9.6 billion reached in 1990. The decline in official assistance (following the exceptional circumstances of the Gulf war) largely reflects a drop in grants, which fell from $8.2 billion in 1990 to $2.8 billion in 1996; concessional loans from multilateral and bilateral creditors increased slightly during this period. The 1990s have seen particularly sharp declines in assistance from official creditors to Bahrain, Egypt, Jordan, Morocco, and the Republic of Yemen. Official lending to the region is almost entirely in the form of grants and highly concessional loans. Net nonconcessional loans were negative in 1996.

Several countries improve their access to private finance. Private loans to the Middle East and North Africa totaled $4 billion in 1996 (compared with net repayments of $1.2 billion a year in 1990-92) as Algeria, Bahrain, Lebanon, and Tunisia greatly increased their borrowing from commercial banks. Bond issues also picked up, with issues from the region reaching $1.1 billion in 1995 and $0.7 billion in 1996, with transactions recorded by Lebanon and Tunisia in 1996. While the volume of bond issuances by the region remains low, accounting for only about 7 percent of net flows in 1996, issuances in 1995 and 1996 compare favorably with the net repayments of bonds in 1990-94.

Foreign direct investment rises but falls as a share of total private flows. Foreign direct investment increased 19 percent to an estimated $2.5 billion in 1996, with 80 percent of the region's net foreign direct investment going to Egypt, Morocco, and Tunisia. Many of the other countries in the region had net inflows of less than $100 million. Jordan and Lebanon are beginning to attract foreign direct investment, albeit at low levels. The rise in private-source debt finance has reduced the share of foreign direct investment in total private flows from 83 percent in 1991 to 35 percent in 1996.

Portfolio equity flows rise. Portfolio equity flows to the Middle East and North Africa reached an estimated $650 million in 1996, almost entirely a result of Morocco's privatization efforts and investments in Egypt's stock market. Although portfolio equity flows more than tripled over their 1995 level of $203 million, portfolio equity flows continue to account for a small share of the region's external financial resources. There are signs of increased attention to the region, however, including the startup of new investment funds focusing on the Middle East and North Africa.