The macroeconomic outlook widely varies across Arab countries with exogenous and endogenous factors affecting the performance of countries over time. The role played by oil and gas and the impact of protracted conflict are among the main factors behind such sharp variation in the region. In addition, the impact of COVID-19 on the Arab economies is already grave. According to the World Bank (2020a), the outbreak of COVID-19 and the resulting lockdown measures are likely to cost Arab countries around 3.7 percent of their collective GDP, the equivalent of around US$ 42 billion.[1]

The Arab region includes countries with the highest growth rates and highest GDP per capita levels in the world, as well as some with the lowest GDP per capita levels worldwide. The GDP per capita for the Arab region averaged US$ 6,610 in 2018 compared to the global average of US$ 11,317. The variation is huge within the region: Qatar holds one of the highest GDP per capita levels in the world (US$ 68,793) while Somalia is the poorest in the world ($ US 314).[2]

Oil and natural gas have played a significant role in such divergence across the region and in shaping the structure of the economies. On average, oil and gas represent between 30 to 60 percent of Arab countries’ total GDP. Oil revenues constitute 47 percent of government fiscal revenues for Yemen and 97 percent for Iraq with GCC (Gulf Cooperation Council) countries ranging between those two figures.[3] Sudan and Libya are similarly dependent on oil and/or gas in their economies. The percentage of oil rents to GDP in the Arab region is the highest in the world with an average of 21.4 percent, compared to the global average of 1.4 percent in 2018, peaking at 45 percent in Kuwait.[4]

Even in oil-importing economies, the indirect effect of remittances created by oil rents confirms the sensitivity of the majority of Arab countries to oil and gas rents: remittance inflows exceeded US$ 62 billion in 2018, making the Arab region one of the largest regions in the world in terms of sending and receiving remittances.[5] The value added recorded in the industrial sector is mainly attributed to oil and gas in the oil-exporting Arab countries.[6]

The Arab region recorded an average of 2.0 percent real GDP growth rate in 2019 (Projected at -5.0 percent for 2020) [7] compared to the global average of 2.7 percent (estimated at 4.3 percent in 2020) [8] The recent collapse of oil prices in 2020 is expected to deepen the recession caused by COVID-19 in the Arab economies. The International Monetary Fund (IMF) projections for 2020 are quite pessimistic for all Arab countries, except Egypt, envisioning negative growth rates ranging from -8 percent in Kuwait to -25 percent in Lebanon, and -66 percent for Libya.[8]

Public finance disparities are also wide. The average budget deficit reached 2.6 percent of GDP in 2018 up from 11.4 percent of GDP in 2016.[10] Latest figures reveal that Bahrain, Lebanon and Sudan suffered the largest budget deficits in the region, reaching around 11 percent of GDP in 2019, whereas Kuwait and Qatar enjoyed budget surpluses of around 4 percent of GDP in the same year.[8] This was mainly due to the collapse of world oil prices with more than 60 percent decrease reaching a low of US$ 20 per barrel in March 2020 compared to US$ 64 per barrel in December 2019[11], whereas the GCC breakeven price per barrel to balance their budgets is US$ 70 per barrel.[12] The budget deficit to GDP projections are likely to widen as a result of the deepening impact of COVID-19 crisis, oil prices’ collapse, and violent conflicts. It is projected to increase from -10.7 percent in the case of Lebanon in 2019 to -15.3 percent in 2020, and for Sudan from -10.8 percent to -16.9 percent. Countries that enjoyed budget surpluses are expected to suffer from a deficit:  in the case of Kuwait a surplus of 4.8 percent is projected to become a deficit of -11.8 percent between 2019 and 2020.[9] Similarly, debt varies from 72 percent of GDP in Lebanon to 4 percent in Sudan in 2018.

Wide differences also prevail in foreign direct investment (FDI) amongst Arab countries and over time. For example, United Arab Emirates ranked first in the Arab region in attracting FDI in 2018 with more than US$ 8 billion, while Yemen had negative inflow exceeding US$ 15 million in 2018.[2] The slowdown of the world economy reinforced by COVID-19’s effect is likely to suppress FDI flows worldwide The high concentration of FDI in oil and gas activities in the Arab region makes for a sharp projected decline: annual inflows of FDI are expected to decline by 45 percent in 2020 compared to 2019.[1]

In sum, Arab countries display wide disparities in their macroeconomic performance within the Arab region but also compared to global performance. The exact scale of these disparities may be uncertain, due to gaps in the economic data in conflict affected countries, the expected growth of the informal and war economies, and the disruption of the work of public institutions including national statistics bodies.